The primary purpose of the Cleveland BBB's Charity Review Program is to educate Greater Cleveland donors and assist them in making informed contribution decisions by providing reports on both local and national organizations and providing valuable general information concerning charitable giving.
The Better Business Bureaus began their charity review work in the 1930s out of necessity. Businesses and individuals were interested in making better informed giving decisions and turned to the BBB system for that service. In 1971, the Council of Better Business Bureaus established a separate division, the Philanthropic Advisory Service, which developed a set of standards by which national charities should operate and to this day issues reports based on those standards (now as the Wise Giving Alliance). There are 20 Standards for Charitable Solicitations that evaluate a charity's public accountability, use of funds, governance, fund raising and solicitation practices.
The Cleveland BBB began reporting on local charities for the same reason. We develop reports on local organizations that local donors have interest in, or that we feel are of interest to the community. We apply the same standards used by the Wise Giving Alliance.
Local reports can be accessed by calling the 24 Hour BBB AnyTime Line at (216) 241-7678, or are available on the Bureau’s report page. National charity reports are available at www.give.org.
Below are the Cleveland Bureau's standards. To learn more about charitable giving in general, go to www.give.org, the website of the Wise Giving Alliance.
STANDARDS FOR CHARITABLE ACCOUNTABILITY
GOVERNANCE AND OVERSIGHT
The governing board has the ultimate oversight authority for any charitable organization. This section of the standards seeks to ensure that the volunteer board is active, independent and free of self-dealing. To meet these standards, the organization shall have:
1. A board of directors that provides adequate oversight of the charity's operations and its staff. Indication of adequate oversight includes, but is not limited to, regularly scheduled appraisals of the CEO's performance, evidence of disbursement controls such as board approval of the budget, fund raising practices, establishment of a conflict of interest policy, and establishment of accounting procedures sufficient to safeguard charity finances.
2. A board of directors with a minimum of five voting members.
3. A minimum of three evenly spaced meetings per year of the full governing body with a majority in attendance, with face-to-face participation. A conference call of the full board can substitute for one of the three meetings of the governing body. For all meetings, alternative modes of participation are acceptable for those with physical disabilities.
4. Not more than one or 10% (whichever is greater) directly or indirectly compensated person(s) serving as voting member(s) of the board. Compensated members shall not serve as the board's chair or treasurer.
5. No transaction(s) in which any board or staff members have material conflicting interests with the charity resulting from any relationship or business affiliation. Factors that will be considered when concluding whether or not a related party transaction constitutes a conflict of interest and if such a conflict is material, include, but are not limited to: any arm's length procedures established by the charity; the size of the transaction relative to like expenses of the charity; whether the interested party participated in the board vote on the transaction; if competitive bids were sought and whether the transaction is one-time, recurring or ongoing.
An organization should regularly assess its effectiveness in achieving its mission. This section seeks to ensure that an organization has defined, measurable goals and objectives in place and a defined process in place to evaluate the success and impact of its program(s) in fulfilling the goals and objectives of the organization and that also identifies ways to address any deficiencies. To meet these standards, a charitable organization shall:
6. Have a board policy of assessing, no less than every two years, the organization's performance and effectiveness and of determining future actions required to achieve its mission.
7. Submit to the organization's governing body, for its approval, a written report that outlines the results of the aforementioned performance and effectiveness assessment and recommendations for future actions.
This section of the standards seeks to ensure that the charity spends its funds honestly, prudently and in accordance with statements made in fund raising appeals. To meet these standards, the charitable organization shall:
|Please note that standards 8 and 9 have different denominators.|
8. Spend at least 65% of its total expenses on program activities.
|Formula for Standard 8:|
|Total Program Service Expenses
||should be at least 65%|
9. Spend should be no more than 35% of related contributions on fund raising. Related contributions include donations, legacies, and other gifts received as a result of fund raising efforts.
|Formula for Standard 9:|
|Total Fund Raising Expenses
||should be no more than 35%|
|Total Related Contributions|
10. Avoid accumulating funds that could be used for current program activities. To meet this standard, the charity's unrestricted net assets available for use should not be more than three times the size of the past year's expenses or three times the size of the current year's budget, whichever is higher.
