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.

Part II

To answer the questions raised in my description of Pitfall #1, we have to think about what efficiency means...about what "program expenses" are...and how "value" relates directly to "outcome" and "output."

Program expenses by definition, are expenses directly or indirectly related to the stated programs of a non-profit in fulfillment of their mission statement. The programs can be anything from advocation and education to direct hands on assistance. In other words, it could be promoting the value of children doing art, or helping children become artists. It could be advocating adoption or facilitating adoption. So expenses directly related to making these things happen as well as administration and operations that support these functions, including salaries,can be all or in part, allocated as a program expense.

What is perhaps more important than the gray areas that exist because of this, is the "value"...or what it costs as a unit of measure if you will. What are you getting for your money? It's not so much the percentage used for programs as it is what it is costing the non-profit and ultimately the donor to fulfill the mission on a unit basis. In other words...what's getting done...is it measureable and sustainable? Can you as a donor easily see proven results? Is it obvious that the money you have donated must be doing its job based upon the transparency of the organization through its own reporting and proof of the work being done? Are the programs vague or specific? Can you easily find evidence of the work they claim? How many layers exist between your donated dollar and the intended recipient? Do they have due diligence and follow up that means you can feel assured that your donations are spent as intended? These are all questions you should ask yourself and them.

Part III coming soon....