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Overhead ratios don’t tell whole story

December 2, 2009

In the community foundation world, we have long lamented the fact that some charity evaluators got a lot of publicity for ranking nonprofits, but the rankings themselves did not really capture real reasons for a donor to consider giving to a charity. The question of overhead — what does it cost to run the organization — is a big one, and some evaluation systems did not seem to give enough thought to calculating those expenses relative to the work to be done.

Chharities are not created equal in terms of administrative costs, because not every charity does the same thing. In addition, experts say, charities calculate overhead and administrative costs differently and not always correctly. So you have to look at the results of their work, not just the financial ratios.

There are challenges to evaluating results too. Sites such as GreatNonprofits, GiveWell and Philanthropedia are trying to provide other tools, incorporating personal evaluations and reviews. Even one of the best known evaluation sites, Charity Navigator, is working on its system, noting the flaws and trying to make it better.

Far better than looking for a 4-star rating is taking the time to get to know a nonprofit personally or, to broaden and deepen your knowledge, turning to your local community foundation for help. In these tough times, we all need to keep on giving and make every effort to do it wisely.

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