There has been a lot of talk about nonprofit accountability in the news lately, specifically after the CBS News report on the spending at the Wounded Warrior Project (WWP). The visuals used bolstered the claims of extravagant spending, depicting the CEO propelling down the side of a 5-star resort in Colorado. It’s a timely topic, and one that I am very interested in, enough so that I am writing a book on how nonprofits can take a strategic approach to accountability.
I do not want to get into the weeds discussing some of the decisions that were made at the WWP or other nonprofits that have found themselves in the media spotlight. I want to take a step back and look at some commonalities between these scandals. The common thread is financial accountability and outcome measurement. How nonprofits record the allocation of their spending is brought to the fore with regard to the WWP. Different charity watchdog groups calculated a wide range of numbers on much WWP spends on programs versus ‘overhead’ (fundraising and administrative expenses). WWP and the Better Business Bureau (BBB) calculate that more than 80% goes to programs, where Charity Navigator and Charity Watch have it at closer to 60%. The difference is in how one allocates fundraising costs. The BBB and WWP both portion out a percentage of a message by how much space or time was used for specifically asking for donations (fundraising expense) versus information about the organization or a program (program expense). This follows Generally Accepted Accounting Principles (GAAP). However, Charity Navigator and Charity Watch do not allocate any of those expenses to programs, arguing that when people donate, they do not make these distinctions.
While there are good arguments on both sides of this practice, the larger issue is the lack of uniform measures across all nonprofits when it comes to how they allocate fundraising costs, administrative costs, and program costs. We tell people that to be an informed donor, they should compare like-organizations to get a feel for how they compare to similar organizations. However, this only works if costs are allocated in the same manner by all organizations under review. And this is still only a portion of the picture.
While how nonprofits spend their money is important, connecting it to outcomes is critical. In other words, how well is the nonprofit achieving its mission? Are the programs or services working? These are much harder numbers to calculate! However, I argue that every program should have annual goals, and these goals should be connected back to the mission. How well the goals are met are an easy measure to report. Still, this could get a lot of organizations focusing on outputs (how many people were served) versus outcomes (how those services have impacted the client). When determining how to measure a donor’s return on investment (ROI), or return on donation (ROD)*, the expenditures need to be connected to the programs and what the programs are accomplishing, whether they are local, national, or international programs or services. This informs donors about the good their generosity is creating and allows them to see the impact on others.
Still, what nonprofit accountability comes down to is a nonprofit being both transparent with its information (financial, program, and governance) as well as responsive to stakeholders. Doug White, a well-respected nonprofit expert, was quoted in a 2013 Tampa Bay Times article “America’s 50 Worst Charities Rake in Nearly $1 Billion for Corporate Fundraisers” as saying that “when you start a charity, you have a sacred compact with society.” This compact can only be upheld through high levels of trust, which is formed, nurtured, and flourishes through transparency and accountability.
* While I like the idea, and have used it myself, of saying to donors that they are investing in a nonprofit, economically the term ‘investment’ is to expend money now to create wealth in the future. Instead, I have shifted my language to argue for looking at one’s return on donation, focusing on the public good that was generated from an individual’s generosity.