Charity assessment

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Charity assessment is the process of analysis of the goodness of a non-profit organization in financial terms. [1] Historically, charity evaluators have focused on the question of how much of contributed funds are used for the purpose(s) claimed by the charity, while more recently some evaluators have placed an emphasis on the cost effectiveness (or impact) of charities. [2]

Contents

Charity watchdogs

A charity watchdog is a type of nonprofit organization that provides ratings of charitable groups based on how an individual charity's money is spent, how it governs itself, and how the charity protects its donors' privacy, among other criteria. [3] Charity evaluation from these organizations has typically focused on measuring administrative and fundraising costs, salaries, and assessing how large of a proportion of a charity's budget is directly spent on impactful activities.

In 2000, Ministry Watch, an evangelical Christian organization that reviews Protestant ministries for financial accountability and transparency, was founded. Charity Navigator was launched in 2001 by John P. Dugan, a wealthy pharmaceutical executive and philanthropist. [4] Initially, Charity Navigator provided financial ratings for 1,100 charities, and has data on 8,000 as of mid-2016. [5]

The Toronto Star has reported on some of the difficulties and revelations of auditing charities in Canada as described by Charity Intelligence Canada (Ci). The authors call it "concerning", for example, that one in five of "Canada's top 100 charities" refused to release their full audited financial statements to Ci. Moreover, one-quarter of the "top 100 charities" hold at least three years' worth of funding (that is, they have three times their annual budget in savings) and some store as much as eight years' worth. Of the "top 100 charities", 14% exceed the guidelines set by the Canada Revenue Agency by spending more than 35% of donations on fundraising – with some spending as much as 50% of donations on fundraising. [6]

In 2015 the United Kingdom government announced the creation of a new government-run watchdog to regulate large charities. [7]

Evaluation

Impact-based evaluation

In 2006, hedge fund employees Holden Karnofsky and Elie Hassenfeld formed an informal group with colleagues to evaluate charities based on data and performance metrics similar to those they used at the fund. The group was surprised to find the data often did not exist. [8] The next year, Karnofsky and Hassenfeld formed GiveWell as a nonprofit to provide financial analyst services to donors. [8] [9] They eventually decided to rate charities based on the metric of how much money it cost to save a life. [10] [11]

GiveWell has focused primarily on the cost-effectiveness of the organizations that it evaluates, rather than traditional metrics such as the percentage of the organization's budget that is spent on overhead. [8] [12] In the first year, Karnofsky and Hassenfeld advocated that charities should generally spend more money on overhead, so that they could pay for staff and record keeping to track how effective their efforts were. This ran counter to standard ways of evaluating charities based on the ratio of overhead to funds deployed for the charity work itself. [9]

Giving What We Can (GWWC), founded in 2009 by Toby Ord, also differed from other charity evaluators in terms of the importance given to metrics of charity performance, solely focusing on the cost-effectiveness of the charity's work. [13] [14] It has argued that the variance in cost-effectiveness of charities arises largely due to the variance in the nature of the causes that the charities operate in, and therefore has made evaluations across broad areas of work such as health, education, and emergency aid before comparing specific organizations. [15] In practice, it recommends a selected few charities in the area of global health. Its work is similar to that of GiveWell. [16] GWWC no longer evaluates charities but, like the National Philanthropic Trust, it accepts philanthropic members and helps them to donate to charities.

Charity Navigator's former CEO Ken Berger and consultant Robert M. Penna harshly criticized the idea of discriminating among cause areas for being moralistic and elitist "by weighing causes and beneficiaries against one another". [17] Philosopher and effective altruism advocate William MacAskill defended the concept by comparing the choice to donate to an art gallery with the choice of saving a painting rather than saving people from a burning building. [18]

In 2013 and 2014, GuideStar, BBB Wise Giving Alliance, and Charity Navigator wrote open letters urging nonprofits and donors to end the use of the overhead ratio as the sole or main indicator of a nonprofit's performance. [19] [20] Charity Navigator has also been working to expand its criteria to include results reporting. See Charity Navigator § Evaluation method.

