Reframing the Discussion about Nonprofit Effectiveness

Posted by on November 29, 2010

Nonprofit marketing group criticizes watchdog groups

The Nonprofit Federation, a program of the Direct Marketing Association, has issued drafts of two reports by scholars, Reframing the Discussion about Nonprofit Effectiveness, who say that well-known nonprofit watchdog groups use evaluation systems that are confusing and simplistic.

http://www.nonprofitfederation.org/sites/default/files/Executive_Summary_Reframing_the_Discussion_about_Nonprofit_Effectiveness.pdf

The reports also say that because the organizations are influential, charities often take steps that are not smart in the long-term simply to garner high ratings.

The organizations evaluated include the American Institute of Philanthropy, Better Business Bureau’s Wise Giving Alliance, and Charity Navigator.

One of the studies, conducted by the Transnational NGO Initiative at the Moynihan Institute of Global Affairs at Syracuse University, was based on in-depth interviews with top leaders from 152 nonprofit organizations.  It said that watchdog ratings may be biased against smaller organizations since economies of scale make larger charities seem more financially efficient.  It said that some of the groups also “fail to provide adequate guidance about what their ratings measure.”

The study also said that one organization scores organizations that work on different missions in different ways, and that another adjusts several of its standards if an organization protests or argues for special accommodations, the report.

The study also noted that lack of good data hinders the ability the watchdog groups to put forth information that can be easily consumed and understood by donors. Most of the watchdogs rely on the IRS Form 990, which has financial data, and information from charity websites.

The oversight groups were also criticized for placing too little emphasis on programs’ operations and outcomes. “Financial health is important,  the study’s author wrote, but “it’s only one measurement of a broad spectrum of how organizations work,” says Ms. Sowa.

“It’s a delicate balance between holding nonprofits accountable on how they spend but not overemphasizing thrift for the sake of performance.”

The studies suggested that the watchdogs could use an accreditation process to evaluate and validate nonprofit organizations, require charities to release more information, and add more detailed information on their Web sites to counter the shortcomings of the rating system.

Daniel Borochoff, president of the American Institute of Philanthropy, responded to the release of the studies by pointing out that the biggest issue for charities and the watchdogs that review them is accountability.

“There’s a lot of bad reporting and poor disclosures going on,” Mr. Borochoff says. “Certainly, we’re open to realistic ways in which to improve,” but, he says, “for them to somehow say that financial ratios are not something of interest or something that donors don’t need in order to consider making a donation, it’s just stupidity. It’s very misguided for nonprofits to belittle the importance of the finances and how they’re spending their money.”

For more information, go here.

http://www.nonprofitfederation.org/ethics-policy/ethics