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] In general terms, the measure answers the question: how much of contributed funds are used for the purpose(s) claimed by the charity?[2] In the United States, the data for charity assessment comes form Internal Revenue Service form 990, an annual filing by charities.

History[edit]

The Scientific Charity Movement was a movement that arose in the early 1870s in the United States to stop poverty. It sought to move the role of supporting the impoverished away from government and religious organizations and into the hands of Charity Organization Societies.[3] In the US, the COS kept centralized records and learned from each other. The COS were dominant in private charity until the 1930s.[4]

These Societies claimed the altruistic goals of lifting the poor out of poverty through the means of education and employment, and did make some strides to help young children involved in immoral underaged labor practices. However when it came to the COS's treatment of the "defective class" as they were labeled (insane, feeble-minded, blind, crippled, maimed, deaf and dumb, epileptic, criminal types, prostitutes, drug addicts, and alcoholics), the Scientific Charity Movement's other goals based in the popular post civil war social scientific theories of eugenics and social Darwinism came to light. Many of these "defective classes" were moved from the streets and into insane asylums where they were often experimented on by scientists of the time.[5]

Charity watchdogging[edit]

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 the charity governs itself, and how the charity protects its donors' privacy, among other criteria.[6] Charity evaluation from these organizations has typically focused on measuring administrative and fundraising costs and salaries and grading charities on the basis of how large a proportion of their budgets 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.[7] Initially, Charity Navigator provided financial ratings for 1,100 charities, and has data on 8,000 as of mid-2016.[8]

The Toronto Star has reported on some of the difficulties and revelations of auditing charities as described by Charity Intelligence Canada (CIC). 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 CIC. Moreover, one quarter of the "top 100 charities" store at least 3 years worth of funding (that is, they have three times their annual budget in savings) and some store as much as 8 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.[9]

In 2015 the British government announced the creation of a new government-run watchdog to regulate large charities.[10]

Impact-based evaluation[edit]

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, and were surprised to find the data often didn't exist.[11] The next year, Karnofsky and Hassenfeld formed GiveWell as a nonprofit to provide financial analyst services to donors.[11][12] They eventually decided to rate charities based on the metric of how much money it cost to save a life.[13][14]

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.[15][16] 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.[12]

Giving What We Can, 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.[17][18] 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.[19] In practice, it recommends a selected few charities in the area of global health. Its work is therefore similar to that of GiveWell.[20]

Charity Navigator's 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".[21] 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.[22]

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.[23][24] Charity Navigator has also been working to expand its criteria to include results reporting. See Charity Navigator#Evaluation_method.

United States charity assessment[edit]

In the United States, charity assessment comes in two forms: the first is a searchable database of form 990s, the second is the same information with scores and comparative rankings of charities.

Searchable databases of form 990s[edit]

Searchable databases of charities with scores and analysis[edit]

United Kingdom charity assessment[edit]

GuideStar UK [1]

References[edit]

  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. ^ Kaufman, Jeff (July 23, 2016). "Scientific Charity Movement". Effective Altruism Forum. Effective Altruism Forum. Retrieved 15 September 2016. 
  4. ^ Stuhler, Linda S. "Scientific Charity Movement and Charity Organization Societies". Retrieved April 29, 2016. 
  5. ^ Stuhler, Linda. "Scientific Charity Movement and Charity Organization Societies". Virginia Commonwealth University. VCU. Retrieved 20 September 2016. 
  6. ^ "Understanding Charity Ratings". Consumer Reports. Retrieved November 2015.
  7. ^ Gunther, Marc (5 April 2015). "Why Charity Navigator needs an upgrade". Nonprofit Chronicles. Retrieved 6 July 2015. 
  8. ^ Ann Carrns. Charity Navigator Tweaks Its Rating System. New York Times. 27 May 2016.
  9. ^ "Audit of charities encounters resistance", in The Star, by Raveena Aulakh and Amy Dempsey, published Tuesday Nov 15 2011
  10. ^ Sarah Neville (3 October 2015). "Fundraising watchdog to oversee how UK charities raise money". Financial Times. Retrieved 8 April 2016. 
  11. ^ a b 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. 
  12. ^ a b "Young Duo to 'Clear' the Way for Charitable Giving". National Public Radio. 
  13. ^ Patricia Illingworth, Thomas Pogge, Leif Wenar. Giving Well: The Ethics of Philanthropy, Oxford University Press US, 2011. p. 124
  14. ^ Peter Singer. The Life You Can Save: Acting Now To End World Poverty, Random House, 2009. Ch. 6, pp. 81–104
  15. ^ 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. 
  16. ^ "About GiveWell". GiveWell. Retrieved 18 December 2014. 
  17. ^ Rosenberg, Tina (December 5, 2012). "Putting Charities to the Test". Opinionator. The New York Times. Retrieved 18 March 2017. 
  18. ^ "Charities in the ethical spotlight". www.ethicalconsumer.org. Ethical Consumer. Retrieved 18 March 2017. 
  19. ^ "How We Assess Charities". Giving What We Can. Retrieved 18 March 2017. 
  20. ^ 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. 
  21. ^ Berger, Ken; Penna, Robert. "The Elitist Philanthropy of So-Called Effective Altruism". 
  22. ^ MacAskill, William. "What Charity Navigator Gets Wrong About Effective Altruism". 
  23. ^ "The Overhead Myth : Moving Toward an Overhead Solution". 
  24. ^ Brandt, Julie. "Overhead Costs: The Obsession Must Stop". Stanford Social Innovation Review. Retrieved July 15, 2014. 

External links[edit]

  • Internal Revenue Service [2]