More good stuff on overhead ratios and “worst charities” – 9-9-13

Some more articles that are worth attention but I don’t have enough time to comment in a full post. Not a lot going on that I’ve been reading until I saw two articles in two days.

Here’s a few articles exploring the challenges of outcome measures, whether NPOs are spending enough on infrastructure, possible regulatory revisions in Florida, and is anyone criticizing the practices in the “worst charities” articles?

Previous lists of good stuff here and here.

“Overhead ratio”

Chronicle of Philanthropy – Nonprofits Anxiously Try to Show Results for New Charity Navigator RatingsFor at least the next 3 years, CN will list yes/no answers to questions on whether charities are trying to measure their outcomes. In 2016, the questions may be incorporated into their star ratings.  Chronicle’s article explores the challenges of measuring outcomes, particularly in some sectors such as advocacy and the arts.  Many NPOs will have challenges in developing measurement tools.

Particularly insightful is the comment from one organization that hiring a full-time staffer to gather data would take away from serving poor people. Phrased differently, they are too busy serving transients to find out if they are actually helping transients.  

Aid Leap – Working with the Evidence Agenda – Good discussion on the limits of outcome measures and implementation issues. Focus is on the development world, but ideas apply broadly to the outcome measurement issue. One danger is the “evidence agenda” might prevent

…staff from working on long-term, more transformative development, which might not be easily counted or photographed.

Huffington Post – Work in Progress – Greg Woodburn says insufficient amounts of “overhead” undermines sustainability, restricts recruiting the best talent, and keeps valuable new skills away from your current staff.

I agree. Many organizations are underspending on infrastructure. See post on Starvation Cycle.

He suggests we should look at social return on investment instead of overhead ratios. Sounds like an improvement to me.

At the same time, be careful what you wish for.  If you thought the functional allocation of expense was murky, just wait until we start trying to figure out how to calculate the “social return on investment.” That will be even more messy, subjective, and opinionated.

He also points out the same thing said by me and every CPA I’ve been around for the last 20 years: NPOs in different sectors of the community have different needs in terms of infrastructure and fundraising.

“Worst Charities”

Tampa Bay Times – Florida’s top charity regulator considers reform – The state commissioner of agriculture and consumer services is considering a variety of steps to increase oversight of charities. The reassessment of the regulatory oversight was prompted by the reporting at Tampa Bay Times and Center for Investigative Reporting.

A few of the steps being considered: 

… increased fines, mandatory background checks for telemarketing employees and a requirement that charities spend at least 25 percent of donations on those in need or risk losing their state tax exemption. Putnam said he may also propose giving Florida regulators the power to deny licenses to charities or solicitors banned by other states — something that rarely happens now.

I don’t think the requirement to spend 25% of funds on those in need is a good idea.

Here are two organizations at different points on the ideological spectrum that would be banned in Florida if that rule was in place:

  • American Civil Liberties Union
  • Alliance Defending Freedom

They each spent a very low percentage, if any, giving to those in need. That isn’t their purpose. Any organization involved in issues advocacy would spectacularly fail that 25% test.

The other ideas sound good to me based on the brief comments. What do you think?

The Chronicle of Philanthropy – Nonprofits Need to Denounce Bad Fundraising Practices – Mark Rosenman points out that the overall level of donors’ confidence in charities is dropping. He suggests that donor confidence isn’t helped by the inability of NPO leaders to condemn the serious problems highlighted in the ‘worst charities’ articles.  He says:

It is critical that leaders find their voice, and not simply because the silence of good people allows evil to triumph. Government officials, be they tax authorities or attorneys general, seem to lack the resources or the legal authority to prosecute nonprofit miscreants. They need help from charity leaders to do their jobs.

Where are the voices criticizing the behavior seen in the top 50 list?

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