Monday, December 29, 2008

Happy New Year

I am out of the office this week, but wanted to wish you all the very best in the year to come!

Wednesday, December 24, 2008

Charities & The Rules - Fox Business News Interview

An interview on Fox Business News regarding charities and the Madoff scandal on 12-22-08 - click here.

Monday, December 22, 2008

Feeling the Pain

See my brief comments on FOX News on 12-18-08.

Ten Ebeneezer Charities

Charities to avoid this holiday season:

While we urge you to assist charitable organizations whichever way you can this holiday season, it is an unfortunate reality that there are organizations (and non-profit leaders) with only their own best interest at heart, and not the people or causes they are beholden to assist.
While we do not rate the organizations listed below, either because they do not meet our criteria, or because we do not trust their data, it will be a wise decision to stay away from them all the same.

As you read this list, it is helpful to keep in mind how most public charities in America perform. Of the three and four star rated charities on our website:

74% spend less than 10% of their budget on fundraising costs
84% spend less than 15% of their budget on administrative fees
86% spend at least 75% of their budget on the programs and services they exist to provide
On average, these charities spend just 9 cents to raise one dollar in contributions.

In addition, most charities in America adhere to good practices and thus do not have paid relatives on their boards or staff. And, in all honesty, the typical charity in America has not been the focus of a criminal investigation.

1) ABC Humanitarian Trust
The Minnesota Attorney General's office filed suit against ABC Humanitarian Trust in 2007 due to the fact that no charitable activities were conducted with the proceeds of vehicle donations to this 501(c)(3) organization. The Attorney General's office alleges the Trust is running a used-car business and not a charitable organization. The organization also does not have a board of directors, its only officer and director is Sandra Belisle, who is named in the suit. The Foundation does not hold board meetings, and does not keep any accounting records.

2) California Organization of Police and Sheriffs
Even though endorsed by Governor Arnold Schwarzenegger on its website, COPS, a 501(c)(5) organization spends a dismal 18% of its budget on its programs, while also using aggressive professional fundraisers that try to pressure potential donors into making a contribution.

3) Firefighters Support Foundation
The Foundation, a 501c3 organization, uses professional fundraising organizations to solicit funds for it, but does not offer any way for donors to donate directly to the organization, and donors are not able to earmark their donations for any specific department. No financial information for the Foundation is available at this point, but the main professional fundraiser used on average sends only 13% of donations raised back to the organizations they were intended for.

4) Firefighters Support Services
This fairly new 501c3 organization has been linked to aggressive phone solicitations via a professional fundraiser, yet has not reported any contributions on it most recent tax return available. In fact, the only revenue reported comes from loans to the organization by its President and CFO. During this same time period, the organization's only expenses were for attorney, state and federal fees.

5) Foundation for Supporters of the Disabled and PSCH, Inc.
Ralph Farkas, Founding Executive Director of PSCH, Inc. resigned from his position in January, 2008. This in response to an investigation by the New York Attorney General’s office into the working of PSCH, Inc. and its non-profit fundraising arm, The Foundation for Supporters of the Disabled. The investigation uncovered that the Foundation benefitted Mr. Farkas, but not the disabled. Board members approved compensation packages out of line with the size of the organization. In addition, no funds raised by the Foundation ever reached PSCH. In fact, during an eight year period, only three $10,000 grants were awarded to other non profit organizations.

6) Homecare Workers Training Center
Tyrone Freeman, who founded Homecare Workers Training Center in 2000, has been accused by former employees of forcing them to partake in campaign efforts for political candidates, activities forbidden due to the nonprofit's tax exempt status.

7) Hope Cancer Treatment Foundation
The Hope Cancer Treatment Foundation came under investigation of the Attorney General recently. The unregistered Foundation was ordered to pay retribution to donors that bought tickets to a ‘Black and Gold Bash’ that was supposed to help victims of cancer by raffling of Pittsburgh Steelers memorabilia. In addition to having the repay almost $270,000 in purchased tickets, President Robert Connell was also ordered to refrain from running any other charitable organizations. The Hope Cancer Treatment Foundation has been ordered to close and dissolve within the next couple of months.

8) Joe Pollock Hill Country Fund
The Fund, which ran a 'Brown Santa Toy Drive' under leadership of Burnet County Sheriff Joe Pollock, is slated to close December 31, 2008 according to Mr. Pollock, who lost a bid for re-election, and leaves office on that day. The Fund is now being investigated by the Texas Attorney General's office under the suspicion that toys and funds are missing.

9) People Against Drugs Affordable Housing
This 501(c)(3) organization is currently being investigated by the Attorney General's office. The agency is charged with illegally using charitable funds to support the Founders salary, support a NASCAR Truck series team, and advance the Founders' political career. Analysis of the most recently available tax return (no returns have been filed since 2005) shows that the largest program expense is for 'race parts'. We are not exactly sure how race parts tie in with the purported mission of 'providing and supporting drug free housing to qualifying low income individuals’. Founder Gene Christensen received $181,000 for his troubles during that year.

