Elsewhere online
December 19, 2014

Opinion: Impact, Not Overhead, Key to Measuring Charities

Donors weighing what charities to support should worry less about fraud and waste and more about a group's effectiveness in achieving its goals, a Yale University economics professor and nonprofit leader writes in a Los Angeles Times column.

News of charitable waste, such as recent exposes about Hurricane Sandy relief efforts, "goes viral quickly" and instills fear in donors, but closer study reveals "that fraud in charities is not rampant," says Dean Karlan, founder of the nonprofit Innovations for Poverty Action. His analysis of tax returns from some 55,000 groups that collectively account for 94 percent of U.S. giving to public charities found that only 2.5 percent have overhead ratios above 50 percent—meaning only a tiny sliver of donations go to "bad" charities.

Mr. Karlan suggests prospective donors set a "fairly high bar" of 30 percent for administrative costs before eliminating a charity from consideration and consult evaluators such as the Coalition for Evidence-Based Policy and GiveWell that analyze data to assess how well a nonprofit is doing in meeting its mission and making an impact on people's lives.