How charity loses face

I n April, a report on CBS’ 60 Minutes created anxiety in the charitable giving community. Mountain climber and best-selling author Greg Mortenson, who had founded a hugely successful and popular charity focused on building schools for girls in Afghanistan, was accused of misappropriating funds and fabricating the events that formed the center of his compelling and inspirational narrative.

Mortenson’s chief accuser was fellow climber and author of Into Thin Air , Jon Krakauer, who felt so betrayed by his one-time friend that he penned a journalistic exposé entitled Three Cups of Deceit, openly mocking Mortenson’s first bestseller, Three Cups of Tea . Krakauer said that he had been suckered out of $75,000 in donations to the Central Asia Institute. The charitable organization, which Mortenson cofounded in Montana, USA, says it has built or significantly supported more than 170 schools in Afghanistan. Other notable contributors included U.S. President Barack Obama, who donated $100,000 of his Nobel Peace Prize award to the institute.

Longtime supporters have vigorously defended Mortenson, who has become the subject of a class-action lawsuit and an inquiry by the Montana attorney general. Regardless of the outcome of the legal wrangling, the controversy presents a tough question: How can you be sure that your charitable contributions are going to worthy causes?

Many philanthropists say that it’s more difficult to give money away intelligently than it is to earn it. Nonetheless, people expect that when they donate, their contributions will be put to good use.   

Seth Perlman, senior partner at Perlman & Perlman, a New York law firm that has worked with nonprofits for more than half a century, offers this advice to would-be donors: “The important thing to bear in mind is that the vast majority of charitable organizations are trying to do the right thing. Outright fraud is quite rare at nonprofits. The main issue in evaluating a charity is trying to determine how efficiently an organization operates.”

Longtime charity consultant Wendy Smith, the author of Give a Little: How Your Small Donations Can Transform Our World , concurs. “The overwhelming number of nonprofits are using their contributions to generate good outcomes,” she says. “Unfortunately, the rare stories of scandalous behavior get lots of press, while the hundreds of thousands of well-managed and well-intentioned organizations toiling away at changing the world get little coverage. People should give with confidence that their donations do make a difference.”

Thanks to the plenitude of resources available online, evaluating a charity is now easier than it once was. Many services rate charities and provide tips for identifying causes that fit a donor’s area of interest.

Prominent among them are the Wise Giving Alliance, the nonprofit arm of the Better Business Bureau; Charity Navigator, a North Jersey-based nonprofit that rates 5,500 of the best-known U.S. charities and compiles easy-to-browse “top 10” lists in various categories; and the American Institute of Philanthropy, which rates far fewer organizations but has been called “the pit bull of watchdogs” by the New York Times for its in-depth analyses. (Daniel Borochoff, founder of the American Institute of Philanthropy, was interviewed for the 60 Minutes report on Greg Mortenson; he had posted an article online highly critical of the Central Asia Institute a year before the 60 Minutes report aired.)   

The Better Business Bureau’s rating system involves issuing “accreditation” to charities that meet 20 standards of accountability. Accredited charities can pay a fee for a “seal of approval” that they can display online and in their solicitation materials. The American Institute of Philanthropy’s system is a traditional A to F grading scale, and access to the online ratings requires a $40 annual membership fee, which helps fund the organization’s operations. Charity Navigator’s scale runs from zero to four stars and, like the Better Business Bureau, access to its online ratings is free. 

Sandra Miniutti, Charity Navigator’s CFO, says that most charities have become more transparent and agreeable about being evaluated since the organization launched in 2002. By law, she says, all U.S. charities with a 501(c)(3) designation are required to provide copies of their IRS form 990 to anyone who requests it. “When we started, we asked for 990s from the 3,000 largest charities, and only a third complied,” she says. “Now, because they know that donors are looking, charities are aware that they need to be evaluated.”  

The basic measure of an organization’s efficiency is how much of its contributions go directly to programs, and how much go to administrative expenses. The American Institute of Philanthropy says that a highly efficient charity should spend 75 percent on programs. Charity Navigator’s data indicates that, of the organizations it evaluates, 7 in 10 spend at least 75 percent of their budget on programs, and 9 in 10 spend 65 percent. To meet Better Business Bureau standards of accountability, 65 percent of a charity’s total expenses should go to programs, and fundraising costs should not exceed more than 35 percent of contributions.

Though online evaluation services can be useful, Perlman cautions against relying on them exclusively to make a decision, noting that they can be misleading. “Organizations with large endowments or that receive a lot of government funding may not be efficient but can look great on paper,” he says. “Smaller and newer organizations that may be forced to put a larger portion of their contributions toward overhead may be more innovative and make better use of volunteers.” He recommends starting with online ratings, but then “taking a good, long look at an organization’s website. Look at the members of the board and their qualifications. Focus on the organization’s accomplishments, and consider whether its mission is something you can personally support.”

