April/May 2008 |
Nonprofit watchdogs Nonprofit watchdog agencies are on the rise, becoming more prominent in the past five years than ever before. These independent organizations gather resources not only to help donors select fiscally responsible organizations for their charitable giving, but also to provide information to media, legislators and the philanthropic community as a whole. Here’s what you need to know about the leading watchdogs — the Better Business Bureau Wise Giving Alliance (BBB Wise) and Charity Navigator (CN) — and how they go about evaluating not-for-profits. Bred to sniff out the subpar How did these watchdogs come about? Several scandals early in the decade, such as the alleged mismanagement of donations at the Red Cross after 9/11 and the perceived excessive lifestyle of executives at the national United Way office, have created public demand for more scrutiny of nonprofits of all sizes. In addition, as the Sarbanes-Oxley Act has bolstered public company transparency, Congress and the press have begun to focus more directly on the activities of not-for-profits — particularly those receiving federal (or other government) funding. With all of this recent attention, donors and funding sources of all types want to make sure their dollars are being spent responsibly. This is where the watchdog agencies come into play. Both BBB Wise and CN were developed to provide readily available resources to boost public trust in nonprofits. Their other aim is to guide the public in evaluating the financial health of nonprofits they might support. BBB Wise Giving Alliance BBB Wise was formed in early 2001 by the merger of the National Charities Information Bureau and the Council of Better Business Bureaus’ Foundation. The agency sets standards for accountability in charities and evaluates not-for-profits that report against those standards on a voluntary basis. BBB Wise also educates donors by supplying information on intelligent giving practices. Its services are free of charge to both the charities and the public. BBB Wise’s Standards for Charity Accountability were developed with input from many stakeholders and measure a charity’s 1) governance and oversight process, 2) spending and program effectiveness, 3) willingness to be transparent and disclose information, and 4) approach to fundraising. As many as 2,000 national charities are listed on the BBB Wise Web site at www.give.org. Each charity provides the information voluntarily, and BBB Wise reviews it before adding the organization to its Web site. Included in the listing are contact information, BBB Wise comments, evaluation conclusions, a program description and financial information, governance details, fundraising methods, tax status, and a financial summary. Donors use the Web site to evaluate their charity donation decisions. BBB Wise publishes specific information to answer questions submitted as well as the BBB Wise Giving Guide. National charities also have the option to apply for the BBB Wise Giving Alliance Charity Seal, once they meet all of the Standards for Charity Accountability. This designation can be used as a part of their marketing materials for an annual fee. Charity Navigator CN’s mission is to guide intelligent giving by providing information on more than 5,000 charities and by evaluating each one’s financial health. Also founded in 2001, CN has become the largest evaluator of charities in the country and is a source of data and analysis for media, government agencies, nonprofit managers, grant makers and others. The agency uses an objective, numbers-based rating system to assess each organization’s financial health by evaluating how the charity functions: Day to day (organizational efficiency). CN looks at the percentage of total expenses spent on programs, administration, and fundraising plus the amount spent to raise one dollar (its fundraising efficiency). Over time (organizational capacity). CN measures the average annual growth of operating revenue and programs and services expense over the past three years and the working capital ratio to total expenses. Each charity is rated on these points and is compared to similar organizations as well as its own historical data. Contact information, summary revenue and expense volume also are noted for each not-for-profit. Information is obtained directly from Form 990. It usually takes the IRS two to three months from the time your 990 is filed to forward it to CN and another month for the information to be updated. As a result of the evaluation, a charity is assigned from zero to four stars. Charity Navigator doesn’t accept funds from the not-for-profits it evaluates. Nor does it charge users a fee for the service. The information is available at CN’s Web site, www.CharityNavigator.org, which also presents articles on charitable giving and other issues important to the nonprofit community. Only included in CN’s listings are nonprofits exempt under Internal Revenue Code Section 501(c)(3) that have more than $500,000 in public support and have filed Form 990 for the past four years. Do you measure up? These two watchdog agencies, along with a number of other smaller groups, focus on an organization’s accountability, efficiency and capacity from a financial perspective. By measuring up to their standards, you can create an image you can use to your advantage in your organization’s fundraising and marketing. • |
Making charities financially accountable The BBB Wise Giving Alliance (BBB Wise) Standards for Charity Accountability’s finance section outlines seven requirements. To meet the standards, your nonprofit must:
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