At a phone-in press conference last Thursday, Clara Miller of the Nonprofit Finance Fund and Robert Otterhoff of Guidestar cautioned donors against using a charity’s Form 990 to determine whether it’s worthy of support. By way of commenting on proposed revisions to the 990, Miller suggested that the IRS and everyone else:
- Eliminate the emphasis on overhead expenses: focus on a charity’s outcomes, not its inputs. Because administrative and fundraising expenses are assigned differently by different charities (not to say completely randomly), they’re neither revealing nor a good basis for comparison.
- Eliminate the requirement to report salaries about $100,000, which suggests that paying a charity executive that much is per-se profligate
- Acknowledge that larger organizations tend to have lower administrative costs, but that growing organizations should have high expenses because they’re investing.
Miller urged donors to stop treating the 990 as gospel, noting that it "penalizes nonprofits for having reserves, paying people adequately, and investing in systems." And Ottenhoff, whose agency posts 990s online, nonetheless suggested that donors begin their investigations not with the 990 but with an agency’s mission and programs.
No dispute here that the 990s offer a distorted and distorting picture of nonprofit operations. But nature abhors a vacuum, and donors are a force of nature. They’re not
going to stop using the "wrong" information until we’re willing to give
them a replacement. And neither Miller nor Ottenhoff had one to suggest.
It won’t do just to ridicule donors’ "obsession" with overhead
expenses, and to compare it unfavorably to the forms of evaluation used
in the for-profit world: "A businessperson would ask, ‘What do you
care what the overhead is if we’re delivering to our customers?’" But donors mostly have no way of knowing whether, or what, nonprofits are
delivering to their customers. We ask about cost because if the whole thing is a waste, we want it at least not to be much of one.
How should donors secure information about outcomes to replace the 990 data about inputs? Miller was vague: it would be useful to have data on "what did organizations actually do, capacity metrics or production metrics"–but those don’t belong in the 990.
Where can donors could go for information about a charity’s effectiveness? Ottenhoff mentioned Guidestar, of course, and the Better Business Bureau, but ended up recommending a charity’s own Website–not because of what’s likely to be there, but because of what ought to be there:
An organization should be able to say how many people have we served, what was the benefit we provided–did they learn to read, did they get fed?–let’s quantify the benefits we’ve provided to the world. Organizations should be able to connect the dots between mission and money with good numbers. Let’s look at the bigger picture of what they’re trying to accomplish. Let’s say they have a $1 million budget and employ 12 people, what is the output of that investment and what are you as a donor enabling them to do?
That’s the question, all right. But don’t tell people to ask it if you can’t help them answer it.
The Nonprofiteer will take the long weekend to celebrate Thanksgiving. Publication resumes Monday, November 26. Happy holidays!