What all this means is that nonprofit CFOs cannot interpret the call for transparency narrowly; the concept means much more than issuing full financial figures. It involves putting on display clear and candid procedures for running the entire enterprise — from how financial statements are assembled and audited to how the auditor operates and how the organization vets insider transactions. Instead of settling for financial transparency, says the American Society of Association Executives’s Graham, nonprofits should be working to achieve process transparency.
In the future, nonprofits will need to convince an increasingly skeptical public that they have the right systems and policies in place to ensure that all donations will be spent wisely. “It’s not about money,” observes Graham. “It’s about return on investment. It’s about a social or educational or charitable return on investment.”
Bill Birchard is a freelance business writer based in Amherst, New Hampshire. His most recent book is on The Nature Conservancy, called Nature’s Keepers.
How Effective Is That Charity?
Have you asked about its impact measures?
To gauge the performance of nonprofit groups, outsiders invariably rely on a couple of traditional ratios: administrative costs as a proportion of total costs and fundraising expenses as a percentage of dollars raised. “Those ratios are so deeply entrenched in the way people approach evaluating the effectiveness of charities,” says Art Taylor, president of charity watchdog BBB Wise Giving Alliance, “that it would take something on the order of the smoking-cessation movement to get people off of those stats and onto real information that matters.”
Real information that matters? In the same way that for-profit ratios like price/earnings and SG&A/total expenses tell little about whether a business delivers value, nonprofit ratios like “efficiency ratio” and “fund-raising ratio” tell little about whether nonprofits do the same. To bridge this information gap, nonprofit experts like Taylor talk about “impact” or “outcome” measures. Quantifying impact or outcome helps donors see beyond fiscal efficiency to mission effectiveness.
One charity that has bridged the efficiency-effectiveness gap is the American Heart Association. CFO Walter Bristol says that up to the mid-1990s, the association set targets by annually increasing fund-raising budgets or by raising goals for the number of people their programs reached. “While we made incremental improvements,” he says, “we really did not do things in a fashion that we considered to be bold.”
But with the launch of a new strategic-planning process, the Dallas-based healthy-heart advocacy group, with $653 million in annual revenues, put in place one grand “impact” goal: to reduce coronary heart disease, stroke, and key risk factors by 25 percent by 2010. Remarkably, the goal measures the entire U.S. population, not just an isolated group the association can control.
“Now that’s a big bold goal,” admits Bristol. “The question is, how do we get that done?”
One way Bristol and CEO M. Cass Wheeler hope to get it done is by holding the organization’s feet to the fire with its performance measures: the rates of coronary heart disease, stroke, uncontrolled high-blood pressure, obesity growth, and diabetes growth; and the prevalence of tobacco use, high cholesterol, and physical activity.
Already halfway toward its target year, the association has made steady progress. The impact goal serves as a powerful tool not only to show donors that their money goes to many well-intentioned programs, but that it gets results. Death rates of coronary heart disease, as of March 2005, have declined by 12.7 percent since 1999. Death rates for stroke have declined by 9.1 percent.
As at the American Heart Association, CFOs and finance people are the ones naturally positioned in all nonprofits to give accountability new meaning. “The CFO in the nonprofit sector really has the ability to lead the change by not waiting for the grant maker to demand it,” says Susan Raymond, an author and philanthropy expert at Changing Our World Inc., in New York, “but by instead preparing the institution to produce it whenever the grant maker demands it.” — B.B.