A few weeks ago I wrote “With Growth Should Come Greater Scrutiny” (U.S. 1, November 27), which provided some recommendations potential donors could use to evaluate charities they were not familiar with.
I wrote that the charitable sector has been growing at an astronomical rate. More specifically, the nonprofit sector has grown by almost 60 percent since the 1990s to where they are now with more than 1.5 million charities in the U.S. and more than 50,000 being added each year. That’s more than one charity for every 300 people. In Mercer County there are around 1,800 charities, or one for every 175 people.
Sam Younger, a former head of the British Charity Commission, the entity that oversees charities in England, said this about the rampant growth in the number of charities: “The Commission’s experience is that many people set up a new charity without making sure they have identified an unaddressed need or found an innovative solution, without making an honest effort to establish whether another charity is already doing similar work. The result is duplication, inefficiency, and sadly too many charities that are not managed well enough. ”
In his book titled “With Charity for All,” Ken Sterns writes “American charities account for a full 10 percent of economic activity in this country, yet operate with little accountability, no real barriers to entry, and a stunning lack of evidence of effectiveness … Unlike private corporations that respond to market signals and go out of business when they fail, nonprofit organizations have very low barriers to entry, answer to often naive and far-removed donors, and once established rarely die.” That’s pretty harsh, but pretty accurate.
At present there is no standard that a nonprofit must adhere to keep its privileged nonprofit IRS status. Once a nonprofit achieves tax-exempt status there is no entity that oversees what the charity does or does not do. While I’m generally not in favor of more bureaucracy and its corresponding red tape, the days of the IRS approving 99.5 percent of all applications from entities seeking favorable nonprofits tax status should end.
Most donors have little very first-hand knowledge about the services charities render. Unless the donor is a hands-on-volunteer, partakes in the nonprofit’s program, or has a family member who participates in them, the likelihood of them knowing a great deal about the effectiveness of the charity’s programs is highly unlikely.
More recently with the advent of various online charitable assessment organizations, e.g., Charity Navigator and GiveWell, this has changed somewhat. However, there is still a dearth of good comparative data on the impact/performance of charities when compared to the data that is available on the performance of hospitals, colleges and universities, doctors, public schools, banks, mutual funds, cars, airlines, hotels, restaurants, and sports teams.
Why do hospitals, colleges, and universities periodically face very intense formalized peer scrutiny, by highly respected accrediting entities, but with very rare exceptions what goes on in our nation’s nonprofits is rarely measured or monitored?
I have seen considerable duplication of effort in the charitable sector — with many smaller charities doing the same or similar work. I’m convinced that many smaller charities could deliver their services more effectively and reduce their overhead through consolidation and mergers that would lead to administrative efficiencies.
One action that would thin out the field a bit, reduce the number of charities working at cross purposes, and perhaps spur giving would be the creation of an independent entity that would periodically evaluate and accredit charities. There are various independent accreditation models that could be employed to assess charities. A common model employs respected peers to do periodic evaluations. The Council on Accreditation has given its stamp of approval to more than 2,200 human-service organizations. Health care organizations are monitored by the Joint Commission on Accreditation of Healthcare Organizations, and colleges and universities are evaluated by several types of bodies based on their region or specialty.
Another option is to create an entity like the Securities and Exchange Commission, Consumer Protection Bureau, or the British Charity Commission. Such a body would establish accountability, performance, and transparency standards, create reporting and review procedures, and periodically evaluate the operations of charities. While this idea is attractive, a serious downside is that such an entity would need to be politically independent, not something that would be conceivable in today’s corrosive ultra-politicized environment.
I am not envisioning a gatekeeper type of entity with broad power to preclude the creation of new charities. I’m concerned that this type of blunt approach could stifle innovation. Instead, I see an entity that would work cooperatively with those seeking to create new charities. To improve the quality of services offered, it would require potential new charities to meet upfront with similar charities that are currently operating to see if there aren’t ways they could work together. The goal would not to be to screen-out innovative ideas, but to reduce duplication.
Irwin Stoolmacher is president of the Stoolmacher Consulting Group which has worked with 100 charities over the past 35 years in the areas of fundraising and strategic planning. wwwstartasoupkitchen.org/Irwin-stoolmacher.htm