A Smarter Way to Donate

With the recent flap involving Invisible Children’s (IC) Kony 2012 campaign, and the subsequent fallout — the nonprofit was widely criticized, including because of its high administrative costs — I was happy to find this December, 2009 press release co-authored by a variety of charity ranking websites. Though I agree with much of the critism of the IC campaign, the thoughtful press release made a strong argument that high administrative costs alone should not deter one from donating to a particular not-for-profit:

For years, people have turned to the overhead ratio—a measure of how much of each donation is spent on “programs” versus administrative and fundraising costs—to guide their choice of charity. But overhead ratios and executive salaries are useless for evaluating a nonprofit’s impact.

While the idea of sending money “straight to the beneficiaries” is tempting, nonprofit experts agree that judging charities by how much of their money goes to “programs” is counterproductive. “Achieving a low overhead ratio drives many charities to behaviors that make them less effective and means more, not less, wasted dollars,” says Paul Brest, President of the Hewlett Foundation, and co-author of Money Well Spent.

Experts cite many reasons that focusing on an overhead ratio is the worst way to choose a charity:
• It tells you nothing about the impact the charity has on people it’s trying to help
• It discourages charities from investing in tools and expertise that would make them more effective
• The rules for determining overhead costs are vague and every charity interprets them differently
• Accounting experts estimate that 75% of charities calculate their overhead ratio incorrectly

The article was co-authored by Paul Brest, President of the Hewlett Foundation, and Tim Ogden of Philanthropy Action, along with a number of internet-based organizations that specialize in charity evaluation:

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