10) Upper Des Moines Opportunity
This 501c3 organization is currently being sued by its former executive director, Nancy Schmitz, who claims she was fired by the organization after uncovering financial misconduct. According to the lawsuit, Ms. Schmitz alerted the Iowa organization to improper loans. The state auditors office uncovered federal grant money had been used to supply the loans, in violation of the grant guidelines. The loans have not been explained on the organization's tax returns.

Note: Thanks to Program Analyst Leonie Giles for compiling all of this information!

Monday, December 15, 2008

Is Giving Recession Proof?

A couple of weeks back; I had my first taste of national TV on Fox News. After I had a ton of make-up placed on my face, they took me to a dark room to stare into a monitor. The topic was how charities are faring in the economic downturn. While I was humming along giving my answer to the reporter (Bill Hemmer - who I never saw in person, just his face on the monitor), explaining why it is and will be a "horror show", he cut in. He said, "I found this surprising though. Historically charitable giving is recession proof they say." He went on to describe research that shows that in four out of five past recessions, giving did not decline. I gave him a 20 second answer to why this is not true. Here I would like to explain a bit further, because I worry that such research can be quite misleading and will give some the false impression that all is well in the charitable sector.

The briefing Mr. Hemmer is referring to was put out by The Center on Philanthropy at Indiana University who in turn refer to Giving USA as their source. So I went and looked up the information. At the conclusion of the very first paragraph in the briefing summary it states that, "In general, during economic downturns, giving tends to decline, after adjusting for inflation." Later on in the briefing they note that, "most households continue to give during times of financial insecurity, although some give less". In reading on, I think the misunderstanding stems from the fact that the authors are trying to say that giving does not decline in lock step with economic downturn. People will give more than you would expect, even though their giving decreases. So in a sense, individual giving is recession resistant, but not recession proof. In the case of human services charities, private giving may even go up during a recession, however it still does not keep up with the increase in demand for their services. One of the authors of the briefing also warned that, historical research aside, "we may be entering uncharted territory" given the severity of the current economic crisis.

When we move out of the ivory tower and ask the charities themselves what is going on, the reality of this uncharted territory becomes all the more clear. A recent national survey completed by the Bridgespan group concludes that more than half of the charities they spoke to say the country's economic woes have already led to cuts in the money they receive from private and government sources. The survey authors noted in a recent interview that "It's being felt in a way that is different from previous downturns... many nonprofit groups appear unprepared to weather the troubling times." We at Charity Navigator are currently conducting our own survey on the subject. As of today, 720 charities have responded. On average, they tell us that they anticipate a decrease in funding this year-end giving season (as compared to the 2007 year-end giving season) of 15%.

Another fact that can get lost in the Indiana University briefing is that, when these researchers are talking about giving, they mean private contributions (individual, foundation and corporate giving). This is only 23% of the revenue that the charitable sector relies upon. The rest of charity revenue comes from government contracts, fees and other sources. All you have to do is read any paper today to see the widespread across the board cuts that government is having to make at all levels. Furthermore, fees (what a person must pay the charity for a service such as tuition or health care bills) are often not thought of as part of the charity pie. However, it is a massive part of the revenue of the sector and you can bet that as people cut back, they are dramatically impacting this source of funding. For example, people are likely to delay preventive health care if money is tight. Employers may cut back on or eliminate certain health benefits or tuition reimbursement. Students may delay entering higher education or opt for a less costly institution. Lastly, almost one dollar of every ten that charities get comes from the "other" category of revenue that includes investment income. Guess where that is going? Down the tubes! The implications of the decline in revenue from all these sources could be disastrous.

So, although I say it with regret, the answer to the question - Is Giving Recession Proof? - is a resounding, "NO WAY!" Furthermore, giving may be recession resistant but overall revenue to most charities is in serious trouble.

Note: After I wrote this I got called back in to FOX News again! The show will air this coming Thursday evening at around 7pm. It covers the same ground but hopefully the information will be more clear this time. The make-up however, was just as thick.

Monday, December 8, 2008

A Measure of Outcome

Charity Navigator evaluates far more charities every year than anyone else. Every day during the holiday season we are quoted by a number of media outlets somewhere in the country. Furthermore based on surveys we have conducted we can see that the outcome of our effort is to have tremendous influence on the giving behavior of donors to US based charities. That is a major part of our core mission.

We believe that our rating system gives a decent snap shot of the financial efficiency and capacity of charities in every sector from health care to animal welfare, from human services to the arts and humanities. However, this is not a time for us to rest on our laurels or to assume that we have got the whole picture in hand. I noted a while back that one of my core values is the belief in a continuous improvement process. That means we need to continually strive to make our services better. I believe that we are now at a point of opportunity to do just that by expanding our ratings into a whole new dimension.

