Thursday, March 27, 2014

State of Nonprofits: Nudity, Ghosts and Perpetual Indulgence

Originally published on Linkedin on March 25, 2014.

What do nudity, ghosts and perpetual indulgence have in common? They relate to the core mission of a variety of US registered (IRS-approved) public charities. This is no joke! If you use these keywords to do a search of all the 1.4 million plus US-registered nonprofits on theCharity Navigator website, you will find organizations that include: nudist research libraries,ghost hunters and various chapters of a worldwide coalition of the “Sisters of Perpetual Indulgence” (they state that they dress in drag as nuns to "use humor and irreverent wit to expose the forces of bigotry, complacency and guilt that chain the human spirit" as well as raise money for certain causes). Since they are all public charities – aka 501(c)3 nonprofits – it means that not only do these organizations not pay taxes, but you also can get a tax deduction if you donate to these “worthy” causes.
Some observers have given these kinds of wacky – at least on the surface – examples of charities as proof that we have too many nonprofits in the USA. This evidence is bolstered by the fact that the number of nonprofits has risen dramatically over the past decade or so, while the for-profit sector has been in the doldrums. Some experts argue that it is not in our societies’ best interest to allocate precious philanthropic resources to organizations of this ilk. They would further suggest that all of these groups could function just fine without that nonprofit designation. The nudists would pay the full freight to get their research libraries maintained, the ghost hunters would still find willing clients and the sisters would still perpetually gather to promote their indulgent lifestyle and raise funds for causes they care about.
However, I think that all of these kinds of seemingly bizarre charities are really more a symptom of the problem rather than the main event. Nearly half the charities in the USA are roughly $50,000 or less in annual revenues and almost all nudist, ghost hunting and perpetually indulging groups fall into this category. In fact, collectively roughly 94% of US charities garner only about 6% of the approximately $1.6 trillion that comes into the public charity (501(c)3) portion of the nonprofit sector each year. So if we follow the money, we need not be too concerned with an occasional nudist librarian, hunter of Caspar, or self-identified fundraising drag queen. So where DOES the money predominantly go? The Urban Institute estimates that 4% of US public charities garner 86% of that $1.6 trillion each year (I believe it is only 1%, but why quibble). So, the much larger and more important question is, “Is there a problem among the big guys?” I believe so!
A case in point can be found in the operations of some nonprofit hospitals. These entities are all in that top revenue-generating 4% of charities. Analysts have noted for many years that these hospitals sometimes do not show evidence of operating in a more charitable way than their for-profit counterparts. In particular, the charity care that these nonprofit hospitals provide (which is supposed to be one of their distinguishing features) is sometimes no different than the for-profits'. In these instances, it appears that the only difference is that they have a strategic business advantage over the for-profit hospitals because they do not have to pay taxes. Is providing tax exemption to the subset of nonprofit hospitals that behave just like for-profits an appropriate allocation of precious philanthropic resources? I don’t think so.
So what is to be done? We need policy changes at the federal level (and at the state level) to much more clearly delineate what is a truly charitable (501(c)3) undertaking which provides a public benefit and warrants this type of nonprofit tax exempt status. In addition, we need the regulatory body that oversees tax exempt organizations, makes these determinations and then enforces them, to be as apolitical as possible and not housed within a unit of government that has as its core purpose to collect tax revenue! That is a herculean task and not likely to happen any time soon (although the battering the IRS is taking at the moment could be an opening for such a discussion) but I see this as critically important to get past the current madness. Therefore, I think that all of us who care about helping others through philanthropy should be advocating for this change.
At the same time, there is a second effort that we can work toward that requires no government intervention. This is where the focus on results that I discussed in last month’s article comes in. I have a dream that someday every charity of a certain size (certainly that 4% of big charities at the very least) will be required every year, to not only have an independent accountant conduct a financial audit, but also to conduct a results audit. Managing, measuring and then reporting on results performance in a standardized, objective fashion could revolutionize and positively transform the operation of public charities. On top of that, we would want funders to be engaged in the discussions and decision making process for setting these standards. Through this process the majority of foundation funders might come to fully understand how it is in their best interest, as well as their grantees, to replace the current chaos of reporting to them on widely varying metrics with a collectively agreed upon focus on what matters most – mission-focused results reporting. Furthermore, the charities would be willing to pay for these results audits themselves because they would see it as a time and resource saver. That is because all or at least a significant number of the funders would agree to use these reports as a common standard. Ah what a day that would be! I hope to live to see it and will do my part to try to make it happen. I hope you will too.
Photo: torbakhopper/Flickr

Friday, March 7, 2014

Pennies to Charity and Tens of Millions to Telemarketers: A Report from the NY Attorney General's Office

Originally aired on The Willis Report on March 5, 2014. 

