Love Him or Hate Him, Charity Watchdog Garners Lots of Attention

In the world of charity watchdogs, Daniel Borochoff has earned a reputation as the bulldog. The founder of

the American Institute of Philanthropy holds strong views about the nonprofit world and has been relentless about expressing them. In the past year alone, he was quoted at least 300 times in newspapers around the country and made appearances on Fox News Channel’s “The O’Reilly Factor,” CNBC’s “Hardball With Chris Matthews,” and ABC News, and was called to testify before Congress about the problems charities faced after the September 11 terrorism attacks. But his statements often infuriate charities — as when he told members of Congress that after last year’s attacks, “the Red Cross, in its zeal to fund raise while the iron was hot, raised more money than it needed for what it would ordinarily do in a disaster and behaved opportunistically.” He also angers charities with large endowments or surpluses, because he says it’s wrong for any charity to keep overly large reserves instead of spending money on philanthropic programs.

But Mr. Borochoff says he works with the news media and the government to help charities by increasing donors’ faith in them. “Knowing that we’re out there watchdogging charities gives people some confidence to want to support these groups,” he says during an interview with The Chronicle at the American Institute of Philanthropy’s office here overlooking Lake Michigan.

AIP has the smallest budget and staff of the four major national charity watchdogs. “Is there another organization that’s as small as we are that generates as much coverage?” Mr. Borochoff asks.

It evaluates some 450 national nonprofit groups, assigning letter grades from A+ to F based on AIP’s examination of financial data, such as fund-raising versus program expenses. About 20 percent of the groups receive D or below.

Mr. Borochoff says he might never have taken on the role of charity watchdog had it not been for a 1984 trip he made to Israel’s Western Wall.

“My mind started racing and all these profound different thoughts came to me,” he recalls. “I realized I wanted to do something that made a difference, and if I became an investment banker, it really wouldn’t even matter. I knew if I worked in the nonprofit field, I could make a difference.”

Strong Opinions

What type of difference Mr. Borochoff has made is fiercely debated.

To his supporters, he has raised the accountability of charities with his blunt talk.

To detractors, Mr. Borochoff has made too many donors fearful that many charities are frauds or poorly run.

One of his toughest critics is Joshua Gotbaum, former executive director of the September 11th Fund, who says Mr. Borochoff’s comments hurt the families of the victims of last year’s attacks. “When some self-appointed expert says the charities are not serving them, that’s compounding their hurt,” he says. Mr. Borochoff, he adds, was “basically talking out of his hat” when he spoke about the fund’s work.

But other people defend Mr. Borochoff’s outspokenness. He’s “smart, knowledgeable, analytical,” says Frederick S. Lane, professor at the school of public affairs at New York’s Baruch College. “He’s a valuable voice,” Mr. Lane says, because he thinks the institute’s competitors aren’t tough enough on charities.

Initial Frustrations

Mr. Lane is a former board member of the defunct National Charities Information Bureau, where Mr. Borochoff got his first taste of evaluating charities in the 1980s. After five years at the bureau, Mr. Borochoff quit in 1991, saying the group’s leaders wouldn’t allow him to talk to the press about questionable charities. “If you were ambitious and really wanted to make a difference, it was a really frustrating place to work,” he says, adding that members of the staff laughed at his plan to start a rival organization.

In addition to his work at the bureau, Mr. Borochoff spent time during college as a volunteer at a shelter for abused women. He says his nonprofit background, combined with the time he spent as an investment analyst at Value Line and an accountant at Merrill Lynch, gives him a good combination of skills for scrutinizing the finances and work of charities.

Mr. Borochoff established the American Institute of Philanthropy in 1993.

During the organization’s first year, Mr. Borochoff says, he lived off his savings and accepted no salary to prove his dedication. “I did that as a badge of honor,” he says.

Today, the 44-year-old Mr. Borochoff makes $90,000 a year, and the institute has a $350,000 budget. The organization says it is supported by 8,000 donors who have given at least $35 each for an annual subscription to the group’s Charity Rating Guide & Watchdog Report, which is published three times a year.

While the past year has been an especially high-profile one for Mr. Borochoff, getting attention from the news media is nothing new for the watchdog leader. In 1990, he was the subject of a New York Times profile, “The Gadfly Who Audits Philanthropy,” in which he was referred to as the “Ralph Nader” of charities.

But Mr. Borochoff is quick to point out that he doesn’t spend time seeking the spotlight; rather, reporters are the ones who contact him to appear on television, he says. “Not once did I, or anybody in this office, ask, ‘Can we be on?’”

What’s more, Mr. Borochoff says, he sometimes refuses to talk with reporters if he disagrees with the premise or key points of their articles.

Commenting to Congress

In his dealings with government officials, Mr. Borochoff says, he takes a more active role. After testifying before Congress last year about September 11 relief efforts, he still talks periodically with Capitol Hill aides about nonprofit issues. The General Accounting Office, Congress’s investigative arm, has solicited his views for its examination of the Internal Revenue Service’s oversight of tax-exempt groups.

Mr. Borochoff has told government officials he endorses an idea that has long been tossed around by tax-exempt experts: creating a federal entity similar to the Securities and Exchange Commission to govern nonprofit groups. But, he says, he has found little support for the idea.

Charity leaders argue that Mr. Borochoff hurts the nonprofit field with his method of grading charities by looking only at their finances. This approach, they say, yields an inaccurate picture of charities and means that nonprofit groups that offer good programs could be given bad grades.

“He articulates a simple-minded scheme for evaluating nonprofits and brings attention to that methodology by constant repetition of criticisms in public places,” says Robert S. Tigner, counsel for the Direct Marketing Association’s Nonprofit Federation. “Both of those things are harmful.”

Legal Challenge

One charity took the institute to court because of its evaluation. Girls and Boys Town, also known as Father Flanagan’s Boys’ Home, in Boys Town, Neb., sued AIP in 1994 for giving the charity a failing grade. The case was settled out of court after AIP agreed to change the way it presents its ratings. The youth charity still receives an F, but AIP provides an explanation: Boys Town receives a poor grade because it has a large endowment; without the large reserves, AIP says, the charity would earn a B+.

Discouraging large cash reserves is a hallmark of AIP’s rating system.

Mr. Borochoff says charities that use donations to build a large reserve are denying support to other nonprofit organizations. “Charitable dollars are limited,” he says. “Money that’s socked away and locked up is money that’s not available for programs that are needed.”

‘Red Cross Bashing’

While Mr. Borochoff’s watchdog efforts have been targets of controversy from almost the start, his criticisms of the response to the terrorism attacks this past year have only added to his list of detractors.

Some observers say Mr. Borochoff’s treatment of the American Red Cross and other groups involved with disaster relief in New York and Washington helped fuel an unnecessary distrust of charities.

“There is cynicism prevalent right now [about charities] and his approach plays into that,” says Richard N. Cowles, executive director of the Minnesota Charities Review Council, in St. Paul. “All the Red Cross bashing wasn’t healthy.”

Yet the organization at the center of much of the controversy, the American Red Cross, made a point of asking Mr. Borochoff for his advice — as well as that of the BBB Wise Giving Alliance — when it redesigned its fund-raising practices.

“We have rediscovered the value of having good, third-party watchdog groups looking after public interests,” says Michael D. Farley, the Red Cross’s vice president of chapter fund raising.

For his part, Mr. Borochoff says he feels extremely proud of the work he did this past year. In a way, he says, it connects back to his trip to Israel 18 years ago.

Says Mr. Borochoff: “It’s almost as if I’ve been preparing my whole life for September 11, because all of this knowledge that I have became really important.”