An organization that does not meet Standards 8, 9 and/or 10 may provide evidence to demonstrate that its use of funds is reasonable. The higher fund raising and administrative costs of a newly created organization, donor restrictions on the use of funds, exceptional bequests, a stigma associated with a cause and environmental or political events beyond an organization's control are among factors which may result in expenditures that are reasonable although they do not meet the financial measures cited in these standards.
11. Make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles. When total annual gross income exceeds $250,000, these statements should be audited in accordance with generally accepted auditing standards. For charities whose annual gross income is less than $250,000, a review by a certified public accountant is sufficient to meet this standard. For charities whose annual gross income is less than $100,000, an internally produced, complete financial statement is sufficient to meet this standard.
12. Include in the financial statements a breakdown of expenses (e.g., salaries, travel, postage, etc.) that shows what portion of these expenses was allocated to program, fund raising, and administrative activities. If the charity has more than one major program category, the schedule should provide a breakdown for each category.
13. Accurately report the charity's expenses, including any joint cost allocations, in its financial statements. For example, audited or unaudited statements which inaccurately claim zero fund raising expenses or otherwise understate the amount a charity spends on fund raising, and/or overstate the amount it spends on programs will not meet this standard.
14. Have a board-approved annual budget for its current fiscal year, outlining projected expenses for major program activities, fund raising, and administration.
FUND RAISING AND INFORMATIONAL MATERIALS
A fund raising appeal is often the only contact a donor has with a charity and may be the sole impetus for giving. This section of the standards seeks to ensure that a charity's representations to the public are accurate, complete and respectful. To meet these standards, the charitable organization shall:
15. Have solicitations and informational materials, distributed by any means, that are accurate, truthful and not misleading, both in whole and in part. Appeals that omit a clear description of program(s) for which contributions are sought will not meet this standard.
A charity should also be able to substantiate that the timing and nature of its expenditures are in accordance with what is stated, expressed, or implied in the charity's solicitations.
16. Have an annual report available to all, on request, that includes:
the organization's mission statement,
a summary of the past year's program service accomplishments,
a roster of the officers and members of the board of directors,
financial information that includes (i) total income in the past fiscal year, (ii) expenses in the same program, fund raising and administrative categories as in the financial statements, and (iii) ending net assets.
17. Include on any charity websites that solicit contributions, the same information that is recommended for annual reports, as well as the mailing address of the charity and electronic access to its most recent IRS Form 990.
18. Address privacy concerns of donors by
providing in written appeals, at least annually, a means (e.g., such as a check off box) for both new and continuing donors to inform the charity if they do not want their name and address shared outside the organization, and
19. Clearly disclose how the charity benefits from the sale of products or services (i.e., cause-related marketing) that state or imply that a charity will benefit from a consumer sale or transaction. Such promotions should disclose, at the point of solicitation:
the actual or anticipated portion of the purchase price that will benefit the charity (e.g., 5 cents will be contributed to abc charity for every xyz company product sold),
the duration of the campaign (e.g., the month of October),
any maximum or guaranteed minimum contribution amount (e.g., up to a maximum of $200,000).
A few helpful hints...
Check out www.give.org
High Tech, Not Always High in Ethics. Honest charities have easy access to the Internet at low cost, but so do unscrupulous operators. A fancy web site does not necessarily mean that a charity is above board. Check out on-line appeals as you would off-line appeals. Listed below are a few web sites that will help you to become a more informed Internet donor.
Guidestar - This is a nonprofit, Internet based, informational organization that offers information on local and national charities. You may obtain a Guidestar report, which contains information posted by a charity in regard to the charity's location, finances and governance. Their web site will also allow you to view an organization's IRS form 990, which is the nonprofit organization's tax form. This information is accessible on their web site at www.guidestar.org.
American Institute of Philanthropy - Has reports on national charities based on standards determined by the Institute. Also, has wise giving information, links to magazine and newspaper articles and special alerts. This information is accessible on their web site at www.charitywatch.org.