What the Nonprofit Watchdogs are Watching

January 13, 2012

Douglas A. Boedeker, CPA, CMA Partner (202) 419-5106 dboedeker@tatetryon.com

Agenda

Do watchdogs matter? Who are the watchdogs? Discussion of specific approaches:

BBB Wise Giving Alliance Charity Navigator

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Do Watchdogs Matter?

According to recent research*:

77.7% of donors do not use any watchdog rating when making a decision to donate money. 57.9% do not obtain information from any Internetbased source.

A 2001 BBB Wise Giving Alliance study reported that 79% had not used the internet for charity information.*

*Source: Nonprofit Watchdogs, Do They Serve the Average Donor?; Cnaan, Jones, Dickin, and Salomon; Nonprofit Management & Leadership, vol 21, no. 4, Summer 2011; Wiley Periodicals, Inc.
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Do Watchdogs Matter?

However, the same study also had the following findings*:

We found that in both groups, donation size is significantly associated with use of the watchdog organizations ratings. As was discussed earlier, when the donation size is high, the loss is more meaningful; many such high-level donors plan strategically to make an impact, and as a result, they are more careful when making a donation Surprisingly, the stronger explanatory variable was advocacy engagement. In both sample groups, those who engage in advocacy were more likely to use the internet and more likely to search the watchdog organizations websites.

*Source: Nonprofit Watchdogs, Do They Serve the Average Donor?; Cnaan, Jones, Dickin, and Salomon; Nonprofit Management & Leadership, vol 21, no. 4, Summer 2011; Wiley Periodicals, Inc.
January 13, 2012 Copyright 2012 Tate & Tryon CPAs and Consultants

Where to find watchdogs

Google:

CharityWatch (American Institute of Philanthropy) Charity Navigator Charity Evaluator (watchdog watcher) Charity Watchdog

Consumer Reports:

Charity Navigator CharityWatch

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Where to find watchdogs

District of Columbia Government website:

Refers readers to Federal Trade Commission website

Maryland State Government website:

Guidestar Charity Navigator Federal Trade Commission

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Where to find watchdogs

Virginia Government website:

AARP American Institute of Philanthropy BBB Wise Giving alliance Consumer Federation of America Direct Marketing Association GuideStar LifeSmarts National Association of State Charity Officials National Better Business Bureau National Fraud Information Center
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January 13, 2012

Where to find watchdogs

Federal Trade Commission website:

BBB Wise Giving Alliance American Institute of Philanthropy (Charity Watch) Charity Navigator GuideStar For military relief societies, www.militaryhomefront.dod.mil

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Where to find watchdogs

Academic research found that donors used the following sources*:

Organizations website: 61.1% Better Business Bureau: 40.2% Charity Navigator: 11.5% Amer. Inst. of Philanthropy: 6.8% GuideStar: 5.5% Network for Good: 3.1% Other 19.3%
*Source: Nonprofit Watchdogs, Do They Serve the Average Donor?; Cnaan, Jones, Dickin, and Salomon; Nonprofit Management & Leadership, vol 21, no. 4, Summer 2011; Wiley Periodicals, Inc.

January 13, 2012

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BBB Wise Giving Alliance

Centers around the BBB Wise Giving Alliances Standards for Charity Accountability Mostly voluntary process

Charities can apply for the right to display the BBB Seal. (Requires an annual license fee.) The Alliance continues to report on national charities that have been the subject of recent inquiries regardless of whether a charityintends to apply for the national charity seal.

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BBB Sample Report

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BBB WGA Charity Accountability Standards

The standards seek to encourage fair and honest solicitation practices, to promote ethical conduct by charitable organizations and to advance support of philanthropy.

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BBB WGA Charity Accountability Standards - Highlights

Governance and Oversight

Board should provide adequate oversight. Board should be largely independent. No material conflicts of interest.

Measuring Effectiveness

Board policy to assess organizations performance and effectiveness at least every two years.

