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JUNE 28, 2012 THE CHRONICLE OF  t 21

THE CHRONICLE OF

PHILANTHROPYMANAGING © The Newspaper of the Nonprofit World Governance and Regulation Volume XXIV, No. 14 • June 28, 2012 An MBA’sCharity SleuthingDonors Help WatchdogSkills Put Sniff Charities Out Financial on Waste the and Hot Abuse Seat Continued from Page 1 Bytute Suzanne of Philanthropy, Perry it has just adopted a snazzier name, CharityWatch,c hand i c a a g o new logo featuring a black dog against a r o w i n gred u background p Je w i s h (Mr. in Borochoff Tulsa, says Okla., the color signifies “Alert! Pay Attention!”). Daniel BorochoffIt is also giving learned its Web two site lessonsa face- that helpedlift so itprepare can offer him more for information the role on he G each it rates, for example, by has chosen to postingplay in the life—that sometimes-revealing of the charity notes world’s most persistentthat are attached watchdog. to audited financial statements. First, he says, thereBut otherwise,were not many CharityWatch other Jews to- there, so he gotday used operates to being much different. the same as it did when Mr. Borochoff started it two de- “I can be in acades room ago. where The group every examines single the person tax disagrees with forms,me; that’s financial okay,” statements, he says. and an- nual reports of national charities, quiz- Second, he found at a young age that asking tough questions couldUnder pay CharityWatch’s off. When he got argumentativestandards, a ingroup Sunday that school, he says, his teacherspends would less shipthan him60 percent off to the rabbi. But that wasof aits plus budget because on programs he could have a more sophisticatedis in discussion line for a bad with grade. a religious scholar than with a part-time teacher. In a commentzes that them won’t about surpriseany gaps it anyone detects, andwho gives them a grade from A to F. has watched himIts makework is waves,guided by Mr. one Borochoffoverriding adds: “This ideaphilosophy: of challenging Donors want a how healthy people per- centage of their contributions to pay think, what peoplefor a charity’s say, is stated very mission—not much who for I r o a r k j o h n s o n , f o r t h e c h r o n i c l e am.” direct-mail companies, telemarketers, Daniel Borochoff, head of CharityWatch, says he wants to influence Americans to give moreROAR Kthoughtfully JOHNSON, FOR THE CH soRONI CLE trinkets to entice recipients to give, charitiesDaniel can Borochoff,do more good head in of the CharityWatch, world. “When says you he get wants down to to influence it,” he says, Americans “that’s what’s to give driving more thoughtfully me.” Promoting Efficientoutlandish Causes executive perks, or big re- so charities can do more good in the world. “When you get down to it,” he says, “that’s what’s driving me.” serves. Now 54, Mr. BorochoffA group that is celebrating spends less than20 years 60 countinganachronistic. degree, an MBA, The and nonprofit a couple lionand to thefundraising charity forGreg transgressions, Mortenson, that co-founder collects donated of clothing, the Central sells it, as head of an percentorganization of its budget that on is charitable dedicated pro -to of establishmentyears’ experience ashas a Wallcoalesced Street an around- including the idea using that money Asia that was Institute, donat- a and charity uses some that of buildsthe proceeds schools for inter in- grams, or whose assets have grown too alyst—wants to spend time boring into ed for charitable programs to buy and national-development programs. rooting out charitieslarge, is in with line for poor a bad financial grade. per- therating numbers, a charity which largelyhe says charitieson the percentageadvertise hisof bookrev- whileAfghanistan keeping all the and Pakistan,CharityWatch was charges the toast that of Plan the- formance so donors can give to the efficient knowenue how it tospends fudge. on and royalties.administrative town after he publishedet Aid misleads his bookdonors Threeby counting Cups as Focus on Finances “Saying the ratio shouldn’t be used,” The “60 Minutes” appearance was program costs the expense of collect- ones. Formerly knownIn a nonprofit as the world American that is obsessedInstitute hecosts, says, “is or like the telling “financial an investor ratio,” to sendsone of donors hundreds the