Accountability Changes Philanthropic Landscape

Accountability Changes Philanthropic Landscape

By Michael L. Wyland
PUBLISHED: January 17, 2008

[The following column was published in the Sioux Falls Argus Leader on January 17, 2008.  It may be accessed here.]

There has been a major change in philanthropy in recent years. Accountability and impact are increasing the demands placed on charities because the purpose of charity from the donor’s perspective has changed. It’s become acceptable, in the name of accountability, for philanthropy to be about receiving rather than about giving. Hypervigilant and misapplied accountability risks killing the soul of philanthropy upon which charities rely for support.

Traditionally, the act of charity has been about the act of giving and the intangible benefit to the donor of giving for the benefit of others. Giving was encouraged as a step in the donor’s journey of living a virtuous life. How the gift ultimately was used was beyond the donor’s consideration, aside from a general effort to give to “worthy” causes.

To see how things have changed, imagine Ebenezer Scrooge in Dickens’ “A Christmas Carol.” He is walking the streets of London Christmas Day. He encounters the two businessmen who had earlier solicited aid for the poor. In the story, Scrooge whispers a pledge. What if instead he had said: “Come to my office and show me the audits of these orphanages and poor houses. If they meet my standards of fiscal and programmatic accountability, I will invest a large sum in them.” Is this the spirit of charity that nourishes the soul and symbolizes Scrooge’s redemption?

As difficult as it is to get a complete picture of nonprofit finances from available data, it’s at least 10 times harder to assess the effectiveness of nonprofits’ service activities. At the extremes, a highly cost-efficient organization can have no measurable impact in serving its mission, where a cost-inefficient nonprofit might achieve much measurable impact in fulfilling its mission (aka “public benefit purpose”).

The IRS, the federal agency responsible for monitoring nonprofits and charities, states explicitly that it is not in the business of assessing mission-based effectiveness. The data it collects don’t allow for such regulation to occur, even if it were part of the IRS’s responsibility. Our purported, often self-appointed, charity watchdogs measure against arbitrary, “perfect” standards. They measure quantitative events rather than qualitative outcomes and impacts.

The watchdogs rely on IRS filings and voluntary disclosures from charities, overwhelmingly financial in nature, to base their judgments. As long as every transaction is documented and as long as no one’s enriching themselves at the charity’s expense, the IRS and the watchdogs are satisfied.

No one tracks whether substantial good is being done; they don’t track whether people are being helped.

Organizational effectiveness and efficiency are not a binary choice but a continuum, a bell curve. Most nonprofits (and for-profits, for that matter) operate somewhere in the middle between perfection and complete dysfunction.

Typically, people magnify both the potential for perfect and the occurrence of imperfection in those organizations with which they are unfamiliar. The greater our knowledge and experience within a particular organization or market, the more likely we are to accept some inefficiency and ineffectiveness as a cost of successful operation. On balance, for all of us, significant good is being done.

Can charities do better? Of course, and they should strive to do so. Will they ever achieve perfection? Not likely, especially as long as humans – especially in groups – are involved.

But how does that differ from the rest of society and the rest of life, for that matter?