For the vast majority of Canada’s 85,000+ charities, the work they do is often unheralded, workmanlike and of interest only to the stakeholders impacted by their cause. The organization keeps its head down, does the best it can on whatever budget it manages, and dispenses aid to those in need.
But what if, all of a sudden, charitable organizations’ methodologies and work practices were pitted against each other to determine who is providing the best service to clients and best value for donors’ money?
This is what a dawning trend in the charitable sector in Canada — and around the globe — is creating, namely the emergence of charity rating and ranking organizations, aka charity sector watchdogs. These are organizations that seek ostensibly to help donors make better choices by providing statistics and quantifiable data on which charities make most efficient use of donor dollars received.
While some believe this is a much-needed check on organizations that abuse their charitable status, sector leaders think it’s a waste of energy.
Intelligent navigators
Perhaps one of the best-known watchdogs in North America is the U.S.-based Charity Navigator. Its executive director and president, Ken Berger, spoke to CharityVillage® recently about his organization’s modus operandi and why he believes it’s critically important for the American — and by extension Canadian — charitable sectors to have those of his ilk patrolling the waters on behalf of donors.
“We believe that the public wants information that is simple to access, easy to understand and free. And they want a judgment. They don’t just want information and then have to figure out for themselves where to give. They want an expert to provide them with some recommendations on the good, the bad and the ugly,” he said, adding, “Our primary function is to try and help people as a guide to intelligent, charitable giving. Everything that falls within that broad mission, which includes providing information, education, and a role as a watchdog to advocate on behalf of donors.”
Berger goes further, saying part of his organization’s mission is also to direct more donations to high-performing nonprofits. “Our analysis, we believe, brings to the surface those that are doing the best job, so ultimately we can help change the world for the better by driving more money to the best and hopefully depleting money from the corrupt as well as the clueless.”
And here’s where the arguments truly begin. Defining the best, according to some, is an impossible task.
Imagine that
According to Cathy Barr, vice-president of research at Imagine Canada, the notion of being able to parse out which charities out-perform others strictly on the basis of financial analyses and accounting principles is wrong-headed.
“Just the idea of ranking [charities] does not make any sense. Charities are just too different. They can range from organizations with a handful of volunteers and unpaid staff with just a few thousand dollars of revenue, to multi-million dollar organizations,” Barr says. Beyond that, she says that while Imagine understands that donors might like a quick-and-easy ranking system to help guide their giving, ranking systems are not the way to go about it.
Rankings are misleading and Imagine hasn’t found one yet that it believes provides useful information to prospective donors, Barr says. Although she does believe that charities should provide information to their stakeholders.
“We’ve no problem at all with organizations that aggregate this information and make it available publicly. But it’s when they cross over to just providing the info to trying to compare one charity to another and tell people where they should donate their money or spend their time, that we think is a problem. It feeds into this notion of…a simple answer on how to pick a good charity. People get very fixated on certain measurements, such as fundraising costs or administrative costs, which we don’t think is a measure of anything other than fundraising costs and administrative costs. These don’t tell you how effective the charity is or even how efficient they are.”
Which is why Berger and Kate Bahen, managing director of Toronto-based Charity Intelligence (CI) — Canada’s answer to Charity Navigator — seek to explain that their analyses do more than just provide raw data without context.
In fact, Berger said that his organization recently launched a new calculation matrix which goes beyond just looking strictly at a charity’s financial efficiencies with donor dollars — something he admits was done for the first seven years of Charity Navigator’s existence — but now also includes looking at how charities “define their results and what evidence they have to show they are meeting their outcome indicators for measurable success.”
He adds: “On the finance side, we look at things like how much money is needed for fundraising? How much is needed for administration and infrastructure? How sustainable are you? What kind of working capital do you have? These are the financial bucket questions. And in the third bucket on transparency, we ask questions like ‘Do you have a whistleblower policy? Do you have a conflict-of-interest policy? How do you set CEO compensation? Do you look for objective research to set compensation?'”