of mediaof Tea interviews in 2007. Presidenting and processing Obama the even donated donated cloth- of Philanthropy,with it “performance has just adopted metrics,” a “results,” snazzier ignorewrong earnings message. per share.” They should be lookingMr. Borochoff to sup has- givensome over theof years.his Nobel ing Prize and calling money it a charitableto the charity. recycling and “program evaluations,” that focus Just last month, CNN aired a report program. name, CharityWatch,on finances and can a seem new anachronistic. logo featur - Scrutinyport organizations Pays Off that are highlyfeaturing effective, Mr. the Borochoff But that when accused calls fromThose potential are actually donors fundraising prompted costs ing a black dogThe against nonprofit a red and fundraisingbackground estab (Mr.- argumentWhatever weaknesses goes, not critics those see that in scrimpthe Disabled on possi Veterans- Mr. National Borochoff Foun- tobecause start sniffingthey were incurredaround toin attract2009, lishment has coalesced around the idea his approach, Mr. Borochoff’s single- dation of spending most of the money , it argues. Borochoff saysthat the rating color a charity signifies largely on“Alert! the per - Pay mindednessbly vital overhead has helped costs him detectso they can get a good he got suspicious:In The 2010, charity the watchdog could says, not Planet pro- Attention!”). centage of revenue it spends on fund- thingsrating. that others don’t. Greg Morten- vide an audit, andAid it actually promoted devoted Mr. only Mortenson’s 34 percent of raising and administrative costs, or son, co-founder of the Central Asia In- “I would question putting its expenses to programs. It is also givingthe “financial its Web ratio,” site sends a facelift donors sothe it stitute,“I would a charity question that builds putting schools a lot ofa lotweight of weight on onbooks fund- and speakingJohn tours Nagiecki, on its Planet Web Aid’s site commuwhile- can offer morewrong information message. They on should each be charity looking it in fundraisingAfghanistan and expenses,” Pakistan, was says the Elizabethraising Boris, expenses. not It’s appearing to nicationsrecord anydirector, revenue says CharityWatch from them rates, for example,to support by organizations posting the that sometimes- are highly toast of the town after he published his a much more complicated once sent a registered letter asking it effective, the argument goes, not those bookdirector Three Cupsof the of TeaUrban in 2007. Institute’s Presi- Center on Non- on its tax forms. to provide financial information, but it revealing notesthat that scrimp are on attachedpossibly vital to overhead audited dentprofits Obama evenand donated Philanthropy. some of his “It’spicture a muchthan that.” more CharityWatch publisheddecided not to several respond after critical looking arti at- financial statements.costs so they can get a good rating. Nobelcomplicated Prize money picture to the charity. than that.” cles in its newsletter.the group’s Web site and finding it “sen- “I would question putting a lot of But when calls from potential donors sational.” But otherwise,weight CharityWatch on fundraising todayexpenses,” operates says promptedWhile Mr. Charity Borochoff Navigator,to start sniffing another it raises prominent on outside fundraisingLast year, and di Mr.- BorochoffHe says Planet appeared Aid was on assured the tele by- much the sameElizabeth as it did Boris, when director Mr. of Borochoffthe Urban aroundcharity-rating in 2009, he got service, suspicious: has The responded rect-marketing to those firms, visionwhile providing program lawyers “60 Minutes” that it could along count withthe collec the- Institute’s Center on Nonprofits and charity could not provide an audit, and token donated goods like candy and tion activities as program costs. “We started it two decadesPhilanthropy. ago. “It’s The a muchgroup more examines compli- it concernspromoted Mr. by Mortenson’s adding ways books to and evaluate hand sanitizersnonprofits to veterans. author Jon Krakauer,have drivers,who charged trucks, there’sthat parts a whole of the tax forms, catedfinancial picture statements,than that.” and annual speakingin areas tours other on its than Web sitefinances, while not Mr. TheBorochoff coverage has prompted Mr. theMortenson’s Senate system books we were have