Sunday, March 14, 2010

What not-for-profits and charities deserve your money?

Dear Colleagues

The question "What not-for-profit organizations and charities deserve you money?" is a pretty basic question. The answer would be very easy if there was a universal application of CA style value accounting, but with the prevailing GAAP style money reporting, the data are not adequate.

The media circus around the Wyclef Jean initiatives for fund raising and support for Haiti in the aftermath of the earthquake is symptomatic of the underlying problem. A colleague wrote:
On Sat, Mar 13, 2010 at 7:49 PM,

All this mess is going on while COMPETENT AND EFFICIENT grassroots organizations personnel have to use their own cash to fund worthy initiatives. Our society is so STAR-crazed that these situations are bound to happen all of the time. It takes so much work before I can get the first sponsor... they just poured 61 million dollars into this Yele mess... The gentleman from CA in HEDR is so right when it comes to accountability issues with these celebs and large NGOs, while we work with our nails... That is a SHAME!
Another colleague replied. with the following:
Peter's point I think is more about how efficiently the money gets spent. Like stocks, charities typically are rated by their financial numbers or by qualitative characteristics such as corporate governance -- or both. Unlike stocks, charities have no single measure akin to business profit to determine successful performance. "Charities start to game the system, and we have a death spiral toward zero fund-raising costs,"

There have been a string of news stories questioning Wyclef's financials. He responds with PR campaign about how much he cares about his people. The PR is effective in raising money, because not a lot of people check the financials.
Some data is dated, and as mentioned earlier can cripple start-ups.

Actually what you shared is relatively trivial on the scale of what's going on.
Some other "charities" are paying their top executives in the $ millions.
That's legal legitimate, but there's people making donations who can barely make ends meet, and they think the money is going to a good cause.

There's some "charities" in which damn near all the money goes to the people who raise the money.

When we look at the charities that are doing the best job, some great names are conspicuous by their absence.

Some good charities have bad apples inside.
My colleague is demonstrating that the issue of performance in the not-for-profit and charity field is for all practical purposes not being handled ... and that the CA approach is very much needed. In fact, the emergence of intermediaries like Charity Navigator and others may be facilitating the empowerment of low-performing organizations because it is so easy to "game" the system and get a good ranking even when it is not truly deserved. On the other hand, small organizations doing important and valuable work, especially overseas are completely of the radar and unable to be part of the "system". The CA methodology has the potential to change this ... but new paradigms are never easy to deploy. Stay tuned ... it will get done!

Peter Burgess

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