More Than Dollars
This opinion piece, written by SMC's CEO David González, was originally published in the Erie Times-News on December 14th, 2014. Its original posting can be found here.
On October 26, 2014, the Erie Times News published an opinion piece by David Bruce entitled “Check your charity’s bottom line.”
I read this piece with equal parts interest and disappointment. It was interesting to me as I lead a nonprofit organization and always gravitate to articles dealing with our sector. However, it was very disappointing as the piece continues to perpetuate the “overhead myth” that plagues our nonprofit sector.
The premise of the article can be neatly summed up in this sentence: “Before you write a check to a charity, make sure the organization is putting your money to good use”. The article goes on to list a number of local and national charities and their respective program, administrative and fundraising costs. I believe the article intended to offer prospective donors year-end giving advice. Ultimately, the article was supporting the belief that lower administrative costs are indicative of better charities. I agree with the article that finances need to be evaluated when determining whether or not to give to a charity. However, a big part of the problem with judging charities with one standard is that they are so different. All charities are not created equal. There are smaller charities and larger charities. There are arts, social service, education and many other types of charities. By design, many of these charities have different structures, missions, goals and subsequently, reporting requirements.
To put it differently, when evaluating “for-profit” businesses multiple standards are used. One would never think of comparing a “mom and pop” business with the Apple Company. Or, when evaluating a restaurant, people use food, price and service as the criteria, not just the quality of the food. Why then, do we use one piece of information (financial ratios) to compare the effectiveness of charities?
Using financial rations should just be a starting point when determining to donate to a charity. Below are some additional issues to consider:
* Does the organization serve a legitimate need in our community?
* Does the organization have good outcomes? That is, are they meeting their goals?
* Are their programs and services in line with their mission?
* Are they actually helping their consumers, clients, patients or patrons? It is not enough to serve many individuals.
* Is the organization actually making a difference?
National authorities on the nonprofit sector have come out in support of re-thinking the “overhead” myth. Dan Pallotta, who was brought to Erie a few years ago by the Nonprofit Partnership, has brought much national attention to the issue with his famous TED Talk.
In addition, I encourage you to visit www.overheadmyth.com. This website lists the Open Letter to Nonprofits and an Open Letter to Donors from the Better Business Bureau Giving Alliance, Guidestar and Charity Navigator. All of these are leading organizations in the area of philanthropy and provide standards by which to evaluate charities. Their message is loud and clear: “financial ratios” are not the sole indicator of charity performance and organizations should be evaluated on what matters most, on how they fulfill their mission and make the world a better place.
Finally, the Stanford Social Innovation Review, another leading national authority on nonprofit evaluation, stated in their 2009 article The Nonprofit Starvation Cycle “Organizations that build robust infrastructure—which includes sturdy information technology systems, financial systems, skills training, fundraising processes, and other essential overhead—are more likely to succeed than those that do not.”
To sum up, it is unrealistic and, frankly, erroneous, to judge a charity’s performance solely by their financial ratios. Charities have overhead costs that are also essential in their provision of their programs and services. Charities need to spend money on people and fundraising besides programs; they all go together.
What is the alternative? Before donating, investigate the charity and see if they are fulfilling their mission in a responsible manner. Then, invest in that charity understanding that their “true cost” of providing a service is higher than their “financial ratios” represent. If you are in doubt, call them. _ Ask for information._ A responsible charity will answer your questions.
By all means, be responsible and investigate a charity before you give away your hard earned wealth. But, please make sure to base your decision on more than just finances.