fabricated. to maintain our bins While , another appearing to record any revenue from Finance Committee to investigate the well,” he says. reports of nationalprominent charities, charity-rating quizzes service,them about has themstuck on itsto tax his forms. guns. He says a charitycharity cannot (which have responded In that April, as a new Montana’s CharityWatch attorney faced general its worst ordered crisis in any gaps it detects,responded and gives to those them concerns a grade by addfrom- impactCharityWatch if it published spends several only acriti small- organization portion of it itsneeded Mr. to invest Mortenson in ef- to1994, pay when $1-million Boys Town, to a youththe charity charity, ing ways to evaluate nonprofits in ar- cal articles in its newsletter. forts to recruit donors). sued it after receiving a failing grade. A to F. eas other than finances, Mr. Borochoff donationsLast year, Mr.on Borochoffprograms. appeared for transgressions,The including watchdog, using which money marks downthat Its work is has guided stuck byto his one guns. overriding He says a char phi- - on theBesides, television Mr.program Borochoff—who “60 Minutes” Boys entered Town Lawsuit the was donated for charitiescharitable that programs have three orto more buy years and ity cannot have impact if it spends only along with the author Jon Krakauer, Of course, not everyone appreciates of operating expenses in reserve, gave losophy: Donorsa small want portion a healthy of its donations percentage on pro -of whocharity-ratings charged that parts business of Mr. Morten with- anMr. Borochoff’saccounting scrutiny. advertise Some chari his- bookBoys while Town keepingan F because all it the had royala large- their contributionsgrams. to pay for a charity’s stated son’sdegree, books werean MBA, fabricated. and a couple ofties years’ that getexperi F grades- sayties. Mr. Borochoff endowment. The case was settled af- Besides, Mr. Borochoff—who entered In April, Montana’s attorney general doesn’t understand their business. ter Mr. Borochoff’s group agreed to ex- mission—not forthe charity-ratings direct-mail business companies, with an teleac- - orderedence Mr.as aMortenson Wall Street to pay analyst—wants $1-mil- That to includes spend Planet The Aid, “60 a group Minutes” appearanceContinued was one on of Page hun 22- marketers, trinkets to entice recipients to give, time boring into the numbers, which he says dreds of media interviews Mr. Borochoff has outlandish executive perks, or big reserves. charities know how to fudge. given over the years. A group that spends less than 60 percent of its “Saying the ratio shouldn’t be used,” he says, Just last month, CNN aired a report featuring budget on charitable programs, or whose assets “is like telling an investor to ignore earnings per Mr. Borochoff that accused the Disabled Veter- have grown too large, is in line for a bad grade. share.” ans National of spending most of Focus on Finances Scrutiny Pays Off the money it raises on outside fundraising and In a nonprofit world that is obsessed with Whatever weaknesses critics see in his direct-marketing firms, while providing token “performance metrics,” “results,” and “program approach, Mr. Borochoff’s single-mindedness donated goods like candy and hand sanitizers to evaluations,” that focus on finances can seem has helped him detect things that others don’t. veterans. Continued on reverse Reprinted with permission. © 2012 by The Chronicle of Philanthropy 22 t THE CHRONICLE OF PHILANTHROPY MANAGING JUNE 28, 2012 Rival Organizations Bicker Over the Best Way to Evaluate Nonpro t Groups for Donors By Suzanne Perry strictly on their financial per- mostly on information provided ZlfjZhi^dch vex the non- formance, marking them down by 5,500 charities on their Form profit world more than if they spend a large percentage 990 tax documents, which he F how donors should de- of their expenses on fundraising says do not tell the whole story. cide which charities to support. and administration rather than He contends that Charity Navi- A proliferation of charity-rat- on charitable programs. gator cannot possibly do a sub- ings services has popped up in And each is celebrating an stantive job examining so many Charity Donors Help Watchdog Sniffrecent Out years, Financial including Great- Wasteanniversary and this year—CharAbuse- groups. Continued