Charitable standards & the discerning donor

From ANIMAL PEOPLE, October 2010:
(Actual press date November 3.)

ANIMAL PEOPLE has over the years often
criticized the charity evaluation methods of both
the Wise Giving Alliance, a project of the
Council of Better Business Bureaus, and Charity
Navigator, whose easily accessed online star
ratings of charities are now by far the charity
evaluation method most used by donors.
The Wise Giving Alliance evaluations, as
ANIMAL PEOPLE has in the past explained in
detail, require charities to meet a set of
standards for governance which for animal
charities and most small charities actually work
at cross-purposes to the goal of maintaining a
strong focus on the charitable mission.

In particular, the Wise Giving Alliance
standards practically exclude founders from
governance of a charity if they have built the
charity successfully enough to begin drawing a
salary at some point. Founders sometimes use
their own money to start charities, but even a
sizeable fortune will run out eventually. More
often, founders begin subsidizing their
charitable work with money they earn from other
jobs, which are ultimately given up in favor of
working full-time for the charities.
Charity Navigator assigns stars, like a
restaurant or hotel reviewer, based on
computerized number-crunching using data supplied
on IRS Form 990 filings. Because Charity
Navigator does not do program verification, it
tends to reward the organizations that have
learned to game the system through stratagems
such as claiming fundraising mailings are
“program service” under the heading of “public
education.” Sometimes Charity Navigator awards
stars to charities whose filings appear to be
designed to mislead, while penalizing charities
whose filings include basic errors or accurately
reflect temporary imbalances of program,
fundraising, and administrative expense
resulting from embarking on a major donor
acquisition or capital campaign late in a fiscal
year.
ANIMAL PEOPLE has since 1999 published
our annual Watchdog Report on Animal Charities to
help animal charity donors make better informed
judgments in response to the unending deluge of
appeals which every year peaks between
Thanksgiving and Christmas. The ANIMAL PEOPLE
standards for governance and accountability are
based on the realities of funding and directing
animal charities as we have observed, reported
about, and experienced them for more than 20
years.
The 2010 edition of the ANIMAL PEOPLE
Watchdog Report on Animal Charities reviews 155
charities in all, looking at policies,
programs, and administrative issues, as well as
at the bare numbers. At $25 per copy, each
review costs the user just 16¢–barely a third of
the cost of postage to mail a donation first
class.
The typical animal charity donor
contributes more than $2,000 a year to favored
animal charities, but based on having reviewed
hundreds of donors’ lists of charities supported,
ANIMAL PEOPLE estimates that as much as a third
of the money goes to organizations whose policies
and practices are just plain not what the donors
believe, and often are misled into believing by
misleading appeals. By helping donors to avoid
such mistakes, the ANIMAL PEOPLE Watchdog Report
on Animal Charities may help the typical animal
charity donor to increase the effect of his or
her contributions by a third or more.
Like the Wise Giving Alliance and Charity
Navigator evaluations, the ANIMAL PEOPLE
Watchdog Report on Animal Charities will also
help donors to avoid supporting charities that
spend excessive amounts on fundraising and
administration. Exposing excessive spending on
fundraising and administration was the focus of
the ANIMAL PEOPLE project that evolved into the
Watchdog Report, called “Who Gets The Money,”
begun in 1991.
The animal charity field is still
plagued, like other branches of charity, with
direct mail mills which annually spend well over
two thirds of the funds they raise on sending out
further fundraising appeals. There are also
still instances of animal charity chief
executives collecting compensation well in excess
of what they could be expected to earn in the
private sector. But these bad examples are far
fewer now, proportionate to the whole of the
animal charity sector, than 10 and 20 years ago.
As critical as we are of Charity Navigator, one
job it does well is crunching huge amounts of
data to produce meaningful norms for the
nonprofit field. A few weeks ago Charity
Navigator released its 2010 CEO Compensation
Study, based on IRS Form 990 filings for fiscal
2008 from 3,005 of the most prominent U.S.
charities in all fields. Among them were 210
animal charities.
Charity Navigator compared chief
executive salaries within nine different mission
categories. The overall median chief executive
salary was $147,273, about 3.25 times more than
the median U.S. annual wage for all occupations
of $45,113, but 14% less than the $167,280
median salary for business chief executives. The
median chief executive salary for animal
charities was $106,030, only 2.35 times the
median U.S. annual wage for all occupations, and
just 63% of the median salary for business chief
executives.
Only the religious sector pays chief
executives less than the animal sector–largely
because many chief executives of religious
organizations are nuns, monks, or others who
have taken vows of poverty, whose low incomes
offset the excesses of popular televangelists.
The environmental sector pays chief executives
about 12% more than the animal charity sector.
The educational sector pays chief executives 2.6
times more.
Animal charity donors should continue to
be vigilant about giving to direct mail mills and
charities that appear to operate chiefly for the
benefit of the top management. Yet donors also
need to recognize that animal charities need to
pay their best people wages sufficient to keep
them on the job. Few skilled people are able to
donate much of their time for very long. Much is
made of the U.S. having an “all volunteer” army,
for example, but U.S. soldiers are volunteers
only in that they voluntarily enlist for military
service. They are compensated at competitive
rates, counting fringe benefits, combat pay,
and re-enlistment bonuses.
In addition, animal charities need to
invest in fundraising and donor acquisition to
ensure that they will have enough income in the
future to continue helping animals.
Animal charities over the past 20 years
have spent an average of 28% of their annual
budgets on fundraising and administration, about
25% less than the norm for all charities.
Fundraising and administration are
nonprofit functions comparable to the sales and
management aspects of running a for-profit
business.
For-profit retail businesses often spend
50% or more of their operating budget on sales
promotion and management.
Overlooking the need of a charity to
raise funds and ensure that the money is
effectively spent, donors often specify that
their contributions are to be used only for
program service. This practice tends to erode
effective program service–or
accountability–because if donor intent is
honored, little or nothing is left for overhead.
U.S. animal charities whose programs
include funding humane work overseas, including
ANIMAL PEOPLE, are often asked to relay large
sums to the foreign projects, with scant
attention paid by the donors–or none–to the
costs incurred by the U.S. charities transferring
the money abroad. These costs include the
considerable staff time needed to maintain the
much reinforced accountability standards that the
Internal Revenue Service now requires. Properly
keeping oversight of funds forwarded to foreign
charities now requires documented regular
communication, access to audited financial
statements, and site visits at least every few
years by a staff representative or reliable third
party. Realistically, it is difficult to
facilitate making an overseas grant or donation
for less than about 25% of the total amount
provided.
It is reasonable for animal charity
donors to expect that more than 70% of each
dollar they contribute goes “to the animals,” as
many phrase it. Expecting greater “efficiency”
than that is unrealistic, and is an invitation
to be misled by fundraisers who have no scruples
about promising what they cannot deliver.
This is not an argument that animal
charities should spend anywhere near as much on
fundraising and administration as the 50%,
approximately, that retail businesses spend on
advertising, public relations, and management.
Neither is this an argument that animal
charity personnel should be paid more, or even
as much, as counterparts in the private sector.
Choosing to work in the nonprofit sector, ANIMAL
PEOPLE believes, should entail a conscious
choice to sacrifice wealth for the opportunity to
do good deeds supported by the generosity of
others.
ANIMAL PEOPLE is advocating only that
donors should take a realistic view of what is
necessary to sustain animal charities, rather
than holding expectations that reward those who
either mislead donors or, instead of investing
in actual charitable work, keep enough money in
the bank and stock market to operate largely on
interest and dividends.