Net Tuesdays or Net2 Local gatherings provide a chance to connect locally with all those interested in the intersection of social technologies and social change. There are new groups forming every week: Join in!
NetSquared is an initiative ofTechSoup
NetSquared enables social benefit organizations to leverage the tools of the social web.
Ever taken a good look at Charity Navigator?
75% of the giving in the U.S. is given by individual donors, not to or through foundations. You think looking through 150 proposals is tough - how are they supposed to figure out which of 1.5 million well-meaning organizations to fund? Currently, the "leading" online resource for helping them figure this out is Charity Navigator ... and that is nothing short of a tragedy, for them and the people they're trying to help.
To its credit, Charity Navigator is completely transparent with its methodology, which you can read about in all its detail right here. Unfortunately, this methodology is completely useless in separating the good from the better.
The cornerstone of the rating is the program expenses divided by total expenses, or "how much of your dollar 'really' goes to the charitable purpose." This may be useful in weeding out the charities that are literally trying to scam you, but it is a backwards way to figuring out who actually helps people as effectively as possible. Great businesses have great people (who need high salaries); great infrastructure (including technology); and constant self-evaluation. All of these are "overhead." Nobody tries to minimize overhead in business - they just try to get things done as well as possible, and that usually involves a lot of "overhead" because the quality of your plan is so much more important than the size of your budget. The emphasis on "low overhead" in charity means that charities are trying to do one of the most difficult things in the world - helping people - while skimping on salaries, technology, and evaluation. We've seen the results first hand, and we believe the needy deserve better.
The rest of Charity Navigator's criteria are even more nonsensical. Charities are rewarded for having growing revenues (i.e., good fundraisers) and growing expenses (so apparently finishing a project or reducing costs is a bad thing). They're rewarded for accumulating large amounts of assets rather than spending (makes sense sometimes, no sense other times - not a reasonable rule). Maybe the "fundraising efficiency" metric would have some meaning if ability to raise funds were at all connected to ability to help people ... but that's just the problem. It isn't, as long as donors have no sources of real information.
The Gates Foundation, and other major grantmakers and megadonors, wouldn't rely on this stuff in a million years. They have their own staffs; they question charities thoroughly; they evaluate them by doing difficult studies; in short, they gather information on what charities actually do and whether it actually works. This takes money and time, and a heck of a lot more than a glance at the IRS Form 990.
What's too bad is that these grantmakers don't and won't share any of what they find. So they're doing the useful research and hiding it in a safe; meanwhile, 75% of the pie has absolutely nothing to go on except for ratings that barely narrow the field and border on farcical. That's why I think it's about time for the world's most transparent grantmaker, and that's why I'm devoting myself to GiveWell. Please question us; please criticize us; please don't dismiss us as a Charity Navigator knockoff.
- Holden's blog
- Login or register to post comments
Email Updates
Latest Comments
- Thanks, Joe!
1 week 9 hours ago - Late to thank you for this incredible post
3 weeks 5 days ago - Thank you!
3 weeks 6 days ago
Individual donations make up
Individual donations make up more than 75 percent of charitable giving. The Internet is a powerful way to connect donors of every income level.
How Annuities Work
Charity Navigator
Charity Navigator was launched on April 15, 2002, with the mission of helping "donors make informed giving decisions and enabling well-run charities to demonstrate their commitment to proper stewardship" of donor dollars. Initially, Charity Navigator provided financial ratings for 1,100 charities. Charity Navigator currently evaluates more than 5,200 charities in the United States in addition to hundreds of organizations with international operations. Credit card debt is a monster. Most American households carry over $10,000 in credit card debt. It makes you wonder if using the little plastic things is worth it. Well, most people would be well advised to get some credit card tips. First off, use them very sparingly, a small purchase or two every few months, and pay it off promptly. Don't rely on them for financial support, and if you have unexpected expenses every now and again, try small personal loans instead, and again, sparingly. It is better to budget well, and live within your means so that you don't end up strapped with credit card debt. The site also features opinion pieces by Charity Navigator experts, donation tips, and top-10 and bottom-10 lists that rank efficient and inefficient organizations in a number of categories. Annually, Charity Navigator conducts a national study to determine and analyze any statistical differences that may exist in the financial practices of charities located in different metropolitan markets across America.
Broken Compass?
