Balancing the Mission Checkbook

How can you appeal to donors at a time when costs and demands for services are increasing? How about a letter or email detailing your line by line budget increases? Probably not – because what it costs to provide services isn’t compelling. It’s what results from the services that makes the case. By results, though, I don’t just mean a nice story or picture. I mean results. I’ve been reading and hearing more and more frequently about measuring, quantifying, and communicating the results of nonprofit programs, but somehow we (as a nonprofit community) still seem to be coming up short in public perception.

Once again, a study reports that public confidence in charities is declining. Less than 20% of respondents expressed the highest level of confidence in charities’ practices in using financial resources or in managing programs and services. This annual survey, conducted by Professor Paul Light from NYU’s Wagner School of Public Service, was recently summarized in The Chronicle of Philanthropy. Professor Light was the speaker at Charities Review Council’s Annual Forum in Saint Paul last week. After summarizing the survey results and trends, he focused on two key factors related to confidence. The essential question about confidence, he said, is whether or not the public (and your donors) believe that charities spend their money wisely. Not about what line items are in your budget, or how much is spent on program vs. management – the concern is whether money is spent wisely to accomplish something of value. The second, parallel question is how a nonprofit conveys and demonstrates their value. What benefits occur because of your program? Harlem Children’s Zone’s annual report, for example, is full of data about results, progress, and success. The data demonstrates that money is spent wisely because the results are so real. Professor Light repeated his mantra several times - measure something!

First, I need to apologize for breaking the cardinal rule of blogging – I haven’t posted in a month. Sorry, but it’s been crazy busy between leading workshops (nine in the past five weeks), traveling to talk to nonprofits around Minnesota , conferences, and working on a federal grant proposal. I am making a promise to myself to get back to a schedule of posting at least two or three times a month.

I haven’t been writing blog entries, but I have been talking to staff and board members at nonprofits about their financial lives – in particular about the constant dance of finding and attracting funding. We’d all like to be able to get “inside the head” of our potential donors and understand what motivates them to give, or not to give. While you can’t know everything about donors, there is some interesting research available about the perception of the general public about nonprofits. A very recent study was published by the Charities Review Council of Minnesota about charitable giving habits and perceptions of charitable organizations. The scientific study surveyed 606 Minnesotans on a range of questions such as: How much confidence do you have in charitable organizations? How much money do you think charities waste today? Other questions touch on perceptions of the quality of programs, salaries paid to employees of nonprofits, and obstacles to charitable giving. Overall, the study results show that Minnesotans are confident in the programs, overall financial management and ethics of nonprofits. There are several areas of concern, though, such as the 25% of respondents who have very little or no confidence in charities, and 58% who believe that charities waste a great deal or fair amount of money. It’s notable that the responses about money wasting by the federal government and private businesses were even worse. The report is available on their web site, or read either the full report or the executive summary.

I am particularly interested in, and bothered by, the areas of the survey about money, including questions about effective use of funds, waste of money, and a question about how much nonprofit staff should be paid. What I conclude from the very mixed responses to these questions is – and it’s not a surprise – that most people don’t understand how nonprofits work. I don’t now why they should, but it seems that this disconnect will continue to be a possible obstacle when nonprofits reach out to make a case for contributions.

The Minnesota study mirrors a national study of confidence in charities that has been conducted annually by Paul Light at NYU. One of Light’s observations in the 2006 report was the ongoing issues about administrative costs and misunderstanding of how nonprofits use funds in order to work effectively in the community.

My conclusion from all of these studies in that we need to continue to bang the drum of infrastructure and management effectiveness – bang, bang, bang.

Do you grit your teeth when an acquaintance tells you about a nonprofit and adds a comment like “well, they’re just a nonprofit, so what do you expect?” The implication is that nonprofits can’t be expected to be well run, but we put up with it because of the mission. “Perception is reality” is a communication fundamental. If a perception that nonprofits are poorly run is widespread, it doesn’t just damage the nonprofit being discussed, it hurts us all.

I read an article in a local Saint Paul newspaper this week that really drove this home. The paper has been following a story about financial problems at a local community organization, the Highland District Council. In May, the council’s new board discovered that payroll taxes and IRS 990s have been unpaid and un-filed for quite a while (maybe since 1998). The result is, of course, a messy and expensive problem that threatens the council’s ongoing work. The part of the story that bothers me the most, though, is this quote from a board member, “It’s not at all uncommon for nonprofit organizations to have these problems. They usually get worked out because the government wants nonprofits to stay around.” I don’t want to accept this version of low expectations for nonprofits. The reality, in my experience working with nonprofits, is that this IS uncommon. Most nonprofits, even small organizations with one or two staff members, pay their payroll taxes (often by using a payroll service), file their required reports, and stay on top of bookkeeping. Nonprofits Assistance Fund has worked closely with 1600 nonprofit organizations on financial issues. Less than 20 of them have had this kind of long-term payroll tax or IRS reporting problems. The quote in the article continues with, “This problem is a bit more uncommon in terms of how much it has been publicly discussed.” This has been a very public story with a variety of complicated local issues. I wish the board of directors and community members served by the Highland District Council the best. They have a lot of work ahead of them and I hope that they work through this situation and continue to serve the community. Because it is so public, though, it’s essential to fight the image of poorly run nonprofits elsewhere. We can’t accept low expectations.

This is just one story, but NYU Professor Paul Light’s Organizational Performance Initiative has been researching public confidence in charitable organizations for several years. The finding of the 2006 Survey reports that 71% of Americans said that charitable organizations waste a great deal of money, a synonym in my book for poor management. The report states, “Asked which problem facing charitable organizations is bigger – the wrong priorities or spending money wisely – only 17 percent of Americans answered that charitable organizations have the wrong priorities, while 73 percent said charities have the right priorities, but do not spend money wisely.” According to the report, confidence in organizations is strongly related to discretionary giving and volunteering.

Let’s not accept low expectations for nonprofits. In addition to the work you are continually doing to improve management within your organization, become an ambassador for high expectations of nonprofit management. Start talking about qualified and accountable nonprofit management as the reality that we expect and that we believe.