Not for Profit Organizations - Giving Freely—And Wisely

Not for Profit Organizations - Giving Freely—And Wisely
One site names preachers who may be misusing money and suggests that you 'prayerfully' consider giving to other ministries instead.
By Jane Bryant Quinn
© 2006 Newsweek, Inc.
Updated: 11:36 p.m. MT Dec 9, 2006



Dec. 18, 2006 issue - They're out to get you—the nonprofits, I mean. In any year, charities may collect half the money they'll get from individuals in the weeks between Thanksgiving and New Year. But even as donors open their wallets, many give with divided minds. You admire the cause but secretly worry that the group might squander your money.

The better nonprofits worry about that, too. They seethe when less worthy competitors (and they know the names!) pull in big bucks. Several Web sites rate charities to weed out the detectable stinkers. They tell you what each nonprofit does and how it says it spends your money. But here's what you don't know: whether the group makes a real difference in the world and if its financial disclosures are fair.

Questions like these are driving a budding "transparency movement" for public charities. State laws can do nothing. A series of Supreme Court decisions leaves charities free to hide or say whatever they want when they're raising funds (short of fraud, of course). Instead, the chief actors are donors, public-policy think tanks and concerned nonprofits themselves.

The first order of business is to follow the money. Today, that's the heart of what the rating services do. Most nonprofits (including religious charities but not churches) have to file Form 990, a financial disclosure, with the IRS. These are being mined for data and put on the Web.

Unfortunately, you can't always believe what the 990 says. It's supposed to show how much the nonprofit spends on actual services, as opposed to fund-raising and administration. But the law isn't much enforced. In a report covering part of the 1990s, the General Accounting Office found that 64 percent of public charities claimed to have zero—zero!—fund-raising expenses. Do you believe that? Neither do I.

The charities' own, independent audits generally do better—and good groups disclose them. But accountants have a lot of discretion in deciding which expenses to call "fund-raising." Nonprofits that disguise their costs or exaggerate the value of donations can win higher ratings than those that present their finances more fairly. The temptation is always there.

Some of the rating services adjust for these problems. Uncharitably, they often slam each other's methods while touting their own. I'm a civilian in these wars, so my advice is to look for good grades from every source. Start your research here:

1. The Better Business Bureau Wise Giving Alliance (Give.org). It currently posts reports on more than 900 nonprofits, testing them by a number of standards including good governance. About 65 percent of them pass. The rest fail, or refuse to be evaluated (a bad sign, no matter what excuse the charity gives).

2. American Institute of Philanthropy (CharityWatch.org). It's the toughest of the bunch, rating more than 500 charities on a scale of A+ down to F. Because it disregards certain, potentially suspect, expenses and donations, it fails some nonprofits that the other raters approve. Readers of this column can get its latest Charity Rating Guide free from AIP, P.O. Box 578460, Chicago, IL 60657.

3. CharityNavigator.org rates 5,100 nonprofits on a scale of zero to four stars. This site draws only from a nonprofit's latest 990 form, which could mislead. But I like its Top Ten lists, such as 10 Charities Overpaying Their For-Profit Fund-Raisers.

4. MinistryWatch.com rates more than 500 evangelical groups on a scale of 1 to 5 stars. It's an ardent advocate for financial disclosure. The site names preachers who may be misusing money and suggests that you "prayerfully" consider other ministries instead. Withholding that advice, says MinistryWatch.com, would be "tantamount to condoning sin." Hear, hear.

5. The Evangelical Council for Financial Accountability (Ecfa.org) accredits Evangelical churches and charities based on such standards as audited financial reports and ECFA's own field reviews. If your group hasn't joined (or is on the lists of those that left) you should ask why. There's no comparable service for Jewish, Muslim or Catholic organizations.

You'll find other sources. GuideStar.org gives no ratings, just access to 990s for nearly 700,000 charities. Pennsylvania's Department of State lists nonprofits that ran into trouble there. They may be fund-raising in other states.

Still, most people donate simply because someone asks them to, says William Meehan, chair of Philanthropic Research, parent of GuideStar. Charity ratings haven't had much impact, because they're flawed and not enough people follow them. Besides, the ratings don't help you choose among similar charities. For that, you need to know how well they do their jobs. That's the next step—and a new Web site should help it along. Watch for GreatNonprofits.org, launching next spring. People familiar with specific charities—clients, donors, staff and volunteers—will be able to post opinions there, for you to read before you decide to give.

In a skeptical age, charities need to prove they're using money well. I'd bet that the more they tell, the more they'll find people eager to help.

Reporter Associate: Temma Ehrenfeld