Charity Watchdog Shifts Its Gaze

A longtime monitor of national organizations is now also evaluating whether local groups meet its standards

A growing number of charities may soon face increased scrutiny now that a major charity-watchdog group is turning more attention to local non-profit groups.

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The Council of Better Business Bureaus is using nearly $200,000 in foundation grants to expand significantly the number of bureaus that examine local organizations to see whether they measure up to financial and other standards. If successful, the effort would for the first time provide many individual and institutional donors with an independent appraisal of local charities.

“There is a growing need for assistance in charity accountability at the local community level,” says Bennett M. Weiner, the council’s vice-president who oversees the project.

Mr. Weiner directs the council’s Philanthropic Advisory Service, which monitors about 300 national charities and summarizes its findings in a quarterly guide that is used by tens of thousands of individuals, donors, and journalists. About 30 of the 135 bureaus nationwide currently evaluate charities on issues such as how much they spend on fund raising, how often their boards meet, and how much they disclose to the public about their operations.

Numerous government regulators, donors, and non-profit organizations support local charity review. They say the number of local charities has risen dramatically in recent years. At the same time, scandals surrounding national charities such as United Way of America have caused donors to look for information from unbiased and independent sources.

David E. Ormstedt, the Assistant Attorney General who heads Connecticut’s Public Charities Unit, says he is encouraged by the efforts to improve the monitoring of local charities.

“Most of philanthropy in this country is made up of small and mid-sized local charities, and the public wants and can use relevant timely information about those local charities,” says Mr. Ormstedt, a founder and member of the board of the National Association of State Charity Administrators.

Although the charities’ unit prepares an annual report on local fund-raising campaigns, Mr. Ormstedt says charity evaluations are best left to independent watchdog groups. Government agencies, he says, should only “gather the information, make it available, and let donors make up their own minds.”

The Council of Better Business Bureaus is not alone in its attempt to improve charity accountability at the local level. For example, associations that represent charities in Minnesota and Maryland have drawn up ethical guidelines for non-profit groups and are experimenting with ways to help charities meet the requirements (The Chronicle, July 16, 1998).

In Dayton, Ohio, the United Way affiliate for the first time will give money only to those organizations that meet the standards of the local Better Business Bureau.

The National Charities Information Bureau, which monitors and reports on 280 organizations annually, is also looking to expand its ability to help donors find out what is happening at the local level. It hopes to negotiate affiliations with local charity-review groups so it can exchange research findings and be in a better position to refer donors who need help locating reliable sources of information.

While the expansion of local monitoring efforts is receiving significant support from numerous quarters, even proponents see potential problems. Many fear that some donors will no longer give to organizations that, while worthy, lack the sophistication and resources to meet the standards of the organizations that conduct reviews.

Some observers also fear that requests for information by local review groups will heap one more layer of paperwork on officials at small charities who could better spend their time attending to their charitable programs.

The Better Business Bureaus’ effort to expand charity operations is being paid for with a grant of nearly $168,000 from the Robert Wood Johnson Foundation and a $30,000 grant from the Charles Stewart Mott Foundation. The money will pay for sessions to train local affiliates to conduct charity reviews.

Of the 23 standards that the Philanthropic Advisory Service uses in its national evaluations, Mr. Weiner has selected 15 that he and bureau officials consider to be most useful in assessing local operations. Mr. Weiner says he would like to see all bureaus eventually conduct local charity reviews, although he acknowledges that some may not have enough money or staff members to do so.

Some local Better Business Bureaus and other independent groups already have a long-standing history of monitoring charities.

Leroy J. Wormley, Jr., manager of the corporate-community relations program at IBM’s research facility in Austin, Tex., says he frequently consults the evaluations done by the Better Business Bureau of Central Texas, in Austin, to decide how to give away cash and equipment to local charities each year.

“It’s healthy for people to know how much is being raised and where it’s going,” says Mr. Wormley.

Minnesota has had local charity review since 1946, when several of the state’s Community Chests, a precursor to the modern-day United Way, created what is now known as the Charities Review Council of Minnesota. Twice a year, the organization publishes its free “Giving Guide,” which summarizes the evaluations of about 200 local and national charities.

The review council’s executive director, Angela Bies, says that local non-profit groups often request review and also refer prospective donors to the council for independent information.

Donors in cities without such review programs say they badly need more information to guide their decision making.