A recent report released by New York Attorney General Eric Schneiderman revealed that, on average, approximately 62% of the monies raised by charitable donations made through telemarketing campaigns in that state went to the telemarketing companies rather than to the charities. I address this issue as well as discussing ways to ensure that your charitable donations are reaching their intended recipients during this video clip from Fox Business' The Willis Report

Monday, February 24, 2014

The Road Beyond Nonprofit Overhead

Originally published on LinkedIn on February 18, 2014.

Last summer I co-signed a letter to the donors of America called the “Overhead Myth Letter.” The letter has gotten a fair amount of attention within the US nonprofit sector (at least amongthe 1% of US charities that get 86% of the funding each year). In addition, representatives of some of those larger charities have told me that, at least among some of their big donors and family foundations; it has been a helpful piece of information. The letter urges donors to look at “other factors of nonprofit performance” beyond overhead, because we believe that “focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance can do more damage than good”. However, for the average donor to charity, the letter may not be all that helpful, because the availability of information on “other factors” is few and far between.

This is especially true when it comes to the most important information of all – data on the results (including outcomes and impact) of a nonprofit’s work. After years of research we have conducted at Charity Navigator, we have come to the conclusion that the vast majority of nonprofits do not publically report meaningful information on their results. In addition, we suspect that the vast majority of nonprofits have NO SUCH DATA to share with the public! That is because they have never built the required performance management systems to measure what they do. Therefore, when I signed the Overhead Myth letter with my colleagues, I said to them, if we are not careful and take at least one additional step, we will have possibly done more “damage than good” ourselves. I said that because following the advice in the letter could lead the donors of America to a dead end. On the one hand we tell donors - don’t consider overhead as most important, but on the other hand - we do not have a place for them to go to get what is most important to consider. This could lead to nonprofits being even less accountable to donors than they are currently. Not good!

I do not mean to imply that it is entirely the fault of nonprofits for this state of affairs. In fact, there is a perfectly logical yet tragic reason to explain (but not excuse) why nonprofits are in this situation. The vast majority of funders do not provide the necessary resources for nonprofits to build the required performance management systems so they can provide meaningful information on their results. Although nonprofits are usually required to generate an endless stream of reports to their funders, they usually are more focused on activities and outputs rather than real evidence of social value (meaningful change in communities and people’s lives). At the same time the funders usually do not supply the resources (money and technical expertise) to help nonprofits develop the capacity to manage, measure and report on their results. So even when the funders ask for such information, the nonprofits typically end up going through a kabuki dance to appear to supply it, when in fact it is simply repackaged outputs.

However there is good news on the horizon on a variety of fronts. A lot of people are working hard to make more information on nonprofit organizations' results available to the public. In addition, there is a growing demand that funders (especially foundations) not just ask for nonprofits to report on their results, but show a willingness to provide the resources for nonprofits to build their capacity to better manage and measure what they do. So do not despair! Here are just a sampling of the efforts that are underway to provide nonprofits with the tools and donors with the information they need:

For Nonprofits: Check out these resources that can help you to get on the road to managing and measuring your performance: (1) Perform Well (2) Keystone Accountability (3) Charting Impact (4) Social Solutions (5) Root Cause (6) Leap of Reason (7) The Center for What Works and (8) The Nonprofit Outcomes Toolbox. Whatever size and cause area your nonprofit works in, there is something available on this list to get you started.

For Donors: I admit I am biased but the only resource I know of that has the depth of analysis and scale (i.e. number of charities rated) that is working on compiling information on results for the average donor is Charity Navigator. Specifically, we call our new rating system CN 3.0. You can check it out here.

Finally, at the beginning of this article I mentioned that there needed to be at least one more thing that we signers of the Overhead Myth letter needed to do. That is, to write a second letter to the Foundations and Nonprofits of America, urging them to make sure that they do whatever it takes to build the capacity to manage and measure results and to then supply that information to the donors of America. THAT is the road beyond nonprofit overhead!