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BBB WGA Charity Accountability Standards - Highlights

Finances

At least 65% of total expenses on program activities. No more than 35% of related contributions can be spent on fundraising. Unrestricted net assets should be no more than three times anticipated expenses. Audit if revenues are greater than $250,000. Prepare a statement of functional expenses. Accurately report the charitys expenses, including any joint cost allocations, in its financial statements. Board-approved annual budget.
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January 13, 2012

BBB WGA Charity Accountability Standards - Highlights

Fund Raising and Informational Materials

Accurate solicitation and informational materials. Annual report should be available upon request. Provide mailing address & electronic link to Form 990. Address donor privacy concerns. Disclose how the charity benefits from the sale of products or services. Respond promptly to and act on complaints brought to its attention by the BBB Wise Giving Alliance and/or local BBBs about fund raising practices, privacy policy violations and/or other issues.
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January 13, 2012

BBB WGA Charting Impact

A new concept, based on self-reported answers to five questions:

What is your organization aiming to accomplish? What are your strategies for making this happen? What are your organizations capabilities for doing this? How will your organization know if you are making progress? What have and havent you accomplished so far?

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Charting Impact Sample Report

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Charity Navigator Your Guide to Intelligent Giving

To be evaluated:

Must be a 501(c)(3). Must file a Form 990 (not a 990-PF or 990-EZ). Public support must be at least $500,000. Total revenue must be more than $1,000,000. Must have at least four years of Form 990. Must be based in the U.S. Charities that report $0 in fundraising expenses are excluded from evaluation. Excludes charities receiving most of their funding from government grants or program service fees.
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January 13, 2012

Charity Navigator Rating System

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Charity Navigator Rating Financial Health

Based on 7 key metrics:

Program Expenses Administrative Expenses Fundraising Expenses Fundraising Efficiency Primary Revenue Growth Program Expenses Growth Working Capital Ratio

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Charity Navigator Rating Accountability & Transparency

Data pulled from the 990:

Independent Board. Material diversion of assets. Audited financial statements and oversight committee. Loans to or from related parties. Documented Board meeting minutes. Form 990 provided to the Board. Conflict of Interest, Whistleblower, and Document Retention & Destruction Policies. CEO is listed with salaries. Process for determining CEO compensation. Is the Board compensated?

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Charity Navigator Rating Accountability & Transparency

Data pulled from the charitys website:

Board members listed. Key staff listed. Audited financial statements are listed. Form 990 is listed. Is there a written privacy policy published on the website? Best is one that states unambiguously that (1) it will not sell, trade or share a donors personal information with anyone else, nor send donor mailings on behalf of other organizations or (2) it will only share personal information once the donor has given the charity specific permission to do so.
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January 13, 2012

Charity Navigator Calculating the Score

January 13, 2012

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Charity Navigator CN 3.0

Charity Navigator is working on a results dimension to add to its rating system. Looks to garner rigorously collected feedback from a charitys constituents. The results dimension will become the largest portion of the total rating score. Goal is to evaluate 10,000 charities each year via the use of volunteer raters. (Currently, 5,500 charities are rated.)
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January 13, 2012

Thank you for your time!

January 13, 2012

Copyright 2012 Tate & Tryon CPAs and Consultants

Speaker Biography
Douglas Boedeker , is a partner within Tate & Tryons Audit and Assurance Services unit and is also actively involved in the Firm's exempt organization tax services group. He has 20 years of experience providing an array of audit, tax, and consulting services to a variety of nonprofit organizations and employee benefit plans. He takes particular pride that his family has contained at least one CPA every year since 1923. Doug graduated summa cum laude from Susquehanna University in Selinsgrove, Pennsylvania with a Bachelor of Science degree in accounting while simultaneously completing the coursework for a second major in arts administration. He was also named as the Universitys recipient of The Wall Street Journal Outstanding Business Student Award. Doug is a frequent speaker on a variety of exempt organization tax issues and the Form 990. He recently presented a session on easing the 990 preparation process for CFOs and auditors at the 2011 AICPA Not for Profit Industry Conference. Doug is a coauthor to Guide to the Newest IRS Form 990: Interpreting and Complying with the New Tax Reporting Requirements for Transparency and Accountability, (published by ASAE).
January 13, 2012 Copyright 2012 Tate & Tryon CPAs and Consultants