In (the April 27) edition of Springfield Business Journal, we heard from several nonprofit executives about the myths and challenges surrounding nonprofits in the Ozarks. In the [
CEO Roundtable] feature, local experts talked about how nonprofits are judged by the ratio of their budget spent on administrative and fundraising expenses and how that often doesn’t give a complete picture of nonprofits’ performance. I couldn’t agree more.
Charity Navigator, the nation’s largest independent charity rating service, evaluates charities based on both financial health and – at least equally important – accountability and transparency. We talk a lot about the financial piece, but often the real story is related to how accountable and transparent a nonprofit is with its stakeholders and potential donors.
One value in looking at this performance metric is that accountability and transparency puts all rated nonprofits on equal footing. If you look only at financial health, you’re probably missing that Charity Navigator sets different standards for various types of nonprofits in an effort to provide fair and unbiased ratings. Food banks, for example, are expected to spend more on programs and less on administrative and fundraising than charitable foundations. The rationale is that food banks need food, trucks, drivers, warehouses and equipment that are expensive to acquire and maintain. A charitable foundation, however, probably needs to spend a more significant amount on fundraising and the administration of funds, simply by virtue of what they are set up to do. These ratios are explained on Charity Navigator’s website, if you’re willing to read far enough. Most of us don’t, and that’s when we end up comparing apples to oranges when analyzing program costs for different charities.
Accountability and transparency metrics are equal across the board. Charity Navigator defines accountability as an “obligation or willingness by a charity to explain its actions to its stakeholders.” Transparency is defined as an “obligation or willingness by a charity to publish and make available critical data about the organization.”
Basically, you want to know if the charity follows good governance and ethical best practices, and if the charity makes it easy for donors to find critical information about the organization. To measure this, Charity Navigator analyzes nonprofits by 17 metrics, ranging from the presence of an independent board to having a written donor privacy policy on its website. It pulls some of this information from the Form 990 charities are required to file with the IRS. A potential donor should be able to easily find such information as a board member listing, audited financials, Form 990s and a privacy policy on a charity’s website. If this information is not readily available, that can indicate potential problems. Often this information isn’t included on a website simply because it’s overlooked, but the fact that it’s been overlooked can indicate a problem with the administrative capacity of an organization. The devil, as they say, is in the details, even in charitable work.
The bottom line is that if a charity has a lower accountability and transparency score, it indicates that charity may not be providing all of the information a potential donor needs to make a giving decision. That’s something that can be measured across the wide range of charities, and it may be a better indicator of the health of an organization than a spending ratio alone.
Bart Brown is president and CEO of Ozarks Food Harvest, a Springfield-based food bank serving southwest Missouri. He serves as president of Feeding Missouri, a statewide association of food banks, and recently served on the national Hunger Contract task force for hunger relief charity Feeding America. He can be reached at bbrown@ozarksfoodharvest.org.[[In-content Ad]]
