Rating Charitable Organizations

Alison Overholt reports in Fast Company Magazine an overview of a two-year-old company that analyzes and reports on the performance of 2500 charitable organizations.

The company, Charity Navigator, is headed by Executive Director Trent Stamp who is of the opinion that "financial inefficiency and mismanagement are more prevalent among nonprofits than anyone knows," and he wants to let the whole world in on the secret.

Says Mr. Stamp: "We're trying to answer the critical question: Which charities are the most responsible and efficient -- and which aren't?"

Using public tax records, the company "ranks nonprofits on the efficacy of their getting and spending, measuring them against seven benchmarks and assigning each one a rating on a scale of zero to four stars." And it's needed since "charities haven't been giving the public a clear understanding of their financial well-being, and without some independent evaluation, a public that is weary of accounting scandals and management cover-ups just might give up on their charitable giving."

Although good for contributors, the rating system does not make some organizations very happy. Examples are:

[T]he Multiple Sclerosis Association of America, which last year landed in the zero-star category. "They spend more on fund-raising than they do battling MS," chides Mr. Stamp.

PETA (People for the Ethical Treatment of Animals) was evaluated and received an unflattering two-star rating. When compared with other animal-rights groups, Mr. Stamp reports, a smaller percentage of PETA's dollars goes to protecting animals.

As a consequence, there is criticism, but Mr. Stamp doesn't shy away. If scrutiny breeds greater efficiency -- even if it drives some charities out of business -- well, that's fine with him.

Bravo! And I think it's about time that some reasonable oversight of the charity industry takes place. It's kind of a pet peeve with me in that I'm fairly sure that a TV commercial I continue to see showing a poverty-stricken neighborhood in Central America is the same commercial I saw 25 years ago. You'd imagine that they would have used a fresher commercial or the neighborhood would have improved through twenty-five years of contributions. Anyway, I've always thought that a number of these charities are scams and the ratings by Charity Navigator confirm as much.

[Thanks to Instapundit.]