Outcomes

In the United Kingdom, Charities Evaluation Services (CES), itself a charity, [21] was established in 1990 to support the improved effectiveness of the voluntary sector. The services merged with the National Council for Voluntary Organisations in 2014. [22] CES had a history of supporting charities in identifying their aims and objectives and the outcomes they wanted to achieve, as well as mapping how successful they were at achieving those outcomes. [23] The "National Outcomes Programme" was delivered and delivered by CES with funding from the Big Lottery Fund between 2003 and 2009, developing a network of "outcomes champions" and supporting around 1,500 voluntary and community organisations. The programme was independently evaluated in 2006 by the Open University and in 2009 by Tribal Consulting. An "outcomes approach", focussing on the changes, benefits or other effects which happen as a result of an organisation's activities, [24] was commended as an effective approach to performance measurement in the charity sector. [25]

Databases

Searchable databases of United States Internal Revenue Service Form 990

Searchable databases of charities with scores, information and/or analysis

See also

Related Research Articles

<span class="mw-page-title-main">Nonprofit organization</span> Organization operated for a collective benefit

A nonprofit organization (NPO), also known as a nonbusiness entity, nonprofit institution, or simply a nonprofit, is a legal entity organized and operated for a collective, public or social benefit, as opposed to an entity that operates as a business aiming to generate a profit for its owners. A nonprofit organization is subject to the non-distribution constraint: any revenues that exceed expenses must be committed to the organization's purpose, not taken by private parties. Depending on the local laws, charities are regularly organized as non-profits. A host of organizations may be nonprofit, including some political organizations, schools, hospitals, business associations, churches, foundations, social clubs, and consumer cooperatives. Nonprofit entities may seek approval from governments to be tax-exempt, and some may also qualify to receive tax-deductible contributions, but an entity may incorporate as a nonprofit entity without having tax-exempt status.

<span class="mw-page-title-main">Donation</span> Gift for a cause

A donation is a gift for charity, humanitarian aid, or to benefit a cause. A donation may take various forms, including money, alms, services, or goods such as clothing, toys, food, or vehicles. A donation may satisfy medical needs such as blood or organs for transplant.

<span class="mw-page-title-main">Fundraising</span> Process of gathering donations

Fundraising or fund-raising is the process of seeking and gathering voluntary financial contributions by engaging individuals, businesses, charitable foundations, or governmental agencies. Although fundraising typically refers to efforts to gather money for non-profit organizations, it is sometimes used to refer to the identification and solicitation of investors or other sources of capital for for-profit enterprises.

CharityWatch, known until 2012 as the American Institute of Philanthropy, is a 501(c)(3) nonprofit organization in Chicago, created in the United States by Daniel Borochoff in 1992, to provide information about charities' financial efficiency, accountability, governance, and fundraising.

<span class="mw-page-title-main">Charity Navigator</span> Charity assessment organization that evaluates charitable organizations in the U.S.

Charity Navigator is a charity assessment organization that evaluates hundreds of thousands of charitable organizations based in the United States, operating as a free 501(c)(3) organization. It provides insights into a nonprofit's financial stability, adherence to best practices for both accountability and transparency, and results reporting. It is the largest and most-utilized evaluator of charities in the United States. It does not accept any advertising or donations from the organizations it evaluates.

<span class="mw-page-title-main">Charity (practice)</span> Voluntary giving of help to those in need

Charity is the voluntary provision of assistance to those in need. It serves as a humanitarian act, and is unmotivated by self-interest. Various philosophies about charity exist, with frequent associations with religion.

GiveWell is an American non-profit charity assessment and effective altruism-focused organization. GiveWell focuses primarily on the cost-effectiveness of the organizations that it evaluates, rather than traditional metrics such as the percentage of the organization's budget that is spent on overhead.

