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Proposed standards may get pushback from nonprofits

The Charities Review Council is changing its accountability measures and some of the proposed standards could become hot potatoes in the nonprofit community.

The rewrite will take a year, but executive director Rich Cowles said new criteria could include:

• Online giving and donor privacy policies.
• Executive compensation and the gap between highest- and lowest-paid workers.
• Whether the charity has set measurable outcome goals and how well it met them.
• Diversity — and whether the organization’s makeup reflects the people it serves.

The Charities Review Council is an independent monitor that aims to give donors and philanthropists the information they need for making effective donations. It prefers to be called a “guide dog” instead of “watch dog” because its focus is more on helping nonprofits improve operations than on pointing out fraud.

Since 1998, the St. Paul-based council has used 16 standards to assess nonprofit accountability. Standards include overhead costs, public disclosure policies and the organization’s financial stability.

More than 300 organizations have voluntarily gone through the council’s formal evaluation. The reviews, available on the council’s website, are a seal of approval for many donors. The council gleans financial information from nonprofits’ audited financial reports and IRS 990s. For those groups that don’t go through the evaluation, the council offers a snapshot of groups’ spending over three years and a link to their 990s filed with the attorney general’s office charities database.

Cowles says the charities landscape has changed since the council issued its standards 10 years ago. “We still think the standards work well. But there are areas that need to be addressed,” he said.

Claire Topp, a Dorsey & Whitney partner, chairs the committee overseeing the Accountability Standards Project. The 11-member committee includes Gloria Lewis, president and CEO of Big Brothers/Big Sisters of the Greater Twin Cities; Joy Persall, executive director of Native Americans in Philanthropy, and Melissa Stone, director of the Public and Nonprofit Leadership Center at the Humphrey Institute.

The council, which plans to have a draft ready for the public in July, will hold public and online meetings with donors, nonprofits and foundations after that. “We want to hear from voices we haven’t heard from in the past, particularly from communities of color, Cowles said. “One of our key goals is to test our standards for cultural bias.”

The council plans to have the new standards in place by early 2009.

How many standards are too many?
For years, the council has cautioned donors against focusing too much on the administrative overhead standard, an easy yardstick. The standard says charities should spend at least 70 percent of their money on programs and not more than 30 percent on management and fundraising.

So a donor might rank organizations by spending patterns, thinking that if Charity A spends 85 percent of donations on programs that it is more effective than Charity B, which spends 75 percent on programs. But Cowles said that isn’t necessarily the case.

Charities need to spend money on strategic planning, board development and computer systems. If donors push charities to minimize those costs, an organization’s long-term health could be jeopardized.

But if the council doesn’t want to oversimplify giving decisions, neither does it want to add so many criteria that it makes the system unwieldy.

Keeping things simple is good, Cowles said: “We want something that is accessible and understandable by donors. Without dumbing down, how do we take complex organizations and make them measurable in a meaningful way that is understandable by the public?”

Seeking a middle ground
It will be interesting to watch what pushback the council gets as the process rolls out.

Take, for example, a proposal to push nonprofits for better outcome measures. Outcome studies are expensive and nonprofits’ funders usually don’t provide evaluation money.

In some areas, such as mentoring, advocates are moving away from measuring outcomes for each program; studies have already shown that mentoring works. The focus is shifting instead on whether programs meet quality standards, such as the length of a mentoring relationship. (It needs to be at least six months.)

Cowles says the council doesn’t have the staff to review outcomes of each charity. “It would bring us to our knees.” He’s looking for a middle ground, such as asking nonprofits to declare their goals ahead of time and then report the results to donors every year.

At this point, it is just one suggestion among many.

“We think if you get smart people around the table you will come up with something good,” he said.

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Comments (1)

  1. Submitted by Eve Borenstein on 04/14/2008 - 01:56 pm.

    Great article! I’m confident that the Charities Review Council’s impending refinement of standards will prove to be ahead of a curve that is developing across the country. Rich Cowles’ comments about the need to NOT have donors facile look to percentage of program expenditures are not surprising. In too many quarters, the need for charities to spend appropriately on management tasks has been overshadowed by pressure to push up one’s program percentage.

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