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| Best Practices: Philanthropy |
Measuring Up
Matthew Schuerman
10/01/2005
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For years, many philanthropists assumed they could simply look to a charity’s
balance sheet, administration-to-program spending ratio and reputation to
determine if it was effective and trustworthy. Until, that is, some of the
country’s most reputable nonprofits—including the Nature Conservancy and the
Washington, D.C.-area chapter of United Way—became embroiled in
scandals.
TOP VIEW
Analyzing nonprofits requires more than scrutinizing the balance sheet. To
determine if an organization is managing its contributions well, philanthropists
must ask the right questions. The queries suggested here are not foolproof
insurance against unpleasant surprises, but they can reduce donor risk. |
Now, philanthropists realize that the numbers charities publish
often fail to reveal how they are managed. Sophisticated donors are looking
beyond coarse measures such as admin-to-program spending and beginning to demand
that charities prove that contributions are being used intelligently. There is a
growing realization, for example, that it is justified for a charity to spend
funds on often-expensive independent audits and evaluations in order to ensure
financial propriety, even if these line items increase administrative
costs.
Of course, these shifts do not spell the end of fastidious number
crunching. But when it comes to predicting the future fortunes of a nonprofit,
inspecting its books is just the beginning. Here are 10 more questions to ask,
based on a survey of donors, foundation executives and philanthropic
advisors.
1. What Is It You Actually Do? Mission statements can be
misleading. In fact, they usually are, because they paint the mundane, albeit
useful, daily activities of an organization with rhetorical flourishes. Many
overpromise. Drilling for specifics helps single out nonprofits that try to
twist their identity to fit the donor’s preferences. “Let’s say a nonprofit is
interested in mental health issues,” says Iris Krieg, a philanthropy consultant
who has helped manage the charitable giving and screened grant recipients for
Chicago’s Pritzker family. “A nonprofit providing employment counseling might
say theirs is really a mental health organization, because it does offer some
psychological counseling. But that doesn’t make it a mental health
organization.”
2. Why Are You Unique? Even after a philanthropist narrows his
giving options to two or three priorities, he will still be left with many
choices. For example, according to the Chronicle of Philanthropy, in the past
five years alone, 30,000 groups dealing with public and private education gained
nonprofit tax status. “There is the equivalent in charitable giving of, ‘My
brother-in-law has a stock for you,’ ” says Tim McCarthy, treasurer of a
foundation backed by the family behind Bumble Bee Seafoods. “The first
organization you find in a field is not necessarily the one that’s most
experienced or the one with the greatest track record.”
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