Wednesday, December 12, 2007

Evaluating Nonprofits for Charitable Giving

As we near the end of the year, many people pull out their check books and make gifts or additional donations to nonprofit organizations who serve people in need, who enrich our community through educational or cultural experiences or that share the values/goals of the donor in making our community or world a better place.

Twenty years ago, we gave with the implicit understanding that our donation would be used wisely to do the work of that organization. We likely received a thank you note and receipt for our gift but we did not scrutinize the organization or its efforts very closely. We somehow assumed that everyone at every not-for-profit worked for subsistence-level wages and always put their client's needs above their own. In fact, I recently heard a conversation about an elder donor who believed that the IRS only authorized organizations as not-for-profits if they met that standard.

Has the world ever changed... we now want to know how well an organization does their work, we want them to have exceptional staff - but to pay as little as possible to keep them, we want complete transparency in financial and leadership dealings, and may even want to specify how our donation is used.

With over 1 million charitable not-for-profits in the United States, how do we know which organizations are worthy of our investments? There are a number of rating organizations that are valiantly attempting to help address the need, but no one is quite there yet. And the biggest issue is how to define nonprofit effectiveness in both absolute and relative terms. How much should it cost to provide afterschool programs? how much more is it worth if the program graduates a high percentage of participants from high school? How do you value an afterschool program against an Aids prevention program or a Symphony Orchestra or a food bank?

On a national level, several services have been around for a number of years that focus on the financial aspects of a not-for-profit. They look at whether the organization completes the appropriate forms and follows financial "Best Practices". Some give extra points for organizations with an endowment because of the financial stability, some subtract points for an endowment since the money is not currently providing program services. Unfortunately, none of them even attempt to evaluate the quality of programs or the impact of the organizations - the real reasons we would choose to give. – The Better Business Bureau Wise Giving Alliance - The Evangelical Council for Financial Accountability

For general information about most established nonprofits -

Your local community foundation may have information that goes beyond the financial basics and be able to provide guidance.

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