Keeping government regulation to a minimum is even more important for charities than it is for other sectors. Too much red tape destroys the very qualities that enable the institutions of civil society to address social needs in ways that government bureaucracies can't. Minister Kevin Andrews should be applauded for demonstrating his commitment to charities' independence in his recent remarks on what charity regulation might look like after the Australian Charities and Not-for-Profits Commission (ACNC) is abolished.
Some critics have fastened onto the minister's suggestion that independent charity evaluators-the so-called 'Charity Navigator model'-could have a role to play in that future, as a supplement to government rules and reporting requirements. Cassandra Goldie denigrated the model as 'league tables,' a term repeated by David Gilchrist, who also warned that evaluators' judgments were 'superficial.'
If describing charity evaluators as 'league tables' is meant to imply that their judgments are based entirely on statistical ratios like overhead with no room for a more holistic presentation of a charity's merits, then the description is outdated and unfair.
To start with a very basic point, the umbrella term 'Charity Navigator model' covers many more organisations than just Charity Navigator, which is just one site in a very diverse field. In the United States, GiveWell rewards charities that ruthlessly quantify their goals and results ('$X delivers Y bednets, which saves Z lives'), but Philanthropedia uses a less numbers-driven method that incorporates the opinions of sector professionals. Charity Watch gives letter grades, while the Better Business Bureau/Wise Giving Alliance site uses a pass/fail certification system, on the logic that competitive rankings are counterproductive. Each site's method is different.
Fortunately for charities, the bad old days when evaluators relied solely on overhead ratios are behind us. The BBB/Wise Giving Alliance, for example, uses 20 criteria in its certification system, of which only two involve financial ratios. Its CEO, Art Taylor, has pointed out that while 40 percent of evaluated charities fail to meet their certification standards, only 10 to 12 percent fail because of those two financial measurements. Given how few charities struggle to meet those standards, says Taylor, 'we think the measurements we're using are actually reasonable.'
Other evaluators, including Charity Navigator itself, have moved beyond the overhead obsession by basing their ratings on other criteria, such as whether a charity is truthful in its solicitations, whether its financial records are publicly accessible, and whether it has strong governance standards.
In June 2013, the heads of GuideStar, Charity Navigator, and BBB/Wise Giving Alliance published an open letter urging donors to move beyond overhead in their donation decisions. The accompanying 'Overhead Myth' campaign has generated a lot of attention and some significant reforms to the way online evaluators rate charities.
Australia is in this sense very fortunate to be arriving late to the charity evaluator idea, since many of the worries that critics have identified have already been corrected or are in the process of being corrected.
Other countries have begun to recognise in their charity-regulation policies that evaluators are now an important part of the landscape. Among the recommendations in the UK National Audit Office's report on the Charity commission for England and Wales was that the Commission begin 'by March 2014 to make charities' annual returns easier for other bodies to analyse,' if possible 'in a format that enables . . . external users to compare the data across many charities.'
Over the past few years, GuideStar has branched out into Belgium, India and Israel. Australia has a higher proportion of its population donating to charity than any of these countries. The recent regularisation of accounting standards for not-for-profits has made it easier to compare apples-to-apples across the sector. All of this suggests that Australia will begin to see independent charity evaluators within the next couple of years, either through an expansion of an evaluator like GuideStar or through a homegrown effort.
Ultimately, the question is not whether Australia should have online charity evaluators. Donors want information about charities; the technology needed to provide them with this information is getting easier to use all the time; therefore, these sites are coming whether we like it or not. They are not the beginning and the end of charity regulation-law enforcement and financial regulators, among others, still have a role to play. But these evaluators have proven that they can be a constructive part of a country's charity landscape, as well as an effective way to impose oversight without imposing more red tape. Australia's charities should welcome them as partners.
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