Photo: Saad Faruque/Flickr

Friday, February 7, 2014

Technology is an Important tool for Charities that Want to be more Mission Driven

This was originally posted as Transforming Charities into Being More Mission Driven with the Help of Technology on TechSoup.

US charities of almost every size  (although especially the 50% of them whose budgets are $50,000 or less) complain of tremendous resource scarcity as they try to help solve some of our world’s most pressing problems. The movement to encourage charities to become more outcome focused (and thereby mission driven) has been seriously hampered by these resource constraints. More specifically, how can you build a performance management system in your organization to measure outcome indicators and focus staffs' efforts on your mission, if there is no funding to do so? More and more funders are asking for this kind of information, but most of them still provide nothing (money or expertise) to make it possible to manage and measure performance. The typical response of most charities is to try and repackage existing data to meet the rising requirements. In other words, we continue to promulgate a “garbage in, garbage out” system and meaningful reporting on results remains a distant goal.

There are some hopeful signs to help charities overcome this dilemma and become early adopters of building internal systems to become truly high performing nonprofits that provide the greatest social value (i.e. meaningful change in communities and people’s lives). One effort to help can be found in a letter that I signed, along with my colleagues at Guidestar and the BBB Wise Giving Alliance. It is called the overhead myth letter and can be found here. This letter can be used with foundation and individual funders to say, we need more overhead to build the infrastructure to measure our outcomes. Then we can provide you with the most meaningful measure of our performance rather than just secondary data on financial inputs.

Another great effort can be found in the work of a web site called PerformWell. The agencies working on this site are attempting to assist charities in identifying good outcome indicators based upon evidence based models that have been proven to work in specific cause areas. You can check them out here. In addition, I believe a relatively low cost tool that is nearly universal in applicability for measuring outcomes is via surveys of beneficiaries (sometimes called constituent voice). Keystone Accountability is working to create a web site of tools to help charities implement meaningful surveys. They offer a free tool you can check out (here) as a starting point. Furthermore, one of the funders of PerformWell is a group called Social Solutions. They provide software and consulting assistance to help you implement an outcome focused performance management tool.

We at Charity Navigator are hoping to develop a resource directory of the aforementioned and other tools for charities to help them get on the road to better results. To learn about how we have begun to evaluate charities' results reporting, read our one page summary (here) and have a look at the 600+ charities we have already evaluated on these new results reporting metrics (here).

Finally, we believe that all of these resources reflect the power that technology is playing in helping charities to become more performance driven and results focused by driving down costs and increasing the ability to compile and manage data much more quickly and easily. We urge you to take the perspective of doing “whatever it takes” to find the tools, expertise and funding to get on the road to measuring and managing your programs in the most meaningful way possible so that you can help more people and communities. I assume that all of you who are reading this share the mission as members and/or supporters of the nonprofit sector. I commend all of you for the good works you do each day in meeting that mission. I hope that you can find new ways to use technology more than ever to make your outcomes even more profound!

Friday, January 24, 2014

Charitable Giving Results and Forecsts

This week, Tony Martignetti Nonprofit Radio hosted a presentation of Atlas of Giving estimates for charitable giving in 2013, our collective reactions to it, as well as our thoughts on what's in store for 2014 regarding charitable giving and trends in the nonprofit sector more generally. I participated in the conversation along with Marcia Stepanek, New Media Faculty & Advisor at the New York University Heyman Center for Philanthropy and Rob Mitchell, CEO of Atlas of Giving

The video below is one hour in length. The first ten minutes or so of the video is a presentation by Rob Mitchell of Atlas Corp, followed by our 50 minute discussion. 

Wednesday, January 8, 2014

Tips for long-term donations

The traditional year-end charitable giving season may be over, but now's not the time to forget about our charitable passions and social investments. This is precisely the time to establish your philanthropic plans for 2014 and beyond. Watch this clip from The Willis Report where Ken explains how you should go about finding a charity to invest in long-term.

Monday, January 6, 2014

How to Choose a Charity That Delivers

Studies show that, in terms of voluntary contributions, Americans are the most charitable people in the world, but a change to charitable tax deductions may reduce the overall amount given to charity by billions. Watch this PBS Weekend NewsHour video clip where I explain how to choose a charity which provides the best giving value per dollar and the implications of potential new tax rules.