Doing Due Diligence On Your Donations

As Charitable Giving Grows, So Do Services for Donors
Who Want Evidence That Their Money Is Having an Impact

As charitable giving by Americans nears $300 billion annually, donors increasingly want to know how much impact their dollars are having. Now they have more ways to find out as increasing numbers of services spring up that monitor charities' effectiveness and charities themselves improve their self-assessments.

Donors can readily compare charities from a financial perspective: how much an organization spends on administrative costs or fund raising, for instance. But givers, especially younger, business-minded ones, now tend to want more information on how successful a charity's programs are in addressing the issues the charity sets out to resolve, from feeding the homeless to securing employment for the disabled. That's especially important as the number of charities continues to grow, with about 1.4 million to choose from.

MEASURING SUCCESS

Donors are increasingly concerned about whether the charities they support are getting results. Here are some things to look for:

. Ask the charity what benchmarks it uses to monitor its results over time.

. Check to see if the organization's results have been evaluated by an outside party.

. Volunteer with the charity or do site visits to see how well it operates.

The problem is, it can be difficult -- and expensive -- to measure whether charitable programs are actually working, and most nonprofits aren't willing to devote scarce resources to collecting such information. Take, for instance, a charity that raises money to help blind individuals function independently. Typically, the charity won't be able to show that the people it helped achieved higher employment rates than they would have without its help.

Wealthy people and foundations sometimes hire philanthropy consultants to help them gauge a charity's effectiveness. But other donors who seek that kind of analysis usually have had to rely on guesswork or do it themselves, which makes it tough to figure out whether one approach to solving a problem is better than another.

"When I first started donating, you do it on faith," says Chuck Longfield, a 51-year-old software entrepreneur in Cambridge, Mass. Now, "I am trying to bring a greater awareness about the importance of outcomes." Mr. Longfield likes supporting nonprofit charter schools, which are required to document their progress at improving students' scores. When a school doesn't show a willingness to respond to negative results by changing its strategy, Mr. Longfield says he shifts his money to other schools.

More services are emerging to help donors -- and charities themselves -- measure their impact and failures. GiveWell, a new nonprofit, evaluates charities in different fields, including employment-assistance programs in New York and health care in Africa, and publicizes the information on its Web site, http://www.givewell.net/. GlobalGiving.org channels donors' contributions to charitable programs around the world and provides regular field reports. It recently launched a "guarantee" program, in which donors who are unsatisfied with the results of their gifts can pull their funding and direct it elsewhere through GlobalGiving.org.

"Contributors want a better handle on whether their selected charity is really having some impact on the issue they were seeking to address," says Bennett Weiner, chief operating officer of the Better Business Bureau Wise Giving Alliance, Arlington, Va. (www.bbb.org/charity), which evaluates national charities based on various financial and governance standards, including whether groups have formal policies to assess their performance and effectiveness.

Some charities are evaluating their own programs. Youth Villages, based in Memphis, Tenn., which works with troubled youth and their families, spent $30,000 several years ago to have its work evaluated. To the group's dismay, the research showed that its approach -- housing and caring for kids away from their families for one to two years -- wasn't as effective as returning them to their homes after four or five months while engaging the whole family in treatment programs.

In response, Youth Villages began returning children to their families sooner. It also began more rigorous regular monitoring of its work, including monthly reports to senior managers and tracking of kids for two years after they leave the program.

The charity's willingness to monitor itself impressed Mike Bruns, a Memphis transportation executive who says he has contributed regularly to Youth Villages for years and has joined the board. "So many nonprofits do not measure their effectiveness," says Mr. Bruns, 56 years old, who says he likes to help kids who don't have access to the stable upbringing he had. By contrast, Youth Villages "had measurable results for their work," he says.

More than money and time, "fear of finding that something is not working" is what keeps more charities from investing in research about what works, says Isaac Castillo, director of learning and evaluation at the Latin American Youth Center in Washington, which helps keep kids out of trouble. It spends about $300,000 a year to measure and report on its programs, which include tutoring and mental-health services. Sharing such information with big donors has made fund raising easier, Mr. Castillo says.

Various online services provide information about charities' finances, including Charity Navigator and GuideStar.org, and charities' own Web sites usually provide broad mission statements. But when it comes to effectiveness, it's challenging for outsiders to assess something that charities themselves rarely measure. Donors and charities are testing a variety of methods to overcome these obstacles

Wealthy donors and private foundations -- typically those who give upwards of half a million dollars -- are increasingly turning to philanthropy consultants, such as the nonprofit Rockefeller Philanthropy Advisors or Geneva Global, a for-profit group that focuses on developing countries, to provide due diligence on the charities they already support or are considering funding. Geneva Global, for instance, would assess HIV counseling and testing programs by measuring the percentage of individuals who consent to be tested and the total cost per patient, among other metrics. The cost of hiring an adviser varies. Some firms charge about $500 to $3,000 a day, while others charge a percentage of charitable grants, typically from 3% to 15%.

Another option is to visit Web sites and piggyback on the work of so-called venture-philanthropy firms, such as New Profit Inc., in Cambridge, Mass., Social Venture Partners in Seattle, and Venture Philanthropy Partners in Washington, which do much of the legwork needed to assess the effectiveness of their charitable giving. Or, donors can check out charities that get money from foundations that put a premium on effectiveness, such as the Edna McConnell Clark Foundation in New York and the Annie E. Casey Foundation, based in Baltimore.

And there are a growing number of groups whose aim is to make charity-effectiveness evaluations open to the public. GiveWell, for instance, was started this year by two former hedge-fund researchers who were frustrated by the lack of available information on charities' results and impact. They research and grant money to organizations in specific topic areas that the group deems effective and post the results on their Web site. For example, when researching job-training charities in New York, GiveWell asked groups to provide data on how many people took advantage of the programs, what skills they were taught, what percentage of clients found jobs, what kind of jobs they found, and how long workers kept their jobs, says 26-year-old co-founder Elie Hassenfeld.

Community foundations, which are public charities that typically help local causes, may also offer effectiveness evaluations of nonprofits in the communities they serve, often for free to the public. The Greater Kansas City Community Foundation, for instance, has developed a free public database, http://www.donoredge.org/, with program evaluations of hundreds of local and some national charities, and is beginning to roll out the program at other community foundations around the country.

Donors can also check for themselves whether a charity is successful at fulfilling its mission. Philanthropy advisers suggest first asking nonprofits about their goals and strategies, and which indicators they use to monitor their own impact. Givers should see how the charity measures its results both in the short term -- monthly or quarterly -- and over a period of years.

It's also smart to see if the charity's progress has ever been evaluated by a third party, rather than just the charity itself. Check the charity's Web site or annual report for specific details on how it gauges its results. If the information isn't there, call the charity and ask. Be wary about giving, however, if a charity doesn't answer your questions or provide annual reports or other filings. Another way to learn about a charity: Volunteer with the group, or visit a site to get to know staffers, clients and facilities.