“I’d love something like that,” says Allan Krulak, who oversees grant making at Forest City Enterprises, in Cleveland, a real-estate company. As a cost-saving measure, Cleveland’s chamber of commerce eliminated its charity-review program in 1994, making it more difficult for Mr. Krulak to decide which organizations should receive gifts from his company.

In spite of the support for local review efforts, many experts caution that unless the Council of Better Business Bureaus’ expansion is done carefully, many local charities could be treated unfairly.

Dorothy Weiss, executive director of Cleveland’s Grantmakers Forum, which represents 140 corporations and foundations, worries about the message that watchdog groups send when they use a one-size-fits-all set of standards. She says organizations that provide vital neighborhood programs, often with few resources, are especially vulnerable to unfair criticisms.

“Maybe they’re not as buttoned-down as we want them to be, but to me the bottom line is: Are they getting the job done?” says Ms. Weiss.

How effective an organization is in accomplishing its charitable mission is the only thing a watchdog group should consider, says Lee M. Cassidy, executive director of the National Federation of Nonprofits, in Washington. Mr. Cassidy says factors such as how much a charity spends or how often its board meets should be irrelevant to donors and watchdog groups.

“Charities are not organized to file reports, they are not organized to meet accounting standards, they’re not organized to be neat and efficient,” he says. “They are organized to solve society’s problems.”

Jerry Grohowski, president of the Better Business Bureau in Charlotte, N.C., says using objective standards is fine if bureaus also take into account special circumstances. He says he learned that as head of the bureau in Norfolk, Va., which had a small evaluation program.

In examining a local group that provided badly needed housing for Vietnam veterans, the bureau was concerned by the amount the charity was spending on a professional fund-raising company. The bureau ordinarily would have announced that the organization had flunked the review. Instead, the bureau decided that it would be better to tell prospective donors that, although the organization did not meet financial standards, it was doing an effective and important job. The bureau also suggested that donors give directly to the charity and bypass the fund-raising company.

“At the local level you have people with big hearts who are trying to do the right thing, and they’re doing it on a shoestring,” Mr. Grohowski says. “Guidelines are good and they help give things a structure, but you have to look further.”

Aside from the concern about strict guidelines, some people are worried about another issue: the amount of red tape that charities must deal with as more and more organizations seek to evaluate charities at the local level.

Betty S. Beene, president of United Way of America, says charities that receive support from their local United Ways already have to provide information to prove that they are eligible. She says she supports the Better Business Bureaus’ expansion plan, but hopes that charities that have been scrutinized by United Way will be exempted. “The last thing an agency needs is one more request to fill out one more form,” she says.

Not everybody thinks that Better Business Bureaus are the best entities to monitor local groups.

Peter Berns, executive director of the Maryland Association of Nonprofit Organizations, says that although he thinks there is room for the bureaus to get involved, he prefers that charities form their own monitoring groups.

Mr. Berns’s 850-member association has done just that. In the summer it adopted its own “standards for excellence” program that reviews local non-profit groups, allowing those that pass muster to display a seal of excellence on their fund-raising solicitations and other material. The association also offers training and advice to those who do not meet one or more of its standards.

Mr. Berns says such help can make a big difference to organizations that are doing good work but that may not have developed comprehensive fund-raising or management standards. He worries about what would happen if such charities were stigmatized for failing the standards of the Better Business Bureau or another organization before they had a chance to improve.

Daniel Borochoff, president of the American Institute of Philanthropy, in Bethesda, Md., a watchdog organization that monitors national charities, says he fears that the Council of Better Business Bureaus’ Philanthropic Advisory Service has not always been tough enough in its monitoring of charities. What’s more, he says, Better Business Bureaus must take precautions to avoid conflicts of interest. He says it is likely that people who sit on the boards of local Better Business Bureaus also serve on charity boards and could find themselves in an awkward position as a result.

Mr. Weiner, head of the Philanthropic Advisory Service, says he doesn’t anticipate that being a problem. It would be too difficult for charity-watchdog organizations to measure a non-profit group’s effectiveness, Mr. Weiner says, but it is not unreasonable to expect charities, large and small, to meet certain expectations.

“There are basic ethics issues outside of how effective an organization is in addressing a particular need or problem in the community,” he says. “Who would argue that accurate, honest appeals are not important to anyone?”