Results, results, results
Both Berger and Bahen say that separating the good charities from the bad goes beyond just dollars and cents. According to Berger, the most high-performing charities have three basic ingredients:
- They are financially healthy and use good financial practices.
- They are transparent and accountable to all their stakeholders and are very responsive to all their audiences.
- They provide results-based evidence they are fulfilling their missions.
It’s this last point that is the raison d’être of both Charity Navigator and CI.
“Traditionally, what charities have done…is tell stories and give you anecdotes about their work, but they don’t really tell you about meaningful results. And if they give you anything about results, it’s usually in the form of headcounts. ‘We serve this many people’ or ‘this many people went through our employment program.’ But what we want to know is how many of them are now gainfully employed and happy a year later and have a job that doesn’t require them to rely on entitlements anymore?” Berger states.
It should be noted that Berger and Bahen’s organizations maintain a close working relationship, with Charity Navigator frequently providing CI with guidance and support on how best to go about its business and update its methodologies.
“We are a US $1.3 million operation that is monitoring a US $2 trillion portion of the American economy. The charitable sector here and around the world is largely the Wild West. It is largely unmonitored and so the good, the bad, the ugly are all mixed together,” Berger says.
For Bahen, the work of Charity Intelligence aims to monitor the close to CAD $9 billion Canadians spend on giving each year. For more detail on CI’s history and methods, CharityVillage® published a detailed look at that organization last year.
Bahen tells CharityVillage that her organization has two main functions: 1) to rank and rate charities doing similar work and tell donors which one is most efficient in its use of donations; and 2) to act as a broker for donors, by redirecting 100 per cent of donor funds they receive to charities they recommend.
CI doesn’t keep any percentage of these donations for itself, but Bahen says some donors are so pleased with being able to fund through her organization, itself a nonprofit, that they often give a separate gift to help fund its continued operations.
Bahen noted that CI doesn’t typically evaluate foundations; however, when pressed responded that foundations are middlemen and CI can often find a more direct donation route for donors where their money will go straight to the charity or cause being considered and not through the hands of a foundation that will cut into the donation to help pay for its own fundraising activities — whether that’s staff salary, advertising or any other expenses that the foundation may have.
“We believe people should be supporting organizations like ourselves and CI because there is a desperate need for objective, third-party information,” Berger says. “The most valuable commodity that a charity has is the trust of the public. This has been tremendously damaged around the world by corrupt scoundrels who abuse the privilege of tax-exemption and of providing a public good.”
But is all this a good thing?
Who watches the watchers?
Back at Imagine, Barr says that Imagine itself is in kind of a watchdog role via its ethical fundraising and financial accountability code, which it has promoted for more than 10 years. And now it’s watching the self-titled watchdogs.
While Imagine has no problem with the concept of a watchdog, Barr insists groups like Charity Navigator and CI are missing the point.
“For too long we’ve let [charities’] success be defined by low fundraising and low overhead costs, which is quite frankly ridiculous. What other type of organization is judged on measures like that? Is a good business one that puts zero dollars into research and development? Does that make sense?” she asks.
Furthermore, donors are not simple creatures. “Different people have different wants and desires. How one person might rank a charity might be completely different from another,” Barr says.
That said, Barr says that over the last 10 years she’s seen a shift in charities becoming more open with information such as financial audits. “There’s a new thinking that says: ‘we no longer need to just be doing good and being good stewards of money, but we need to be seen [to be doing that].'”
For its part, the Canada Revenue Agency (CRA) has no problem with the emergence of charity sector watchdogs.
In a statement, the CRA said while it “does not endorse any particular external watchdog organization we do support greater public access to clear and understandable information on registered charities. The CRA is committed to enhancing transparency and as part of this effort makes available to the public and organizations, information returns (T3010) for all registered charities, available on our website under Charities and Giving. The public plays a vital role in monitoring charities and ensuring the accountability of the sector.”