I find Charity Navigator's ratigs to be highly questionable. They may have a rubric for rating charities on key factors. However, their rubric appears to be a broken compass. For example, ASHA for Education and The Hunger Project are equally rated with 4 stars and scores of 68. Yet, if you examine their goals and how they spend their money they are very different.
ASHA has minimal administrative costs. So, just about all of its funds go to helping the target population. On the other hand, HP has much higher expenses and a much smaller percentage goes to its target population. HP pampers its employees with high salaries, luxury travel and stay, etc; ASHA does not. HP's goal was to end hunger years ago; ASHA has more realistic goals.
Yet, they are rated equally.
PS You will also notice that the only comments on HP have been left by current and former employees or volunteers. Don't know if CN is afraid of HP's lawyers but they censor comments.
Charity Navigator
I agree with the Author of this blog.
The Charity Navigator rates the National Heritage Foundation as 5 Stars rated. Their TOP Rating!!!.
Here is what the Charity Navigator thinks deserves their top rating.
Press ReleaseSeptember 11, 2008 Yesterday, a Cameron County jury awarded $9 million in damages to Dr. Juan and Sylvia Mancillas in their lawsuit against the National Heritage Foundation ("NHF"). Dr. and Mrs. Mancillas sued NHF in 2005 because NHF changed the beneficiaries of three multi-million dollar life insurance policies from the Mancillas children to itself. NHF is a 501(c)(3) organization headquartered in Falls Church, Virginia that manages thousands of accounts called "donor advised accounts" created by individuals who engage in various charitable projects. NHF acts as the bookkeeper for the hundreds of millions of dollars kept in these donor advised accounts.The lawsuit involved what the IRS called an abusive tax shelter known as a charitable split dollar life insurance plan. Between 1997 and 1999, NHF peddled this tax scheme to people across the country. The typical arrangement worked like this—a donor made a charitable "donation" to NHF and took a tax deduction. NHF used those donations to pay premiums on large life insurance policies. The beneficiaries of the life insurance policies were primarily the donor's heirs, but a smaller portion of the death benefit would go to a charity chosen by the donor. NHF made money by charging a 4.5% fee on the full amount of the death benefit.In December 1997, NHF sold Dr. and Mrs. Mancillas a charitable split dollar life insurance plan with annual premiums of about $85,000 on $7 million in life insurance. The Mancillases two sons were the beneficiaries of $5 million of the life insurance, and the Sisters of the Incarnate Word, a organization of Catholic nuns in Brownsville, were the beneficiaries of the other $2 million. The large amount of life insurance was necessary because the Mancillases youngest son suffered a severe brain injury at the age of 6 that has left him unable to speak, walk or care for himself.In 1999, the IRS determined that donations made in connection with these plans were not tax deductible. At that time, NHF had about 600 of these plans nationwide, with potential life insurance death benefits aggregating between $600 million and $2 billion. If these deals went away, NHF stood to lose between $25 and $90 million in fees.NHF did not inform the Mancillases that the tax deduction was not allowed or that it could have just paid the premiums themselves to insure that their sons still got the life insurance benefits. Had they done that, NHF would be out of the picture and would lose out on their substantial fees. NHF instead modified the plan—without telling Dr. or Mrs. Mancillas—so that it was the sole beneficiary of millions of dollars in life insurance policies and the Mancillases children would get nothing. Believing that their sons were still the beneficiaries, Dr. and Mrs. Mancillas continued paying the premiums. They paid a total of $548,000 in premiums over seven years with no knowledge that NHF had changed the beneficiary to itself."I can't help but wonder how many of the other 600 families with charitable split dollar life insurance plans with NHF have also had their children removed as beneficiaries just so that NHF could be the sole beneficiary", said the Mancillases attorney, Albert Garcia. "Hundreds of families may still be sending NHF millions of dollars each year for life insurance premiums, thinking that their kids will receive the death benefits when they die," warned Mr. Garcia. He added, "NHF said nothing to the Mancillases so why wouldn't they pull the same stunt with these 600 other families."NHF is no stranger to controversy. Its founder, J.T. "Dock" Houk started the original NHF in 1968. In 1982, the IRS filed suit to revoke NHF's charitable status for violations of the federal tax laws. Mr. Houk was then ousted as NHF's CEO and the organization changed its name to the National Foundation. In 1993, he started the current NHF and installed himself as the CEO, his son, J.T. "Tick" Houk as President, his wife as the chief operating officer, and his daughter and daughter-in-law as vice presidents. In 1999, the IRS disallowed tax deductions for NHF's charitable split dollar life insurance plans, effectively ending that tax avoidance scheme. In 2006, the Congress also outlawed another NHF scheme—charitable employment. Under that program, one would "donate" money to his foundation that was managed by NHF, and take a tax deduction on his tax return. The donor would then "work" for his foundation as a director and pay himself a salary with the very money he donated and took a tax deduction for. Very little, if any, of the donated money would go to charity because it would come back to the donor as a salary.Dr. and Mrs. Mancillas were represented by Albert Garcia and Adrian Martinez of the McAllen, Texas law firm of Garcia & Martinez, L.L.P. They specialize in complex commercial and personal injury litigation.
