Are charities spending your donations wisely?

Ever make a donation and then worry your money will be wasted, or worse still, misappropriated.  How can you tell whether your charity of choice should be trusted?

Charity overheads

The old benchmark for whether an organisation was spending donations wisely was the percentage paid for overheads – rent, insurances, salaries, advertising, stationery, etc. Anything above 25 per cent was considered wasteful.

However a low ratio is no real measure of charity efficiency or effectiveness. Kjerstin Erickson provides an excellent example of this in her article Nonprofit Emaciation: Confessions of a Do-Gooder Who Starved an Organization. The charity she founded functioned initially on an overhead ratio of about four per cent. Such parsimony eventually killed the organisation and its great work.

Conversely, ratios higher than 25 per cent do not necessarily indicate extravagance or ineptitude. You need to dig further than mere financials.

Charity objectives

All charities should have goals and ways of measuring them. If they are using donations wisely you would expect to see at least some, preferably most, of these objectives achieved.
 
However, a 100 per cent success rate is unrealistic. Even well-planned and worthy projects may founder due to insufficient funding. Sometimes a project may be adequately funded but still fail. That is not always a bad thing. A forward-thinking charity will be trying new solutions to the problems it is addressing. Experimentation is risky, but necessary for learning and development.

Charity outcomes

The ultimate test of efficiency and effectiveness is outcomes. If a charity is making a noticeable impact on the causes it is championing, then you know your donations are being spent wisely. Even the New Zealand Government has moved to an outcomes focus through its contracts with social services.

Consider more than your favourite charity’s financial reports. Read its stories, scan people’s comments on its Facebook page, and look at the community or environment in which it works. If the organisation disappeared tomorrow, would it be missed? If yes, then trust it is spending your donations wisely.

Copyright 2014 Linda Grigg