Kony video offers lesson in donor due diligence

Scrutinize how contributions are spent, philanthropic advisers say

Mar 18, 2012 @ 12:01 am

By Liz Skinner

A video about a ruthless Ugandan warlord that has outraged millions of viewers in the past two weeks since it was posted on YouTube is the latest example of how social media is changing the dynamics of charitable giving — and not always for the better.

Philanthropic advisers said that the video by San Diego nonprofit Invisible Children Inc., which highlights atrocities against Ugandan children by rebel leader Joseph Kony, should serve as a reminder to donors to make sure that their contributions are achieving the results for which they are intended.

Since the Kony video went viral — some 80 million viewers have seen it on YouTube and more on video sharing sites — Invisible Children's transparency and finances, specifically the large amounts it spends making videos, have come under scrutiny.

The BBB Wise Giving Alliance, an accreditation site for nonprofits, said that it has tried unsuccessfully for six years to draw out information from Invisible Children that it needs to give the charity a rating.

“We had 60,000 people in three days looking for information on this charity, and we don't have a report to give them,” said Art Taylor, chief executive of BBB Wise Giving Alliance.

“Anyone with a voice can become very big all of a sudden,” said financial adviser Charlie Jordan of Brightworth LLC, which manages $814 million in assets.

Because setting up a Facebook page and a PayPal account are virtually free, “philanthropic giving today requires a whole other level of caution,” much like it has been for years in the investment field, where someone is always pitching some kind of new way to make money, he said.

Thanks to sites such as Facebook and Twitter, charities are reaching out directly to the public more often and providing them with links to make spontaneous giving easier. But before clients write a check or send a text pledging funds to a cause, financial advisers should help them investigate whether the nonprofit has demonstrated results.

“Donors should be looking at whether the organization makes a difference in the cause they care about,” said Sean Stannard Stockton, principal of Ensemble Capital Management LLC, which manages about $300 million in client assets. “A good nonprofit should be able to describe that and say how they track results.”

Invisible Children chief executive Ben Keesey addressed his critics last week, not surprisingly, with a video on its website.

He said that making “compelling movies and films” is an important part of Invisible Children's mission, which is to use film and social action to end the use of child soldiers in Mr. Kony's rebel war.

STATED MISSION

Examining the stated mission of a group should be an obvious first step in vetting a charity, but it is often overlooked or misunderstood, advisers said.

For instance, many people probably think that the Lance Armstrong Livestrong campaign raises money for cancer research, when in fact it almost entirely supports cancer awareness programs and services for survivors, as its mission states.

“One of the reasons you want advisers helping you vet charities is because their messages pull at your heartstrings,” said Ted Hart, chief executive of the Charities Aid Foundation of America. “The question is whether that charity is the one to make a difference.”

Donors who take the time to check out a charity often focus on its overhead expense ratio as a way to judge if donations are being used effectively, but even that can be a poor indicator of whether the charity is having an impact.

Charity Navigator, thought to be the most used charity ratings service, has long focused on that financial metric, but it recently added transparency and accountability measures, and it is working on assessing a charity's impact, as well, according to the firm.

Paul Shoemaker, executive director of Social Venture Partners, agrees that looking only at overhead costs is misguided.

In the corporate world, net income is literally the bottom line in judging a company's success, but there is no equivalent in the nonprofit world.

Nonprofits must measure and communicate their impact by presenting a number of metrics, Mr. Shoemaker said.

“They have to paint a picture rather than give you one number,” Mr. Shoemaker said. “They should be able to show the impact they had and how they got there.”

Even a Google news search for a charity can be illuminating, as someone who might be persuaded by the radio jingle of Kars4Kids Car Donation, which solicits used cars as a way of raising money for children. The Google search highlights a recent report by NBC New York that disclosed that the charity lost more than $5 million in property investments in 2010.

Mr. Hart, whose foundation helps donors give internationally, recommends probing how a charity provides services to meet its mission and its oversight, such as looking at whether there is an in-dependent board.

Foreign giving can be especially complicated because of regulations in certain countries that can trigger, for instance, a double-digit tax on the donation that goes to that country's government.

“Some countries look at philanthropic gifts as a way to help fund the government,” Mr. Hart said. “It's unfortunate because that's certainly not what the donor had in mind.”

Additionally, donations to groups outside the United States may not be tax-deductible for American taxpayers, Mr. Hart said.

Jennifer Chandler, a director at the National Council of Nonprofits, recommends that donors make a personal connection with a nonprofit in an area that might interest them.

Call the group's development director or executive director to ask about results, conduct a visit or volunteer with them, she said.

Ms. Chandler cautioned that charity ratings services may not give donors a complete picture of a charity's effectiveness.

“Sites that do reviews are only as good as those who fill out the reviews,” she said.

lskinner@investmentnews.com

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