Orphan News

There are a growing number of organizations whose mission is to rate charities...and for the most part, they use the IRS Form 990 as the basis for their analysis of the non-profit organizations they are giving a grade to. Orphan's Lifeline International has received a "4 star" rating from Charity Navigator...and frankly we deserve it, but not just because our financials reflect good "organizational efficiency" and good organizational capacity". These are of course important elements...but there are at least two potential pitfalls with giving too much weight to these kinds of assessments derived from mathematical calculations and formulas related to information provided in the 990's and married up with a rating system that is proprietary to each different "rating organization."

Pitfall #1: The IRS Form 990 has a lot of numbers in it...but behind those numbers are hundreds and thousands of transactions that have taken place in the organization in three general areas. Administration is one of them, Fundraising is another and Programs is the third main area. Other areas less visible or looked at, are investments and asset purchases...things like that. The problem and a pitfall of looking at just the numbers and the resulting "grade" given because of them is two-fold. For example, a large organization with a HUGE administrative cost might show a very small percentage of its massive budget as going to "Administration", but does that make it efficient? Likewise, they might show a very LARGE percentage going to "Programs", but are those programs themsleves efficient in terms of "value"...is the "outcome" and "output" what it should be or could be?

Pitfall #2: There are organizations with very liberal accountants...and organizations with very conservative accounts and therein accounting practices...all within the "generally accepted accounting practices." So there is a very real danger of comparing apples to oranges when using just the numbers from a 990 to make an assessment.

Over then next couple of months, we will take an in-depth look at these pitfalls and ponder other ways to measure efficiency and effectivness as well as the financial health of an organization. Along the way, we will take a look at the REAL diifference between a Non-Profit Organization and a For-Profit Organization and discuss the averages person's perception of what that difference is...or what some think it should be.

Stay tuned for part II ...coming soon!