The experts agree that it’s rarely a good idea to base donations on phone or email solicitations. “It’s impossible to make an informed decision in response to a phone appeal from an unfamiliar charity,” says Smith. “Say that you will only consider the request if they send information by mail or email.” Miniutti advises people to “be proactive. Rather than wait for someone to ask for a donation, seek out charities that match your passion, and learn about them.”

Borochoff particularly cautions against emotional pitches that tug on heartstrings. “No legitimate organization will try to guilt you into giving,” he says. “Sadly, groups that work in the most popular causes tend to have the most abuse. Professional fundraisers who are in it to make money for themselves tend to work in those areas.” He also points out that when you give in to an aggressive sales pitch, “your name can be sold, and you may be subject to more calls.” His advice: “Give only to groups that you have time to follow closely.”

Donors should know that “three-quarters of all charitable giving comes from individuals – half of which from non-wealthy households,” Smith says. “Donations from citizen philanthropists compose the bedrock of funding for both large and small nonprofits in America.”

With that in mind, consider this mantra: Give from your heart, but use your head.

The Rotary Foundation at work

With program awards totaling more than US$200 million in 2009-10, The Rotary Foundation provides financial support for a wide range of humanitarian and educational programs initiated by local clubs and districts around the world. The Foundation has earned a grade of A+ from the American Institute of Philanthropy , a top rating of four stars from Charity Navigator, and full accreditation from the Wise Giving Alliance of the Better Business Bureau.

Only 2.3 percent of Foundation funding goes to administrative expenses, and 7.3 percent goes to fundraising. The Foundation focuses more than 90 percent of its spending on programs, far exceeding the threshold of 75 percent that independent charity-rating services view as a measure of high efficiency.     

That comes as no surprise to Foundation Trustee Steve Brown, who expresses confidence that the organization’s grant application and review process contains the safeguards necessary to ensure that funds are used wisely.

Typically, Brown explains, international projects funded by the Foundation involve a sponsor club or district, which partners with an on-site host club or district. Funding may go through the sponsor or host. To implement a project, clubs must spell out what they plan on doing, how they plan on doing it, and what Rotarians’ involvement will be. All projects require a detailed budget and often additional supporting documentation before receiving Foundation approval.

Once an approved project is funded, says Brown, a detailed progress report must be presented within one year. The reporting includes verification of what has happened (usually with photos) and requires copies of bank statements showing the flow of funds. The presidents of either the host or sponsor club must sign off on the report.

The Foundation has a stewardship committee that can review a project and impose a resolution if issues occur. If money was improperly spent, a club can be asked to return funds or even have its membership in Rotary International terminated.

“You don’t want to have everything controlled from Evanston,” Brown says. “We probably have more complaints about our rigorous stewardship than applause for it. But 99 percent of the time, things go the way we expect.”

Our projects in Afghanistan

While Greg Mortenson’s Central Asia Institute has received a mountain of media coverage for its work building schools in Afghanistan, a group associated with the Rotary Club of La Jolla Golden Triangle, Calif., USA, has been quietly working on a variety of education-related projects in Afghanistan, including building a school. Club members Fary Moini and Foundation Trustee Steve Brown have led the initiatives, which began in 2002.

Brown says that on the one occasion he met Mortenson, “I asked him a question that I frequently ask myself: How do you monitor things in Afghanistan to make sure they’re running smoothly?’ He said he has a team of people doing that for him.”

In Rotary, clubs worldwide play a critical role in project monitoring, Brown notes. “Rotary, through its network of clubs, including a host club on-site, allows us to verify the progress on our projects,” he explains. “[Mortenson] has chosen to work in an environment that is difficult to monitor. His experience, and the whole controversy that arose, have caused me to reflect very carefully on the safeguards that we have in place.”

Learn more about Rotarians’ work in Afghanistan.

Diligence online

• Take some time to examine an organization’s website carefully.
• While exploring the website, make sure the organization provides access to its IRS form 990, a list of its board members, their backgrounds, and their tenure. Be wary of large organizations with very small boards.
• Do not give in to high-pressure tactics. Request that information be sent by mail or email.
• Read the organization’s mission carefully, making sure it’s in line with what you support.
• Visit websites that provide information about philanthropy and evaluate the performance of charities, including www.foundationcenter.org, www.guidestar.org, www.charitywatch.org, www.charitynavigator.org, and www.bbb.org/us/charity.