from front Nonprofits, which asks the pub- ity Navigator turned 10, Char- Ken Berger, Charity Navi- The coverage prompted the Senate Finance Committee to investigate the travel,lic to reviewa conversation charities club like he belongsthey ityWatchto—but concedes 20. But therehis work the is simi “all-- gator’s executive director, re- would a consumer product, and larity ends. torts that Charity Watch bases charity (which responded that as a new organization it needed to invest in consuming.” GiveWell, which performs in- In fact, talking to one group its ratings on subjective crite- efforts to recruit donors). depthMr. Borochoff studies onsays a hesmall is guided num- by aboutthe Hebrew the other phrase is a “tikkun bit like olam”talk- ria that amount to “smoke and Boys Town Lawsuit (“repairingber of groups the world”). to see how effec- ing to a Hatfield about a Mc- mirrors” and is shortchanging Of course, not everyone appreciates Mr. Borochoff’s scrutiny. Some tive“Just they think are. about it—$300-billion givenCoy. away a year,” he says. “If we donors by focusing solely on fi- charities that get F grades say Mr. Borochoff doesn’t understand their canTwo influence groups even that a small have percentage been Danielof that—to Borochoff, give thoughtfully, founder of to nancial criteria—something his business. givearound better—think for a while—Charity of the good, the lives CharityWatch, that could be saved, calls the Charitysuffering group is moving away from. That includes Planet Aid, a group that collects donated clothing, sells it, relieved,Navigator the and environment CharityWatch— cleaner, theNavigator’s animals protected. evaluations When you “robo get He also criticizes Mr. Boro- ROARK JOHNSON, FOR THE CHRONICLE have for years rated charities ratings” because they are based choff for being “rude and insult- and uses some of the proceeds for international-development programs. down to it, that’s what’s driving me.” Laurie Styron, a CharityWatch analyst, helps decipher ing” and unwilling to cooper- CharityWatch charges that Planet Aid misleads donors by counting as the financial documents that are a key part of grading ate with other charity-ratings program costs thenonprofits expense of for collecting donors and seeking processing efficient the donated charities. cloth- groups. ing and calling it a charitable recycling program. Fighting Nonprofit Abuses: Those are actually fundraising costs because they were incurred to attract Charities’ Advice donations, it argues. CharityWatch’s Top Triumphs At the root of the conflict are InWatchdog 2010, the watchdog says,Avoids Planet Aid actuallyGrant devoted Seeking only 34 percent O Charity fundraising after the terrorist attack (2001) competing philosophies about of its expenses to programs. the best way to serve donors. How CharityWatch responded: Dan- Mr. Borochoff is a bit of a lone Johnto Nagiecki,Preserve Planet Aid’sIndependence communications director, says Charity- iel Borochoff, CharityWatch’s found- ranger, prizing his indepen- Watch once sent a registered letter asking it to provide financial informa- er, was among the most vocal critics Continued from Page 21 tion, but it decided not to respond after looking“heartland” at the group’s than Web from site Wash and - of the following dence from foundations, chari- plain to donors that the charity ington. ties, and advertisers. His group finding it “sensational.” the September 11 attacks, charging would get a higher grade if the The bulk of the group’s rev- gets most of its money from He says Planet Aid was assured by lawyers that it could count the collec- that the Red Cross and other chari- size of its assets was discount- enue, which was $477,000 in ties raised more money than they members who pay $40 a year to tioned. activities It now asgives program two costs.grades “We to have2011, drivers, comes trucks, from there’s its members— a whole needed to help victims of the at- get information about roughly systemall groups we have with to maintainbig reserves. our bins well,”about he 9,000says. people who pay $40 tacks and their families and diverted DANIEL CIMA/AMERICAN RED CROSS 600 charities. CharityWatchMr. Borochoff faced winsits worst plaudits crisis in a1994, year when to getBoys a Town, thrice-yearly a youth it to other programs. Charity Navigator is more charity,from