The Great Ratings Debate Recap

Thanks to all of my readers, I went into the opening session at last month's FundRaising Success Virtual Conference + Expo — a debate between a nonprofit executive and the Better Business Bureau — loaded with fantastic questions and, frankly, a lot of concerns. I had 45 minutes to get at the heart of the matter with Art Taylor, CEO of the BBB Wise Giving Alliance, and get the perspective of Angel Aloma, executive director of Food for the Poor.

We talked about the challenges of the current ratings system — what our donors want and care about, why there is so much focus on overhead expenses (and is it fair), and why the current watchdogs can't even agree on what "good" means. Below are the highlights of that fantastic conversation ... and, of course, my opinion on it all!

Why so many and why so different?
There are several watchdog agencies that claim to monitor and evaluate nonprofits in an effort to help donors make better decisions. But in reality, the fact that there are several evaluators is not the problem. The problem is that it's hard for a nonprofit to be better when "being better" is defined differently from one watchdog to another. The bigger problem is that donors have no idea about the differences and therefore if they chosoe to listen to one evaluator, they might be getting information that is not reflective of the full picture, not to mention the true picture.

A few examples of these differences:

• Charity Navigator has developed a system of monitoring that does not allow joint cost allocation. In other words, the accepted practice of looking at marketing and communication (including fundraising) and allocating the expenses associated with them across the areas supported (program, education, fundraising, organizational management, etc.) is not allowed by Charity Navigator when measuring financial effectiveness. Our auditors follow these guidelines, the IRS understands these guidelines — yet this watch dog believes it should not be allowed.
• Charity Watch has developed a system of monitoring financial effectiveness of charities that does not allow any gifts in kind. If an organization is serving Haiti after a devastating disaster and receives significant donations of food, medicines and supplies, the IRS allows those to be counted as revenue. In fact, law mandates they are considered revenue. If an individual donor gives a gift in kind, the receiving organization is required to identify the appropriate value and the donor receives charitable giving credit. Yet, Charity Watch says those don't count and there is no value to them. Once again, tax laws and accounting practices all recognize this as income/revenue, yet this monitoring system has decided to not count them as a part of how effectively a charity is reaching its goals and supporting its mission.
• The BBB Wise Giving Alliance has developed a system of standards — to be exact, 20 of them. There's no grade or score: If you meet the standards, you are accredited; if you don't, you aren't. This is the most comprehensive list of ways to measure effectiveness and efficiency — yet only 60 percent of the charities evaluated actually meet the standards.

What are donors to do?
Are they supposed to know all the details I listed above? I think not. I believe — as do Art and Angel — nonprofits need to communicate absolutely and directly to their donors why they have chosen to hold themselves accountable to a particular monitoring system.