Watchdog Group Proposes Changes in Evaluating Charity Operations
By GRANT WILLIAMS
Contributor
January 24, 2002 | Read Time: 7 minutes
The nation’s major charity watchdog group, the BBB Wise Giving Alliance, this week is
releasing proposed guidelines that call on nonprofit groups to devote at least 65 percent of their total expenditures to charitable programs, regularly evaluate their operations, and take steps to protect donors’ privacy.
The BBB Wise Giving Alliance said that the 21 standards deal with “long-standing accountability concerns,” as well as “emerging concerns, including charity Web-site disclosures and the importance of spending funds in accordance with donor intentions.” The proposals provide detailed requirements for financial statements and conflict-of-interest policies.
When adopted, the standards will serve as the basis for reports that the alliance produces on national charities, as well as reports that local Better Business Bureaus make on local organizations. Among the key guidelines charities would be asked to follow:
- Boards should demonstrate they are providing adequate oversight of a charity’s operations. The provision says that indications of adequate oversight include “regularly scheduled appraisals of the CEO’s performance” and “evidence of disbursement controls, such as board approval and monitoring of the budget and fund-raising practices.”
- Organizations should provide — preferably in all written appeals to first-time donors, but not less often than annually — a check-off box or other method for both new and continuing contributors to inform the charity if they do not want their names and addresses shared outside the groups.
- Charities should assess their performance at least every two years and determine what future actions are needed to achieve their missions. A written report that outlines that assessment and recommended actions should be submitted to the organization’s board for its approval.
The alliance was formed last year when the Council of Better Business Bureaus’ Foundation and its Philanthropic Advisory Service merged with the National Charities Information Bureau.
The new standards will replace the separate standards that were applied by the two now-defunct watchdog groups. Some of the proposals mirror those used by the old organizations, but some are revised or entirely new.
Some critics of the merger of watchdog groups have been concerned that standards devised by the Wise Giving Alliance might water down previous requirements of the now-closed groups. But H. Art Taylor, chief executive officer of the alliance, said that his organization has come up with a tough but fair set of requirements. “I’m sure there will be people who will comment that the standards are not strong enough, and there will be others who will say that they are way too strong. But we think they are about where they need to be.”
Mr. Taylor pointed to one proposed standard on a key financial matter — use of funds — that is more stringent than either of the earlier requirements by the alliance’s watchdog predecessors.
The Philanthropic Advisory Service had expected organizations to spend at least 50 percent of their income on programs. The National Charities Information Bureau had required that at least 60 percent of annual expenses go for programs.
The Wise Giving Alliance has proposed that at least 65 percent of total expenses should be spent on programs, in part because of the response from donors in a poll conducted for the alliance last year. “The donating public, according to our survey, wanted to see 85 percent of the money spent on programs,” said Mr. Taylor.
While the alliance felt that such a figure was unreasonable, Mr. Taylor said the organization decided to embrace the NCIB’s focus on expenses and increase the spending requirement to 65 percent in order to better reflect the public’s expectations.
The complete draft of all 21 proposed standards, with explanations, is scheduled to be posted this week on the Wise Giving Alliance’s Web site, http://www.give.org. The group will accept comments over the next four months at this address: Exposure Draft, Standards for Charitable Accountability, BBB Wise Giving Alliance, 4200 Wilson Boulevard, Suite 800, Arlington, Va. 22203.
Charity Watchdog’s Proposed Standards: How Key Elements Compare With Previous Guidelines
COUNCIL OF BETTER BUSINESS BUREAUS’ FOUNDATION/PHILANTHROPIC ADVISORY SERVICE
Assets: Discouraged organizations from accumulating excessive assets by requiring charities to spend at least 50 percent of their total incomes on programs.
Board: The board, and executive committee, should have no fewer than three members. It should meet at least three times a year, with sessions spaced evenly and a majority in attendance. No more than one-fifth of the board or executive committee members should be directly or indirectly compensated.
Charity Web sites: No standard.
Commercial activities: Solicitations that include the sale of goods or services should indicate the actual or anticipated portion of the sale price that will benefit the charity.
Diversity: No standard.
Donor privacy: Organizations should honor donor requests for confidentiality, including requests that one’s name and contact information should not be exchanged, rented, or sold.
Performance measures: No standard.
Use of funds: At least 50 percent of total income should be spent on programs. Fund-raising costs should not exceed 35 percent of “related contributions,” which are donations received as a result of fund-raising efforts. Total fund-raising plus administrative costs should not exceed 50 percent of total income.
NATIONAL CHARITIES INFORMATION BUREAU
Assets: Net assets available for use in the next fiscal year should not be more than twice the current year’s expenses or twice the next year’s budget, whichever is higher.
Board: The board should have no fewer than five voting members. It should hold meetings, evenly spaced, at least twice a year, with a majority in attendance. No more than one paid staff member can be on the board, and he or she cannot serve as chairman or treasurer.
Charity Web sites: No standard.
Commercial activities: Promotions should provide basic descriptive and financial information or state that this information is available.
Diversity: Organizations should have a policy promoting pluralism and diversity within their boards, staffs, and constituencies.
Donor privacy: No standard.
Performance measures: No standard.
Use of funds: At least 60 percent of annual expenses should go for programs. Fund-raising expenses should be reasonable over time.
BBB WISE GIVING ALLIANCE
Assets: Avoid accumulating funds that could be used for current programs. Net assets available for use should not exceed twice the total expenses budgeted for the current year.
Board: The board, and executive committee, should have a minimum of five voting members. It should hold at least three evenly spaced meetings each year, with a majority attending each meeting in person. Not more than one person who receives direct compensation from a charity (for example, a paid staff member), or who receives indirect compensation (such as a spouse or other relative of a paid staff member), should serve as a voting member of the board. A compensated member shall not serve as the board’s chairman or treasurer.
Charity Web sites: Any charity Web site that includes a solicitation for contributions should include the same financial and other information required by the watchdog group for annual reports. The site should also provide the charity’s mailing address and a link to the organization’s most recent federal informational tax return, the Form 990.
Commercial activities: Promotions that state or imply that a charity will benefit from a consumer sale or transaction should clearly disclose how the charity benefits from the sale of products or services. Such promotions should disclose, at the point of solicitation, the actual or anticipated portion of the purchase price that will benefit the charity; the duration of the campaign; and any maximum or guaranteed minimum contribution amount.
Diversity: No standard, but charities are urged to establish a policy promoting pluralism and diversity of the organizations’ boards, staffs, and constituencies.
Donor privacy: Organizations should provide — preferably in all written appeals to first-time donors, but not less than annually — a check-off box or other method for both new and continuing contributors to inform the charity if they do not want their names and addresses shared with outside organizations. Charities should also provide a clear, prominent, and easily accessible privacy policy on their Web sites.
Performance measures: Organizations should assess, at least every two years, their performance and determine what future actions are needed to achieve their missions. A written report that outlines this assessment and recommended actions should be submitted to the board for its approval.
Use of funds: At least 65 percent of total expenses should be spent on programs. No more than 35 percent of “related contributions” received as a result of fund-raising efforts should be spent to raise new money. Standards also require that financial statements should not inaccurately claim that the organization had no fund-raising expenses.