We have advised donors that to make their giving decisions, our ratings are a "part of the puzzle". We specifically recommend in our 10 Best Practices of Savvy Donors that, in addition to reviewing our charity ratings, donors (among other things) should:

"1. Be Proactive In Your Giving - Smart givers ... are specific about the change they want to affect. For example, they don't just support generic cancer charities, but instead have targeted outcome goals for their giving, such as providing mammograms to at-risk women in their community....

8. Start A Dialogue To Investigate Its Programmatic Results - Although it takes some effort on their part to assess a charity's programmatic impact, donors who are committed to advancing real change believe that it is worth their time. Before they make a contribution, they talk with the charity to learn about its accomplishments, goals and challenges. These donors are prepared to walk away from any charity that is unable or unwilling to participate in this type of conversation."

"Programmatic impact", "accomplishments, goals and challenges" all relate to one degree or another to the outcomes of the work of the charity. What is an outcome? I believe a good definition is given in the book, Quicker, Better, Cheaper? (Edited by Dall W. Forsythe) "Outcomes are the events, occurrences or changes in conditions, behavior, or attitudes that indicate progress toward achievement of the mission and objectives of the program. Thus, outcomes are linked to the program's (and its agency's) overall mission - its reason for existing."

Over our six plus years, we have come to the conclusion that some donors are not taking the additional steps we recommend to assess outcomes and are relying almost entirely on our ratings. In addition, while we assume that financially strong organizations are far more likely to be effective in their outcomes, it may not always be the case. Alternatively, charities with mediocre financial strength may not necessarily have mediocre outcomes. Therefore, to help donors know with greater certainty which charities are achieving program results, we are exploring integrating outcome measurement into our rating system.

As a first step, we have begun conversations with a variety of experts in the field to see the current state of such measurement tools. In large measure, from what I have seen so far, it appears that the field is in its infancy and we will have to do some heavy lifting to get a meaningful tool that can be broad enough to evaluate all categories of charities, while not becoming overwhelmingly cumbersome and complicated. In other words, this is going to take us some time to develop. It could be years rather than months. In the meanwhile, we have a number of other efforts we will be making along the way to get the ball rolling. I will give you the details of these efforts in future blog entries.

Another challenge that leads us to the conclusion that developing this tool will take time is the fact that there is no standardized data source from a third party to get the information (like the IRS 990 that we use for financial analysis). Therefore, we will probably need to gather the information directly from the charities we evaluate. To say that many of them will not be thrilled by such a prospect is an understatement! However, at the end of the day, I think that most will welcome this expansion of our rating system with the hopes that it will more comprehensively capture what they do and how they do it. It will also further our core mission of providing guidance to donors on making intelligent giving decisions.

The leadership of Charity Navigator believes it is well worth the challenges it entails and as a result we are setting a goal over time of offering an expanded rating system to more comprehensively evaluate nonprofits and separate great organizations from the rest. We look forward to collaborating with our colleagues who are working on this issue to improve the state of charitable giving. I am certain that we are up to the challenge and will get to the right outcome as soon as we can!

Monday, December 1, 2008

Donor's Plea - Stop Sending Me Mail!

A few months back I wrote a blog entry here called CEO Compensation - Donor Frustration. I noted in the entry that the most common donor feedback we get is that many CEO's are making too much money. Today I will review the second most common bit of feedback we get - charities are sending way too many donor appeals to people. One of our users has been sending us a running tally of the letters he gets.

He writes as follows:

"For one year ending on 11-8-08 I recorded our receipt of mail from charitable organizations. A summary is below. We contribute to most of these. The receipt of mail was not affected by our contribution or the timing of same.

This data shows an incredible waste of material and postage, even by some 4-star charities."

The letter goes on to document a long list of charities, many of whom send mail out at least monthly to this individual.

Some fundraisers have the philosophy that more is better. Research does show that the most typical reason a donor stops giving is "losing touch" with the organization. Clearly in the case above, it is a matter of too much touch! This problem can become even more acute if the charity does not have a donor privacy policy. In other words, charities should commit to you that they will never share your contact information with others. At minimum, they should have an opt-out policy. We provide this information on the rating page for every charity we evaluate. In the near future this information will also be included in our rating system.

Fundraising is as much art as it is science. It takes practical judgment on the part of the staff to know the balance between enough and too much mail. If the mail this individual receives each month is a request for a donation that is excessive. Usually solicitations should occur no more than quarterly. If the mailing is to report on the agency's activities and to let the donor know what their money is being used for, it may be appropriate. However, even then an email is a much more cost effective vehicle unless the donor prefers a hard copy.

At Charity Navigator we have decided that, for now, we will only mail out two donor solicitations per year. We also plan to send out a report to our donors on a monthly basis and will ask people to let us know if they prefer email or a hard copy. There is no hard and fast standard, but if you get feedback from your donors to slow it down or cut it out, they should be listened to carefully and responded to promptly. Thankfully, we do have some good rules for donors to follow to help stop unwanted mail solicitations - click here to read it. Unfortunately, many charities do not follow these rules --at best, their donors remain loyal with a very sour taste in their mouths or, at worst, donors make a hasty retreat for the exit.