Wednesday, September 4, 2013

It’s rating season – busting the overhead myth

Reports on charities are made by watchdog groups and consumer magazines each year.

Some of these watchdogs are relative novices in evaluating the charity sector. They look for a simple way to judge charities and transmit that evaluation to the public. There are those that conclude that overhead cost ratio is one of, if not the single most, important factor by which charities should be judged effective.

It is not.

While the debate on how to best evaluate charities is relatively new in Canada, it has been raging in the USA for years. Experienced donor advisory groups that relied on the overhead cost ratio for years have started to abandon it in the face of methodical studies showing that too low a ratio actually points to charities being less efficient and less effective.

Unfortunately, the charity sector in Canada sends conflicting messages to the public on this issue. Some charities will not publicize their results from evaluations based on overhead cost ratios (even if they receive good ratings), some actively try to debunk the evaluations, but others actively promote their high marks as a reason to donate to their cause.

In the USA, three of the leading and most experienced independent charity watchdogs recently signed an open letter to the public, launched a website called The Overhead Myth and started a pledge petition on the site to get people to stop judging charities based solely or largely on overhead costs. These groups collectively advise millions of donors each year and they are now urging all donors to see the whole picture when evaluating charities.

Two Canadian organizations already evaluate charities based on good governance, transparency and other factors that, when part of a formalized structure and plan, help ensure that a charity can be effective. Imagine Canada and the Better Business Bureau have an accreditation process that evaluates charities on multiple points and they have review and complaint reporting procedures, so charities must take care to live up to those standards at all times.

To ensure public confidence and sector effectiveness, Canadian charities need to endorse these accreditation groups and should work to meet the standards that they have set. They also have to be open and accessible. Donors should be encouraged to contact their charity of choice, without hesitation, if they have any questions. As charities we must welcome their engagement and respond quickly and definitively.

Charities need to be effective and transparent. Those who rely on us deserve no less than our best.

Dan Ross

No comments:

Post a Comment