Why do we vet?
The landscape of nonprofits in the United States includes about 1.5 million organizations that are as diverse as the people who make up the country. Direct comparison across these organizations is difficult and, we believe, not the best approach. Too much focus is given to overhead expenses of these organizations. We believe that nonprofit performance should not be primarily evaluated based on overhead and other quantitative factors.
Consider the overhead for a Mom & Pop Shop that supports unhoused citizens in their community. They raise funds locally, take 70% of these funds for their salary (i.e. overhead), and their community recognizes their goals are largely achieved with 30% of raised funds going directly to the services. Contrast this with a large well-funded organization with dedicated finance, marketing, and fundraising divisions. This organization has overhead below 25% and wide range of services to drive impact. If each organization is achieving results and performing well based on their stated goals, comparing overhead and financials between these organizations is not the right approach.
Looking at Giving Circle’s guiding principles, we vet organizations to help establish trust that donations are effectively used inline with their values. The fact is there is no silver bullet for vetting nonprofits. Nobody has figured out how best to evaluate nonprofits in a standardized, repeatable, and scalable manner. So our approach is a tailored solution to best suit our customer’s needs.
How we vet
The Giving Circle has reviewed books, peer articles, academic papers, a massive amount of existing data, and more to develop an approach for how we can vet that nonprofit organizations use donations effectively.
We feel good about what we’ve developed, and accept a simple fact: we will not get it right 100% of the time. Our plan is to constantly evaluate, measure, learn, and make improvements. We encourage active engagement and feedback. Understanding that our methods can always improve is a huge part of how we establish this process and how we’ll grow.
Our vetting begins evaluating three key questions:
a. Does this organization engage locally to the market being served?
b. Do the stated goals of this organization align with the value selected by the donor?
c. Are the five performance indicators adequately realized?
To narrow focus, we include a few other filters:
· We focus on public charities with 501(c)3 status and typically lean away from organizations whose primarily purpose is political or religious.
· We tend to give more attention to the over 66% of all public charities that have less than $500,000 in annual expenses.
Performance Indicators
We evaluate five high-level criteria, tailored to the size and location of every organization. Each criterion is broken down into multiple streams of assessment, of which a sampling is provided below.
Leadership & Management
- How does the Board of Directors work to help the organization to achieve its goals?
- How do leaders collect feedback from those they serve, and how is it used?
- How are managers making data informed decisions?
- What succession planning is in place?
- Do organizational leaders portray themselves publicly as trustworthy individuals who are committed to the causes they impact?
Strategies, Programs, & Results
- How does the organization evaluate, develop, and implement programs using the best available information?
- What data is used to measure the outcome and impact of the programs?
- How is the quality of impact measured, learned from, and improved upon?
- How do leaders hold themselves accountable to organizational results and high-quality outputs?
- What controls exist to ensure the accuracy of collecting and report data (e.g. biased data that presents positive results)?
- How are partnerships, collaborations, and strategic relationships established and nurtured to support programs’ intended audiences?
Financial Stewardship & Sustainability
- How effectively does financial planning provide insight into financial sustainability, including long term funding sources or adjustments that can impact organization health and viability?
- In what ways are finance staff trained to manage all financial systems, processes, and required compliance efforts?
- How does the board actively engage and guide organizational financial health?
- How are financial results made publicly available?
- What is the fundraising strategy that is in place and how effective has it been?
- Is the organization operating with adequate reserves to maintain sufficient services towards its mission?
- What cost management structures are in place to minimize unnecessary costs and inefficient expenditures?
External Evaluation
- What periodic external evaluations are conducted?
- How do findings in these evaluations get assessed by leadership and implemented to improve operations?
- How are evaluation reports made publicly accessible?
Learning & Improvement
- What opportunities exist for stakeholders, staff, management, and board members to solicit, obtain, analyze, and act on feedback?
- How does the organization support transparency of feedback?
We acknowledge that organizations excelling across all these categories is incredibly rare. Our goal is to based evaluation with the mindset to be inclusive rather than exclusive.
