Last week, there was an interesting Wall Street Journal article on giving, in time for the holidays, with the fun name Tis the season to be stupid . Of the ten “financial mistakes” that the author, Shelly Banjo, details people often make but can avoid, the one that piqued my interest most was #7 – Fixating on Charity Ratings:
Over the years, a number of websites, such asCharityNavigator.org and GuideStar.org, have sprung up to help donors evaluate a charity's administrative, program and fund-raising expenses. While it's important to look at the ratings, nonprofits have become experts in gaming the rating system. For instance, groups have been known to disguise fund-raising mailings as educational materials and pass fund-raising costs along as program expenses.
“Gaming the system?” Nice phrase. I’d bet they prefer to call it “creative accounting.” To be fair, some nonprofit accountants are more creative than others, depending on their clients and, of course, the quality of the accountants themselves.
But what’s really going on that we're being warned about? Is the "gaming" for some nefarious purpose, such as stealing donor funds? Or is it to deal with a “reporting/grading” system that’s broken? Having worked with many nonprofits for year I believe that – in most cases – it’s the latter, not the former.
Shelly seems to understand this, too. For example, she sees the reporting/grading system has its problems, quoting a nonprofit advisor:
"Just like in any business, donors can't ignore the necessary administrative costs nonprofits have to efficiently and effectively deliver services," says Chris Page, senior vice president of Rockefeller Philanthropy Advisors.
And she tips her hat to the executive salary issue:
“Don't avoid giving to a charity only because a CEO makes over $100,000,” she cautions. “The median CEO salary for charities with total expenses between $3.5 million and $13.5 million is nearly $160,000, according to Charity Navigator.”
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