How Tough are Better Business Bureau/Wise Giving Alliance Financial Standards?

Abstract

The use of financial efficiency ratios to judge charities' performance is controversial. The authors investigate the stringency of one widely used set of standards by examining reported 2001 data for more than 111,000 organizations. The authors suggest the ability of many organizations to comply inhibits protests against the widespread use of these ratios. The Wise Giving Alliance adopted stricter standards in 2003, and the authors find that more organizations will be able to meet the new standards. As in the past, the great majority of organizations report compliance. The authors note marked differences in the rates of compliance with both the program spending and fund-raising efficiency standards by sector. Also, organizations with larger special events tend to incur relatively larger costs. The authors question the use of the same ratios for all organizations. The authors note no evidence of widespread expense allocation manipulation around the critical levels of ratios monitored by the Alliance.