Proposal to Improve Disclosure of Fund-Raising Costs Debated

A Congressional proposal that would require charities to disclose how much they spend on fund raising and charitable programs is raising a stir among fund raisers and their representatives.

Critics say that the proposal could result in some worthy charities losing money because donors would become too focused on fund-raising costs and not consider other factors, such as how effectively a charity carries out its mission.

At a hearing last month by the House Subcommittee on Federal Workforce, Postal Service, and the District of Columbia, Danny K. Davis, Democrat of Illinois, said that a central database maintained by the U.S. Postal Service that included information on all charities would help guide people in deciding which organizations to support.

Charities could be required to post information in the database in order to qualify for special reduced mailing rates for nonprofit groups, he said.

‘Donors Don’t Know’

Rep. Henry Waxman, a California Democrat who oversaw recent hearings on veterans charities as chairman of the House Committee on Oversight and Government Reform, said a database that included fund-raising information would be a good idea because many donors don’t understand how much of their money is spent on fund-raising costs, rather than a charity’s mission.

Mr. Waxman cited the case of Roger Chapin, founder of Help Hospitalized Veterans, a Winchester, Calif., charity that the committee found had spent $500,000 on salaries for Mr. Chapin and his wife and $444,600 for a condominium used by the couple.

“Donors don’t know where to get the information about these charities,” Mr. Waxman said. “They don’t know that Mr. Chapin’s organization spent only 25 cents per dollar on programs, with the rest going to fund raising.”

Mr. Chapin has denied any wrongdoing, and said that he depended on professional companies that charge high fees to solicit donations.

Michael Nilsen, director of public affairs at the Association of Fundraising Professionals, questioned whether the database could provide enough data for donors to make informed choices.

“It’s critical that donors have information, but it also should be information that’s helpful, that they can put in some context, and that won’t short-circuit their own giving,” he said. “If you see an organization that has really high fund-raising costs, ask questions, definitely. But without putting these numbers in any type of context, it’s hard to relate issues like fund-raising costs and compensation to ideals of effectiveness.”

Focus on Costs

Robert S. Tigner, general counsel for the Association of Direct Response Fundraising Counsel, said that by requiring charities to report how much of their money went to fund-raising costs compared with program spending, the postal service would be focusing public attention on a charity’s costs rather than its effectiveness.

“Any government entity that blesses those ratios is in effect telling the public they should be guided by those ratios,” he said.