Many Arizonans may wish to donate money to a charity, but aren’t sure how to choose one that will use their money the way it’s intended.

“There is no one-size-fits-all measurement that is appropriate for measuring the effectiveness of nonprofits,” says Tim Delaney, the founder and president of nonprofit Center for Leadership, Ethics, and Public Service. “Overhead needs are different from group to group. For example, a nonprofit health facility compared to a scouting organization.”

Yet with more than 90 per cent of Americans giving to charities and donating an average of $1,600 a year, some measure of accountability is deemed necessary to rate the efficiency of charities, and to help Americans decide where best to put their money, according to Charity Navigator, a watchdog group.

There are a number of organizations looking at nonprofits. Some, like Mr. Delaney’s Center for Leadership, Ethics, and Public Service, focus on charitable practitioners in terms of policies, programs and missions. Others rate charities as businesses, with some even offering a star rating, like those seen in newspaper movie guides.

When examining the overall picture of charities in Arizona, it’s difficult to use the same measuring stick. Yet that’s exactly what happens, Mr. Delaney says.

In Arizona, for instance, there are approximately 19,000 registered nonprofits. Of those, about 11,500 have 501(c)(3) status — two-thirds of which are small, with budgets of less than $25,000 per year. On the other side, there are 152 charities working with annual expenditures of more than $10 million, according to the National Center for Charitable Statistics (NCCS), a repository of data on the nonprofit sector in the U.S.

To receive tax-exempt status as described in Section 501(c)(3) of the tax code, an organization must be operated exclusively for one or more of the purposes set forth in code, it may not attempt to influence legislation as a substantial part of its activities, it may not participate at all in campaign activity for or against political candidates, and it is eligible to receive tax-deductible contributions.

Museums Vs. Food Banks

In order to judge the impact nonprofits have on the economy, it’s necessary to categorize them in terms of service, says Sandra Miniutti, director of external relations with Charity Navigator, an organization that examines charities.

Charity Navigator provides “unbiased data analysis and evaluation to the charitable sector,” according to the firm’s literature.

“No one I know buys a car today without checking with Consumer Reports or a similar service,” writes Trent Stamp, executive director of Charity Navigator, at the company’s website, www.charitynavigator.org. “Very few people buy a stock without consulting some sort of independent expert. Most people don’t even see a movie, or buy a book or go to a restaurant without some sort of unbiased reviewer making a recommendation.

“And yet, for the last 50 years, as charities have taken over our most vital services in this country, we have generally accepted the word of the charity as gospel, and written our checks without any sort of research or validation.”

“Clearly,” writes Mr. Stamp, “the days when the charitable sector was impermeable to outside independent analysis are gone.”

In April 2002, Mr. Stamp and the founders of Charity Navigator launched their operation, itself a nonprofit, with the goal of increasing consumer advocacy in the charitable realm. In that year, according to Mr. Stamp, the company has filled a void and come to be recognized as something of an expert in its field, with representatives appearing in such disparate news and information outlets as The Factor with Bill O’Reilly, The New York Times, The Advocate and BirdWatcher’s Monthly.

Information examined by Charity Navigator is culled from Internal Revenue Service files, says Ms. Miniutti. Every 501(c)(3) organization in the country must file annually with the Internal Revenue Service. This information is public and can be requested from any charity.

“We base our evaluation on the data found on this form,” says Ms. Miniutti. “It’s uniform and required of all charities. So we’re using the same criteria for all charities that we evaluate. We apply a sophisticated rating system to this data, to present it in a user-friendly format.”

They began by looking at the largest charities, and expanded to a broad cross-section of interests. Examples cover everything from international programs to education to human services.

At its launch, Charity Navigator examined some 1,100 charities. Now, the organization covers 2,500, and has plans to expand.

What they discovered was encouraging, says Ms. Miniutti. “From our data, we found that seven out of 10 charities that we evaluated spend less than 15 per cent on administrative costs. And the amount spent on this will vary depending on where they are in their life cycle, and what sector they are in.”

Newer charities tend to spend more on administrative costs relating to starting up than older, more streamlined charities. Also, some organizations have greater natural costs than others.

Food banks, for example, naturally incur lower administrative costs than museums. “So the type of charity will influence the actual reasonable cost of administering that charity.

“We compare museums to museums and food banks to food banks,” says Ms. Miniutti. “But at the end of the day, all charities are run somewhat like businesses, and will have business costs – salaries, computers and rents, for example. It’s a responsibility to maximize donations and perform as efficiently as possible.”

In the future, she says, Charity Navigator would like to move beyond the financial realm and tell donors how effective charities are in their fields. But, for now, it operates as an online service providing “unbiased evaluations” of the financial health of charities.

Organizations with a high degree of public disclosure tend to earn high marks from Charity Navigator. The Breast Cancer Research Foundation, for example, earns four stars. “They are taking a proactive stance on the issue of accountability.”

Better Business Bureaus Has Charity Advisory

Locally, the Better Business Bureau of Central/Northern Arizona (BBB) rates charities. The BBB is not just about businesses and consumer information, as its Charity Advisory Service attests.

On its Web site, at www.arizona-bbb.org, the group rates charities. But its evaluations are somewhat different from that of Charity Navigator. According to Traci Brewer, director of the BBB Foundation, the organization requests information from area charities, and then provides an evaluation based on established standards.

“Either they meet our standards or they don’t meet our standards,” says Ms. Brewer. “We’ll make a notation on what standards they don’t meet, and why, and also allow a charity a chance to respond.” Standards cover such subjects as effectiveness and privacy with donors.

All charities in the Better Business Bureau listing are evaluated with the same criteria, though they’re not compared directly with each other, says Ms. Brewer. Of particular note is how charities protect the identities of donors.

“Right now, privacy is a big topic,” the director says. “To prevent selling of mailing lists, and to let donors know if this will be done or not. Also, with nonprofits accepting donations online, making sure their privacy issues are taken care of (is of great importance).”

Initially, she says, some charities saw the Bureau as an aggressive adversary rather than consume
r advocate. But much of that has changed. “Now, from conversations with charities, the perception is different. They understand the program, and on some levels they can understand that this is a good service for them, to make improvements.” Donors benefit the most from services rating charities, though anyone thinking of giving should first do a little self-analysis, Ms. Miniutti says.

“In choosing a charity, determine what your interests are,” she says. “There are hundreds of thousands of charities to choose from, so what problem do you want to solve?”

Donors should examine their own interests and pick charities addressing a similar issue. Then comes more research. “Find a few that meet your needs. Then look at mission statements, find our what their long- and short-term goals are, ask for their successes and examine their financial health,” says Ms. Miniutti.

Lastly, let your instinct be your guide. “Once you gather the facts, it’s a gut call,” says Mr. Delaney.

Americans, he says, instinctively are attracted to new pursuits and challenges, and this goes for the world of financial giving. But donors should be wary of searching for new and exotic ways to give, when the same basic needs still apply. “What charities are dying for right now are general operating funds. Not necessarily new funds for new things, but just the bottom dollar.”

In examining charities, Mr. Delaney shies away from the rating system, likening it to the “clicker mentality” of someone channel-surfing on TV. “I fear that people may look at the two stars versus the four stars, and they’ll make a quick click.”

But he adds that the increased availability of information can only aid companies in the nonprofit world. Ultimately, though, the greatest needs of charities will be met when they’re a more formidable political force, Mr. Delaney says.

“We need an organization to speak for all nonprofits, with a broad enough tent to cover all.” He likens such an effort to the work of labor unions and chambers of commerce. “Let’s create a foundation that is stable and broad enough for all of us to stand on. —