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BBB Wise Giving Alliance to Consider Effects of Recession in Applying Overhead Ratio Standards

12/3/2009

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Charities will be given leeway in meeting fund raising and program spending ratio standards

Arlington, VA –December 3, 2009 – Recognizing that charities across the country are struggling financially in the current economy, the BBB Wise Giving Alliance announced today that it would use the flexibility permitted under its Standards for Charity Accountability to consider the recession’s impact when evaluating charities’ fund raising and program expense ratios. 

Charities have suffered a decline in donations as the economy worsened. The Giving USA Foundation reported that giving from all sources, after adjusting for inflation, dropped 5.7 percent in 2008 – the largest plunge in fifty years. And the Foundation Center has recently reported that giving by foundations will likely decline by more than 10 percent in 2009. Unfortunately, there is little relief in sight. 

“BBB Wise Giving Alliance recognizes that donations are just not coming in as they have in the past and this will negatively affect the financial ratios for many organizations that do fantastic work,” said Art Taylor, President and CEO of the BBB Wise Giving Alliance. “Spending ratios have limited value in assessing the worth of a charity and too much reliance on them is unwise.  With the economy going sour, donors who fail to look beyond overhead ratios can unduly penalize good charities. We all need to be reasonable, particularly to those charities that otherwise meet rigorous accountability standards.”

The BBB Wise Giving Alliance evaluates more than 1,200 nationally-soliciting charities against 20 Standards for Charity Accountability that address charity governance, finances, effectiveness, fund raising practices and donor privacy. Two of the twenty standards require that a charity spend at least 65 percent of its total expenses on program activities and spend no more than 35 percent of contributions on fund raising.  Because so many charities are seeing a severe decline in donations, their spending ratios may be impacted and fall below the required standards until the overall health of the economy improves. The BBB Wise Giving Alliance has decided to allow charities up to a 10 percent deviation for Standards 8 and 9, which use ratios.  This leeway will be considered on an individual basis for evaluations of charity financial statements for fiscal years ending in 2008 through June 2010.

“Of course it matters how a charity spends its money. But during this economy it’s especially vital for the public to focus on other critical factors that affect a charity’s performance including whether the charity has strong governance and oversight, evaluates its effectiveness, and is transparent in its fund raising appeals and other communications,” added Taylor. 

Jacob Harold, Program Officer – Philanthropy, at The William and Flora Hewlett Foundation, notes “The economic crisis is another reminder that we need to be smart about giving.  Financial ratios do not tell us anything about the impact organizations make. BBB Wise Giving Alliance’s action today will help encourage donors to focus on information about effectiveness when they make giving decisions.”

John Graham CAE, President and CEO of the American Society of Association Executives and Chair of the BBB Wise Giving Alliance Board of Directors, said that, “Although it is difficult to predict how many charities will be impacted by the economy this year, it’s important for donors to be aware of the limitations of financial ratio statistics in making their giving decisions.”

For more information or to schedule an interview with a BBB Wise Giving Alliance spokesperson, contact Alison Southwick at 703-247-9376.

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About the BBB Wise Giving Alliance
The BBB Wise Giving Alliance produces reports on over 1,200 nationally soliciting charitable organizations. The BBB Wise Giving Alliance does not rank charities but rather seeks to assist donors in making informed judgments by providing objective evaluations of national charities based on 20 strict standards. The outcomes of the evaluations – or BBB Wise Giving ReportsTM – are available online at www.bbb.org/charity. The BBB Wise Giving Alliance is an affiliate of the Council of Better Business Bureaus, the national organization representing 124 BBBs serving communities across the U.S. and Canada – evaluating and monitoring more than 3 million local and national businesses and charities. Please visit www.bbb.org for more information about BBB.

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