Watchdog group says several fundraising groups do poor job
By PHILIP RUCKER, Washington Post
First published: Sunday, December 16, 2007
WASHINGTON — Americans gave millions of dollars in the past year to veterans charities designed to help troops wounded in Iraq and Afghanistan, but several of the groups spent relatively little money on the wounded, according to a leading watchdog organization and federal tax filings.
Eight veterans charities, including some of the nation’s largest, gave less than a third of the money raised to the causes they champion, far below the recommended standard, the American Institute of Philanthropy says in a report.
The institute’s report suggests that 20 of the 29 military charities studied were managing their resources poorly, paying high overhead costs and direct-mail fundraising fees and, in some cases, providing their leaders with six-figure salaries.
The American Institute of Philanthropy’s report used letter grades based largely on the charities’ fundraising costs and the percentage of money raised that was spent on charitable activities.
The grades were:
Freedom Alliance (F)
Criticism
Studies of charity watchdogs' methods have raised concerns about the validity of their ratings, and suggest they may not be reliable source for charity ratings. AIP reviews only 500 charities, where Charity Navigator reviews over 5,400, and it is undetermined how AIP selects the charities it reviews. One group that AIP is critical of claims that AIP rates a large number of liberal groups, as compared to conservative groups, and only a small number of pro-military groups.[26] However, on its website, AIP posts the names of all the charities it rates; the list indicates that of the charities that have a political bias, the charities cover a wide spectrum of political beliefs.[27]
Charity rating organizations have been criticized by philanthropy experts for the validity of their evaluation methods and their conclusions. A study reported in the Stanford Social Innovation Review—an award-winning magazine covering successful strategies of nonprofits, foundations and socially responsible businesses—found that watchdog groups:
Rely too heavily on simple analyses and ratios derived from poor-quality financial data;
Overemphasize financial efficiency while ignoring program effectiveness; and
Do a poor job of conducting analyses in important qualitative areas, such as management strength, governance quality and organizational transparency.
Specifically, this study found that a "gotcha" mentality and lack of transparency were AIP's biggest shortcomings, saying it was "difficult to understand what specific adjustments AIP made to a given nonprofit's ratings and why."[28] This study's authors concluded that, as donors make important decisions using potentially misleading data and analyses, the potential of watchdog agencies to do harm may outweigh their ability to inform.[29] They suggested:
A more effective nonprofit rating system should have at least four main components: improved financial data that is reviewed over three to five years and put in the context of narrowly defined peer cohorts; qualitative evaluation of the organization's intangibles in areas like brand, management quality, governance, and transparency; some review of the organization's program effectiveness, including both qualitative critique by objective experts in the field, and, where appropriate, "customer" feedback from either the donor or the aid recipient's perspective; and an opportunity for comment or response by the organization being rated.[30]
A second study, Rating the Raters: An Assessment of Organizations and Publications that Rank/Rate Charitable Nonprofit Organizations,[25] provides a separate assessment of AIP, Charity Navigator, Better Business Bureau Wise Giving Alliance, and other charity information services. The major findings are:
Approaches and criteria are not the same. The methodologies and criteria used vary significantly among the various rating and ranking organizations.
Evaluation criteria may not be readily apparent. Not all nonprofit rating and ranking groups make it easy for the donor to determine the evaluation method and criteria used. Evaluators may use criteria that are overly simplistic. Simple financial ratios and/or measurements that apply in some circumstances may not apply in others. Evaluators focus on financial measurements and overlook program effectiveness. Financial "efficiency" is assessed by most third-party ratings groups as a percentage of contributions received. This tends to be their primary focus.
Competence of the evaluator is critical and difficult to determine. It is virtually impossible for donors to determine the relevant credentials, expertise and experience of the rating organization's staff. Evaluators often derive revenue as a result of their rating reports, creating a potential conflict of interest and questioning whether these groups are motivated by the desire to inform potential donors or by the media attention that improves their revenue stream. AIP, for instance, charges a fee for a sample copy and requires membership as a condition for receiving its annual rating reports.
Some groups criticized by AIP, such as Paralyzed Veterans of America, have pointed out that they meet "all 20 criteria that the Better Business Bureau Wise Giving Alliance establishes for charities, including that a charity's fundraising costs not exceed 35 percent of contributions, a common standard."[31] The Better Business Bureau Wise Giving Alliance charges charities to use its seal of approval.[32] Vietnam Veterans Memorial Fund asserts that the criticisms leveled here against charity watchdogs all apply to AIP.[26]
A liberal organization that even Wikipedia criticizes!
http://en.wikipedia.org/wiki/American_Institute_of_Philanthropy