<span class="mw-page-title-main">Water For People</span> American non-profit aid organization

Water For People was founded in 1991 by the American Water Works Association (AWWA) as a response to the increasing water scarcity in developing countries. It is a nonprofit international development organization that helps people in rural parts of developing countries achieve greater access to drinkable and potable water and sanitation facilities. It works to accomplish the United Nations' 6th Sustainable Development Goal: availability of clean water and sanitation and comprehensive monitoring of freshwater facilities for the progression of human health. They seek to address the issue of nonexistent and suboptimal water and sanitation facilities across less-developed countries. With developing locally sustainable drinking water resources and sanitation facilities, Water For People also works to bring health and hygiene education programs to local districts. The non-governmental organization also works to empower and involve local governments, corporations, schools, homes, and individuals in the construction, financing, and maintenance of the water infrastructure. Water For People has established a year-round presence in 30 districts of nine developing countries, including Guatemala, Honduras, Nicaragua, Bolivia, Peru, India, Rwanda, Uganda and Malawi. In totality, Water For People reaches 4 million people.

Giving What We Can (GWWC) is an effective altruism-associated organisation whose members pledge to give at least 10% of their income to effective charities. It was founded at Oxford University in 2009 by the philosopher Toby Ord, physician-in-training Bernadette Young, and fellow philosopher William MacAskill.

<span class="mw-page-title-main">Holden Karnofsky</span> American nonprofit executive

Holden Karnofsky is an American nonprofit executive. He is a co-founder and Director of AI Strategy of the research and grantmaking organization Open Philanthropy. Karnofsky co-founded the charity evaluator GiveWell with Elie Hassenfeld in 2007 and is vice chair of its board of directors.

The Center for High Impact Philanthropy (CHIP) is a center at the School of Social Policy and Practice at the University of Pennsylvania in the United States focused on high impact philanthropy, both in the US and internationally. The Center translates the best available evidence in areas such as education and early childhood development, disaster relief, poverty, democracy, and public health into actionable guidance and educational programs for those looking to make a difference with their giving.

The Mulago Foundation is a private foundation focused on high impact philanthropy: they fund high-impact organizations mostly through grants, sometimes with debt or equity. The foundation was originally envisioned by Rainer Arnhold, a San Francisco pediatrician and philanthropist, who taught at Mulago Hospital, Uganda. The foundation was officially created by his brother Henry Arnhold after Rainer Arnhold's death in 1993.

Effective altruism (EA) is a 21st-century philosophical and social movement that advocates impartially calculating benefits and prioritizing causes to provide the greatest good. It is motivated by "using evidence and reason to figure out how to benefit others as much as possible, and taking action on that basis". People who pursue the goals of effective altruism, who are sometimes called effective altruists, follow a variety of approaches proposed by the movement, such as donating to selected charities and choosing careers with the aim of maximizing positive impact. The movement has achieved significant popularity outside of academia, spurring the creation of university-based institutes, research centers, advisory organizations and charities, which, collectively, have donated several hundreds of millions of dollars.

<span class="mw-page-title-main">Development Media International</span> UK-based non-governmental organization

Development Media International (DMI) is a non-governmental organization with both non-profit and for-profit arms that "use[s] scientific modelling combined with mass media campaigns in order to save the greatest number of lives in the most cost-effective way".

The Nonprofit Marketplace Initiative (NMI) was an initiative of the Effective Philanthropy Group of the Hewlett Foundation launched in 2006. Its closure was announced in the Chronicle of Philanthropy in April 2014.

Open Philanthropy is a research and grantmaking foundation that makes grants based on the principles of effective altruism. It was founded as a partnership between GiveWell and Good Ventures. Its current chief executive officer is Alexander Berger, and its main funders are Cari Tuna and Dustin Moskovitz. Moskovitz says that their wealth, worth $16 billion, "belongs to the world. We intend not to have much when we die."

Animal Charity Evaluators (ACE), formerly known as Effective Animal Activism (EAA), is a US-based charity evaluator and effective altruism-focused nonprofit founded in 2012. ACE evaluates animal charities and compares the effectiveness of their different campaigns and strategies. The organization makes charity recommendations to donors once a year. Its stated purpose is finding and promoting the most effective ways to help animals.

Philanthropy poses a number of ethical issues:

ImpactMatters was an American charity assessment organization that evaluates the impact of charitable organizations.