Posted by:
Eduardo Alarcon
19319 Inverness Dr.
Spicewood, TX 78669
(512) 217-6655
eduardo.alarcon@sbcglobal.net
Not true...
First, you cite a decision against National Heritage that came out only one three days before you posted this. Perhaps you should give CN a chance to react to the news. Apparently they monitor over 5,000 charities. Second, as far as I can tell CN ranks on a scale of 1-4, not 1-5 as you say. Finally, they currently give National Heritage Foundation 3 stars, not their highest ranking. If this was a reaction to the news item you posted I don't know, but I felt your comments on CN were at best inaccurate and at worst unfair.
Actually....
...fiscal responsibility and overhead are fairly good indicators of a charity's effectiveness, efficiency and responsibility regarding donor dollars and its own operations. Charity Nav also shows executive level salaries; people should dig into that info as well. Hint: nonprofits having CEOs who earn over, let's say $400K/year should probably give one pause.
So, the service that Charity Nav provides is a valid and valuable one. It might be just one stop online when learning more about a particular charity, but it's definitely a valid one.
thanks for the blog entry
I'm sorry I am only finding this now. I feel that all of these criticisms of CharityNavigator are quite valid, and I've had many of them myself.
I too have been frustrated
I too have been frustrated by the fact that Charity Navigator does not rate effectiveness. So I was interested in Givewell. But I went to the website and as far as I could tell, an individual would need to pay $490 to subscribe. For all practical urposes, that makes Givewell inaccessible to the individual donor.
GiveWell.net
Hello, I'm guessing you are looking at givewell.com.au, an Australian organization that is unrelated to the GiveWell described here. This GiveWell is located at www.GiveWell.net, and makes all of the reasoning behind our decisions fully public; we do not charge any fees, nor have we at any point. I hope you find our research helpful; please let me know if you have any questions.
Thanks,
Holden Karnofsky
Program Officer, GiveWell
Charity Navigator's Unintended Consequences
By relying only on the 990 report, Charity Navigator gives an inaccurate snapshot of an organization's fiscal and management health. For example, when one switches its fiscal year from calendar year to mid-year. The half-year on the six-month report may the half that had historically been low on revenue, while costs were fixed. Another example is around new fundraising events or activities. Unless the organization is extremely lucky the first year, the real cost to raise a dollar might be close to a dollar. But you expect that the event will build momentum and become profitable over a couple of years. Certainly in private business, you expect an up-front cost for a new product line! I believe it's called an investment.
By going strictly by the numbers, Charity Navigator makes no attempt to evaluate the effectiveness of the actual PROGRAMS of the organization. My last employer was clearly considered the leader of the pack by its peers. Yet Charity Navigator zapped us based strictly on the 990.
I know it would be hard to get an objective evaluation of an organization's effectiveness. However, as a start, I recommend allowing us to at least offer an explanation by way of a footnote!
-- Cliff Sanderlin, Seattle
"The Gates Foundation, and
"The Gates Foundation, and other major grantmakers and megadonors, wouldn't rely on this stuff in a million years."
I don't know about Gates, but most private foundations use these basic metrics and are actually the source of much of the efforts to push down "administrative" costs. The level of analysis in major private foundations is far less in depth than you might imagine, at least in my experience.
What is missing is a equivalent of "profit" in the nonprofit sector. We compare businesses based on profitability and invest in profitable ones and let unprofitable ones die.
In the nonprofit sector, the analog is a measurable outcome... For example, what is the average cost to house a homeless person? The outcome is having a roof over one's head for the night. The cost should be known in the sector, published widely (good project for government or private foundations), and aggregated into GiveWell and Charity Navigator.
