OPINION:
After CBS News exposed wasteful spending practices of the Wounded Warrior Project, something remarkable happened: The board of WWP fired the CEO and COO. In the day and age when people routinely aren’t held accountable for their actions — Hillary Clinton’s email saga thus far comes to mind — it’s a breath of fresh air that doesn’t come often enough.
That’s true generally, but also as it applies to the charity world. The amount of waste goes into the billions of dollars — and yet we hardly hear about it.
To grasp how dire the situation is, consider the following. CharityWatch, an independent watchdog, examines a few hundred charities in its rating guide (a small percentage of the nonprofits) and assigns a letter grade to each. Half of the veterans and military charities rated get “D” or “F” grades, which is largely due to wasteful spending.
If we take the overhead figures listed by CharityWatch and multiply them against the most recent budgets for the poorly run organizations, we find these veterans charities spend more than $300 million on overhead. Overhead for poorly graded cancer charities — which are also replete with “D” and “F” organizations — approaches $1 billion.
That’s just two categories of charities — not counting animal charities (where the Humane Society of the United States wastes millions), environmental, international aid, mental health, and others.
Some overhead spending will obviously exist even in the most well-run charities. But the point is a number of charities spend too much on overhead.
Unfortunately, some charity watchdogs aren’t doing their jobs. Charity Navigator and the BBB Wise Giving Alliance put out a website called The Overhead Myth, arguing that overhead spending “is a poor measure of a charity’s performance.”
Really? CBS News discovered that Wounded Warrior Project was spending between 40 and 50 percent of its budget on overhead. That’s awful. Yet WWP currently has a three-star (out of four) rating from Charity Navigator. (After the news about WWP broke, Charity Navigator reportedly put the charity on a “watch list,” but that appears to have been short-lived.)
These two charity watchdogs have now issued a statement playing into the hands of bad charities. Some have argued that charities should be operated like for-profit companies. Charities should spend money “investing” in things like building mailing lists, and then in a few years begin to get a “return.” This is a flawed, self-serving excuse.
In the for-profit sector, executives are judged by the growing market capitalization of a company, the ability to increase sales, increasing returns on investment, and growth in shareholder value. None of these apply to charities. The one metric that is defensible is growth of real services for those in need, and doing so on a continually static or diminishing percentage of revenue dedicated to overhead.
Charities exist to tackle problems today — to help hungry kids in Africa, to help wounded vets, to help homeless pets — and raise money for that purpose. Donors expect the money will be spent on these things, not spent kicking the can down the road. Some charities spend profligately on fundraising mailings, which they claim are “educating” the public about an issue. But this “education” is just another thinly veiled fundraising method.
Then there’s the case of charities that stash donor funds away in a trust fund to be used at some indeterminate future date when its need will supposedly be greater. But for a true charity, the need is now. Why have a rainy day fund, in other words, when it is already pouring? The Humane Society of the United States, for example, put $100 million of donations in offshore accounts in the Caribbean between 2012 and 2014. Do the donors know that their funds are going to tax shelters rather than pet shelters?
Overhead spending is an important metric because it shows whether charities are fulfilling their missions. But it’s just the first step.
Wounded Warrior Project had gotten bad grades before this year due to its spending practices. It was only when CBS News really investigated the group that everything came to light. With all of these charitable dollars not reaching their intended targets, will we have to rely on just the media to do something?
• Richard Berman is president of Berman and Co., a Washington public affairs firm.
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