<span class="mw-page-title-main">Psychological barriers to effective altruism</span>

In the philosophy of effective altruism, an altruistic act such as charitable giving is considered more effective, or cost-effective, if it uses a set of resources to do more good per unit of resource than other options, with the goal of trying to do the most good. Following this definition of effectiveness, researchers in psychology and related fields have identified psychological barriers to effective altruism that can cause people to choose less effective options when they engage in altruistic activities such as charitable giving. These barriers can include evolutionary influences as well as motivational and epistemic obstacles.

References

  1. ↑ Wasik, John F. (November 7, 2013). "How to Choose a Charity Wisely". New York Times. Retrieved 18 September 2017.
  2. ↑ Mathieson, SA (June 11, 2013). "How charity evaluators are changing the donations landscape". The Guardian. Retrieved 18 September 2017.
  3. ↑ "Understanding Charity Ratings". Consumer Reports. Retrieved November 2015.
  4. ↑ Gunther, Marc (5 April 2015). "Why Charity Navigator needs an upgrade". Nonprofit Chronicles. Archived from the original on 7 July 2015. Retrieved 6 July 2015.
  5. ↑ Ann Carrns. Charity Navigator Tweaks Its Rating System. New York Times. 27 May 2016.
  6. ↑ "Audit of charities encounters resistance", in The Star, by Raveena Aulakh and Amy Dempsey, published Tuesday Nov 15 2011
  7. ↑ Sarah Neville (3 October 2015). "Fundraising watchdog to oversee how UK charities raise money". Financial Times. Retrieved 8 April 2016.
  8. 1 2 3 Pitney, Nico (March 26, 2015). "That Time A Hedge Funder Quit His Job And Then Raised $60 Million For Charity". Huffington Post . Retrieved April 27, 2015.
  9. 1 2 "Young Duo to 'Clear' the Way for Charitable Giving". National Public Radio.
  10. ↑ Patricia Illingworth, Thomas Pogge, Leif Wenar. Giving Well: The Ethics of Philanthropy, Oxford University Press US, 2011. p. 124
  11. ↑ Peter Singer. The Life You Can Save: Acting Now To End World Poverty, Random House, 2009. Ch. 6, pp. 81–104
  12. ↑ "About GiveWell". GiveWell. Retrieved 18 December 2014.
  13. ↑ Rosenberg, Tina (December 5, 2012). "Putting Charities to the Test". Opinionator. The New York Times. Retrieved 18 March 2017.
  14. ↑ "Charities in the ethical spotlight". www.ethicalconsumer.org. Ethical Consumer. Archived from the original on 19 March 2017. Retrieved 18 March 2017.
  15. ↑ "How We Assess Charities". Giving What We Can. Archived from the original on 3 July 2014. Retrieved 18 March 2017.
  16. ↑ Mathieson, S. A. (11 June 2013). "How charity evaluators are changing the donations landscape". The Guardian. Guardian News and Media Limited. Retrieved 18 March 2017.
  17. ↑ Berger, Ken; Penna, Robert. "The Elitist Philanthropy of So-Called Effective Altruism".
  18. ↑ MacAskill, William. "What Charity Navigator Gets Wrong About Effective Altruism".
  19. ↑ Harold, Jacob (October 31, 2014). "Moving From the Overhead Myth to an Overhead Solution: Next Steps". Philanthropy News Digest (PND). Retrieved 2024-09-14.
  20. ↑ Brandt, Julie (October 3, 2013). "Overhead Costs: The Obsession Must Stop (SSIR)". ssir.org. Retrieved 2024-09-14.
  21. ↑ Charity Commission for England and Wales, CHARITIES EVALUATION SERVICES, last reported for financial year ending 31 December 2013, accessed 6 August 2023
  22. ↑ NCVO, About NCVO Charities Evaluation Services, accessed 6 August 2023
  23. ↑ Charities Evaluation Services, CES planning triangle, archived 16 May 2014, accessed 6 August 2023
  24. ↑ Charities Evaluation Services (2007), Using an outcomes approach in the voluntary & community sector: a briefing on the independent evaluation of the first National Outcomes Programme, published by CES and the Open University
  25. ↑ Ellis, J., The case for an outcomes focus, Charities Evaluation Services, published September 2009, accessed 6 August 2023
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