A Yale economics professor who helped change the way governments and nonprofits evaluate antipoverty programs today started a new venture to conduct “impact audits” of charities.
The scholar, Dean Karlan, says his new group, ImpactMatters, will conduct thorough audits of charities, analyzing their transparency, cost-effectiveness, willingness to share insights, and blueprints for achieving change. Those that pass will have to demonstrate that their programs make a difference.
“There’s a real struggle for donors who want to do good with their money to know how to give,” Mr. Karlan says. “We are trying to disrupt the philanthropy market and make it more evidence based, make it so that organizations that achieve their mission raise more money, do better and grow more.”
As part of today’s launch, ImpactMatters published audits of four charities, all of which passed. They are:
Each audit consists of a one-page summary and 15 to 25 pages of supplementary material. The nonprofits will not be rated or ranked.
If his new venture succeeds, Mr. Karlan says nonprofits will learn to generate better results for those they serve and donors will reward high-performing nonprofits.
“The real measure of success will be seeing that dollars get moved,” he says.
Seeking More Evidence
A 45-year-old development and behavioral economist, Mr. Karlan has an impressive track record.
He started Innovations for Poverty Action in 2002 to investigate whether the billions of dollars that were being poured into programs to reduce global poverty were having an impact.
Since then, by collaborating with academics from around the world, Innovations for Poverty Action has conducted more than 500 evaluations, most of them randomized, controlled trials, in such areas as microfinance, education, water, sanitation, and cash transfers. The group brought in $42.6 million last year and, with a sister organization, the Abdul Latif Jameel Poverty Action Lab, it has helped to change thinking about global poverty and steer more money to programs that work.
Mr. Karlan has similarly big ambitions for Impact Matters, while stressing that he is starting small.
“We are very much in the beta phase,” he says. “We want to be a learning organization.” A nonprofit, Impact Matters has a single full-time employee and several part-time staff members. Yale students may be asked to lend a hand: Mr. Karlan teaches a class called Econ 472b. Effective Philanthropy: Evaluating Charitable Organizations.
Along the spectrum of watchdog organizations, ImpactMatters falls between GiveWell, which deeply researches relatively few nonprofits, and Charity Navigator, which rates about 8,000 nonprofits but does not provide information on their effectiveness.
“We’ll be much closer to GiveWell than to Charity Navigator,” Mr. Karlan says.
Toward Better Practices
Current plans call for ImpactMatters to work only with charities that have agreed to be audited. An audit may be requested by a charity itself or at the request of a current or potential donor. To encourage nonprofits to participate, ImpactMatters will sign agreements promising not to publish results for charities that fail; it will share its findings with those charities, in the hope that they will improve their practices. Mr. Karlan says it’s too soon to say what each audit will cost.
Mr. Karlan says he is talking to major donors about supporting the expansion of ImpactMatters. He expects individual audits to be paid for by donors or groups of donors who want to know more about certain nonprofits or causes. A donor or group of donors interested in climate change, for example, could commission audits of groups working on the issue.
Mr. Karlan says audits will be offered to a variety of domestic and international nonprofits, beginning with smaller nonprofits that focus on a single cause or two. Those audited could include organizations working on poverty, education, the environment, health, and human rights, but not universities, hospitals, religious organizations, or museums.
Charities that pass will be able to share results with donors, on their websites, and on nonprofit-information sites like Guidestar.
Evan Paul, Guidestar’s vice president of products, says the impact audits should be of value to “the more sophisticated users of our data — nonprofit managers, foundation program officers, major donors, consultants, and others who want to get in the weeds.”
William Abrams, president of Trickle Up, says its audit is “probably not what someone who is writing a $100 or $200 check in December is going to read, but it could have a lot of impact with sophisticated donors, who want to see evidence, who want to see third-party verification.”
The audit of his group provided useful insights, Mr. Abrams says: “There’s an analogy between this and our financial audit. There’s value to having a third party that has deep expertise look at what you’re doing and ... give you feedback on how you can improve.”
To conduct the audit, ImpactMatters asked Trickle Up for a variety of documents and spent a full day on site interviewing staff members, including a two-hour interview with Mr. Abrams.
Limited Effect
Finding reliable information about which charities make a difference isn’t easy.
Charity Navigator collects and shares mostly financial and governance data. Its budget for fiscal 2014 was about $2.8 million.
Michael Thatcher, its chief executive, said his organization would like to provide information on results and impact of charities but has yet to devise an effective and comparative way of doing so.
“We all agree that overhead is not the best way to measure an organization,” he says.
Meanwhile, GiveWell, a San Francisco group, will spend about $1.4 million this year on research, according to Sean Conley, a research analyst. The venture seeks out charities that run their programs based on evidence of results and are transparent and highly cost effective. In effect, its favored nonprofits all serve poor people in the developing world. To come up with four “top charities” and four “standout charities,” GiveWell looks at fewer than 20 nonprofits a year.
“Thoroughly investigating even a small number of charities is a great deal of work,” GiveWell says on its website.
Mr. Karlan says he’s an admirer of GiveWell but wants to be able to provide donors with guidance about a broader range of causes and charities.
“We believe most people choose their cause with the heart,” he says. “We want to help them then choose their charity with their head.”
