Method Better Judges Charity Efficiency: Why Oxfam Compares Better
and UNICEF Worse
- published in the April 2005 Charity Rating Guide
& Watchdog Report
During the heat of fundraising for the Tsunami disaster
the media frequently flashed efficiency ratios of charities. Unfortunately,
in many cases the raw numbers from a charity's tax form were used
to generate the ratings without any consideration of the source
of income, the in kind gifts component or the results of audited
financial information. AIP's letter grade ratings, which are based
on our in-depth analysis, give donors a better understanding of
how their donated dollars are being spent.
Stephanie Kurzina, Director of Resource Development
at Oxfam-America, a highly regarded international relief
and development organization, appeared on PBS last February to explain
why Oxfam's efficiency rating does not compare as favorably with
other charities as it should. She cited two major reasons: Oxfam
doesn't accept government grants and it doesn't accept large quantities
of donated goods such as medicines. She explained that these items
are very large and come at no or lower fundraising cost. She gave
an example of turning down a donation of $1 million worth of desalination
equipment to provide drinking water to the Tsunami-struck Maldives.
Oxfam instead spent $165,000 of donor contributions to buy lightweight
desalination equipment that was easier to transport and operate
by untrained people. She then said, "that wasn't the most efficient
solution according to the rating guides, but it was, we believe,
the most effective way to get the job done."
Ms. Kurzina must not have been referring to AIP's
Charity Rating Guide because it is the only major national
publication that excludes the value of donated goods in its ratings.
Had Oxfam accepted the $1 million of inappropriate equipment, it
would not have helped their rating, yet the purchase of the appropriate
equipment will improve their rating. Also, in the calculation of
fundraising efficiency, AIP's Guide, unlike the other charity
guides, does not include the proceeds from government grants and
contracts. Doing so makes charities that receive a large portion
of their support from the government falsely appear to be efficiently
raising money from the public. AIP strongly encourages donors to
find out how much it costs a charity to obtain their contributions
from the public. Throwing government funds and donated goods into
the mix will distort this efficiency measurement.
The United States Fund for UNICEF, which is
a nonprofit fundraising arm for this United Nations agency, does
not receive government funds. Still it does not compare favorably
to most other international aid groups in AIP's Guide because
of how it spends its cash donations.
The Fund's web site at www.unicefusa.org prominently
features links to the web sites of Charity Navigator and the Better
Business Bureau's Wise Giving Alliance, agencies that review charities.
Each of these sites say that the Fund is putting 88% of its budget
towards program services. The BBB Alliance, which charges $15,000
to the Fund for the right to display the BBB seal and link to its
favorable evaluation, says that the Fund's fundraising ratio is
10%. Navigator puts it at 8%. Why the big difference with AIP? AIP's
rating tells the donor what a charity is doing with your dollars.
The other two charity reviewers blur your understanding of what
is happening with the dollars by including the value of donated
goods in their ratios.
In fiscal 2003 the Fund received $56 million in cash
from the public. The Fund also counted as income $182 million worth
of two drugs that can help prevent blindness ($106.7 million of
Mectizan from Merck & Co. and $75.5 million of Zithromax from
Pfizer, Inc.). AIP excluded these two drug donations from its ratios;
BBB and Navigator did not. From AIP's perspective, the donated inventory
from two pharmaceutical companies, which allows the companies to
claim generous tax deductions, has little relevance as to whether
a charity efficiently spends its cash donations.
Had Merck and Pfizer donated these drugs directly
to the United Nations, instead of through the Fund, the Fund's rating
under methods that include donated inventory would change from a
highly efficient charity to a somewhat inefficient one. AIP does
not believe that the Fund's efficiency rating should be reduced
if the two companies had decided to donate drugs directly to the