Attention All ‘Efficient and Effective’ Organizations

Sadly, some nonprofits waste money—whether on lavish offices or salaries, on programs that are not needed, or by fraud. Unfortunately, too many others are operating on frayed shoe strings, barely able to cover needed expenses and pay essential staff.

Let’s be clear: every well-run organization that provides quality and needed services or products has administrative expenses. Often they are paid out of earned or fundraising revenue; occasionally, some lucky organizations have them covered by a generous patron or borne by volunteers. But make no mistake, they are there. An organization cannot be well-run, or, as Steven Miller, commissioner of the IRS’s tax-exempt and government-entities division, says, “efficient and effective,” without them. How can an organization determine what needs exist and how to meet them without planning? How can they ensure quality services without oversight? Planning, oversight, and evaluation all cost money. That money is usually lumped into “administrative costs.” Likewise, administrative expenses are needed to adhere to the ever-more complex regulatory framework—Form 990s, charitable solicitation reports, audits, grant reports, and more. Whether people like it or not, administrative expenses are necessary and here to stay.

The percentage of funds spent on program costs does not guarantee an organization is efficient and effective—or that it is providing useful, quality, needed services. Nor is there a uniform definition of “program costs.” What one organization counts as program costs, another may conservatively count as administrative or, gasp, fundraising. There can be no “apples-to-apples” comparisons of organizations until such uniformity exists.

As quoted in a recent article from the Chronicle of Philanthropy, Mr. Miller also said that “every charity should make responsible and appropriate use of its resources to achieve its charitable purposes.” That is true, but who determines what is responsible and appropriate? I, for one, do not think the IRS used its resources—taxpayer dollars—in a responsible and appropriate manner when it mailed letters alerting taxpayers that they may receive a tax refund of an undetermined amount and at an undetermined time.

Mr. Miller expresses disappointment that neither the IRS nor the nonprofit sector have yet come up with “one or more shorthand indicators” of efficiency and effectiveness. It’s doubtful such indicators exist—or, even more importantly, should exist. Rather than focus on shortcuts and cursory evaluations of organizations, let’s focus instead on whether we are actually making a difference for the people we serve.