But it is far more complex... roof + food for one night? Not homeless one year from the intervention? Some other outcome measurement?
Transparency is a huge positive.... that is the first step. But the real challenge is to provide methods for donors to make apples to apples comparisons.
David Geilhufe
CivicSpace
Apples to apples
You're right, I am specifically thinking of the best foundations, including Gates - I can't say that all the foundations in the nation are going beyond the "overhead measure" (in fact, I have very little idea of what any of them do, due to lack of transparency), but I know that the ones who think the most and care the most are investigating charities in depth.
An "apples to apples" comparison is one of the hardest, as well as most important, things to do, as you point out. We have struggled with how to give donors control over philosophical decisions (we don't want our reviews to reflect our own philosophical views of the value of things like improving education vs. fighting disease), while still meaningfully comparing charities. Our standing approach, written up in detail in our business plan and summarized informally on our blog, is to separate charities into "causes" and try to compare charities within causes, not between them, knowing that we will never have all the information necessary to make a perfect apples-to-apples comparison. So two disease-fighting charities are compared on their ability to save lives; two education-centered charities are compared on their ability to give students a good academic grounding.
As you recognize, this endeavor is so qualitatively different form Charity Navigator that it takes a whole new approach. It's a difficult and ambitious project, but the benefits of helping even a tiny part of the huge pool of donors would be so enormous. If you question our ability to carry it out, I highly suggest you look more into our project - the blog and the business plan - for more on how we think and how we've wrestled with the tough questions.
You have my vote!
With so many - if not all - of the organizations proposing projects here being in need of additional support and/or exposure, this just makes sense.
For organizations that are truly just trying to meet needs and not trying to build dynasties, this just makes sense.
For donors who want to give but want to ensure what they give is used productively, this just makes sense.
For true accountability on both sides of the philanthropic fence, this just makes sense.
Again... you have my vote! Well done! When this is all over, I need to talk with you.
Randy Roberson - Disaster Logistics
H.E.L.P.
rroberson@disasterlogistics.org
www.disasterlogistics.org
I went to your homepage to
I went to your homepage to see what you are doing and how. The link to your Board is broken...conveniently? When I googled 'disaster logistics' I found that particular catch phrase used by educational and governmental entities to headline seminars and papers. The Accountability page gives little information about your non-profit, such as how much you are paid. I think you are a person with very good marketing skills but that will not persuade me to donate to your organization, although your giving intentions may be legitimate. With the proliferation of non-profits increasing exponentially, seeking information about each is a monumental task. I will definitely continue to rely with confidence upon the transparent methodology of Charity Navigator. I have a sneaking suspicion, however, that I will never see your organization listed among those evaluated by Charity Navigator.
FYI, I am not employed by a non-profit nor an evaluating agency such as Charity Navigator.
Elena deCastro
Austin TX
overhead
"Nobody tries to minimize overhead in business"
Seriously? What business doesn't try to minimize overhead? Mature businesses definately DO try to minimze overhead, while paying overhead that is necessary.
In fairness to Charity
In fairness to Charity Nagigator: I believe that they do not claim to provide the only bases for evaluating or donating money to a charity. They are simply providing available data on the financial viability of an organization. The value of its mission or effectiveness, though ultimately the most important issues, are beyond its scope.
A fine organization, such as, the NAACP, receives a low overall rating because of the financial evaluation. Of course, historically it has been a vital and important organization in American history. Charity Navigator does not state that one should not contribute to the NAACP. Because of its fiscal difficulties, one may decide that they need one's money more than other organizations. However, it is reasonable to be clear about why one is donating to an organization.
I do think that you are right in pointing out Charity Navigator's methodology in order that its ratings do not form the only framework for charitable donation.
Every business requires some
Every business requires some form of investment and a sufficient number of customers to whom its output can be sold at profit on a consistent basis. Business investments are one of the lifeblood of American commerce. Good business investments are how the greatest of business pioneers such as Carnegie, Vanderbilt, and Rockefeller built their empires. Installment loans, from banks or investors, are often how small business outfits pursue business growth and expand their reach, and therefore, revenue potential. Investors are free to structure the loan, so that cash is dispensed in the best way to aid the business, and also receive payments, and business owners looking for investors can also find people that have compatible visions. All megafirms started out as small shops, looking for cash advances as business investments at one point or another.