That may be well and good, but Bahen says that in its research CI will sometimes consult the T-3010s of charities it’s investigating, but more often than not, the forms are “incomplete” and “unreliable.”
A source of objective info
Anderson Charters, owner of CharityCan.ca, a third-sector publishing house that puts out a donors guide that is, as he terms it, “a Yellow Pages” of Canadian charities, says his organization shies away from making suggestions about which charities have more merit.
CharityCan, he says, “is not a rankings and ratings source for Canadians, but rather a source of info for Canadians taken solely from the CRA’s T-3010 files. CharityCan.ca aggregates this info and puts it into a user-friendly format for clients to access for their own research and needs. It provides information that allows users to do their own sorting, ranking and comparing, if they wish to do so. But we do not, as a business, publish any rankings. And we do not make recommendations.”
In his opinion, organizations like CI and Charity Navigator have their uses. In many cases, when comparing charities; he says “one is really dealing with apples and oranges. Using financial data and ratios alone [to make donation decisions] doesn’t necessarily give one a full picture of the merits of a particular charity versus those of another.”
The key difference between CharityCan and ranking organizations like CI, Charters says, is “we give the user the tools to create these reports or comparisons, but we do not interpret, or attempt to interpret, the results for anybody.”
A legal opinion
Toronto charity lawyer Mark Blumberg of Blumberg Segal LLP — and the informative blog Globalphilanthropy.ca — provides a voice of moderation, telling CharityVillage® that the emergence of charity watchdogs is, on the whole, a good thing. However, it’s his opinion that there is still a ways to go before they really have a handle on how to properly rank and rate charities.
He says that while there are those who attack charity watchdog organizations because by highlighting problem-charities they may be seen to contribute to public mistrust of charities, he’s unconvinced.
“We cannot ignore the misconduct of a very small number of charities and let these bad actors hide out amongst the goodwill and glow of 85,000 charities in Canada,” Blumberg notes. “Whether it is tax evasion schemes, fraudulent receipting, improper fundraising, abuse of children or vulnerable beneficiaries, or other egregious conduct, the sector and our society should not allow the few bad actors impunity just because they are ostensibly in the ‘charitable sector.'”
The biggest challenge with charity watchdogs, Blumberg says, is that they sometimes “inappropriately” simplify issues and promise too much. “One cannot tell whether a charity is a good or effective charity simply by looking at the ratio of money spent on the cause. What is best is very subjective. Some charity watchdogs try to evaluate a large number of charities using methodology that, whether they acknowledge it or not, is too dependent on unreliable financial numbers and ratios that are fraught with problems,” Blumberg states.
He says those calculations and ratios, when overemphasized, often make “hideous” charities look great or good charities look bad. And while it may be easier to pick out a bad charity from all the good ones, he says, it is infinitely more difficult to distill good charities from great charities. “The emphasis on financial numbers and ratios rewards charities that are sloppy in filling out their T3010, promote non-transparent accounting or are downright dishonest. I have noticed a number of charities positively rated by watchdogs that raise millions of dollars through fundraising events that list they spent $0 on fundraising.”
One thing is clear to Blumberg though: these watchdogs are here to stay. And he has the following words of counsel for charities and watchdogs alike.
“[Charities should] be aware of the criteria used by watchdogs, consider improvements with respect to some of the criteria if they make sense to your charity, let the watchdog know why certain criteria may not be appropriate, be able to respond to queries from watchdogs, and be prepared to discuss with stakeholders (including the media) why a good charity may not in some cases look so great when particular methodology is used,” Blumberg says. “For many charity watchdogs, just like the charities they are watching, they are a work in progress and they have significant room for improvement. A good watchdog, like a good charity, will listen, be prepared to acknowledge mistakes, offer its work with some humility and be constantly trying to improve.”
Editor’s note: We attempted numerous times to get comment and perspective on this story from individuals who work for organizations in the charitable sector. No one was willing to speak on the record.
Andy Levy-Ajzenkopf is president of WordLaunch professional writing services in Toronto. He can be reached at andy@wordlaunch.com.