suedsome it forafter keeping receiving the a nonfailing- grade.newsletter that offers the latest How charities and lawmakers responded: A House panel invited Mr. willing to collaborate with the profitThe watchdog, world on which its toes marks when down charitiescharity that grades have and three watchdog- or more Borochoff to testify at a hearing. Some charity leaders criticized him nonprofit establishment, seek- yearsstate of operating and federal expenses regulators in reserve, stylegave articles.Boys Town an F because it for fueling a distrust of charities, but the Red Cross asked for his ad- ing money from foundations and had a large endowment. The case was settledCharityWatch after Mr. Borochoff’s spends group little vice when it redesigned its fundraising practices. advice from charities. money on fundraising and does For example, a committee agreed“We to explain are all to betterdonors thatoff the charity would get a higher grade if O Veterans charities (2007) the size of its assets was discounted. It nownot givesseek twobig gradesfoundation to all grants,groups that includes representatives of when organizations since Mr. Borochoff does not How CharityWatch responded: Char- charities like Feeding America with big reserves. like his are in place want to worry about offending a ityWatch (then the American Insti- and Word Vision is advising it Mr. Borochoff wins plaudits from some for keeping the nonprofit world tute of Philanthropy) issued a report to make sure donor’s grantees. “A lot of people on ways to improve its financial- on its toes when state and federal regulatorsin philanthropy lack the money are for in effectivebed with showing that many veterans chari- measurement system. oversight.we don’t slip.” each other,” he says. ties spent only a small percentage of And the organization is look- money on charitable programs, while “We are all better off when organizations like his are in place to make ing to grow. Influencing Donors directing big portions to direct mail sure we don’t slip and that the bad actors are brought to everybody’s atten- and overhead. It agreed last year to add new tion,”lack says the Diana money Aviv, forchief effective executive of IndependentThe small budgetSector, alimits coalition the criteria for evaluating groups of oversight.charities and foundations. group’s scope: CharityWatch How lawmakers responded: The beyond finances, a response to “We are all better off when or- reviews only about 600 chari- House oversight committee conducted an investigation relying heavi- critics who say that considering ly on Mr. Borochoff’s research and invited him to testify at a hearing. Concernsganizations About like Cozy his Tiesare in place ties, and most of the grades only how much a charity spends CharityWatch’s office in Chicago offers a splendid view of Lake Michi- However, while lawmakers expressed outrage at the hearing, none to make sure we don’t slip and are available only to members followed up with legislation or other action. on programs does not tell do- gan,that but the that’s bad about actors as luxuriousare brought as the operation(though thegets. Web Its five site staff lists mem the- nors whether those programs bersto workeverybody’s in a converted attention,” high-rise says apartment, top-rated answering charities). phone calls and O Central Asia Institute (2011) are any good. collecting and poring over documents. But Mr. Borochoff says media Charity Navigator now also Diana Aviv, chief executive of How CharityWatch responded: Mr. NextIndependent to Mr. Borochoff, Sector, a coalition the most visiblecoverage CharityWatch helps the employee group ex is - Borochoff appeared on an episode of examines whether a charity Laurieof charities Styron, and an analystfoundations. who has beenpand with its the reach. group for nine years the television program “60 Minutes” has good governance and is and helps her boss decipher financial documentsWhen and asked handles if he some has news- any that raised serious questions about open about its operations—for Concerns About Cozy Ties media interviews. passions outside of work, Mr. the Central Asia Institute, a charity example, whether its board has Mr.CharityWatch’s Borochoff moved office the in organization Chi- Borochoff, from suburban who earnsWashington a salary to that builds schools in Afghanistan and at least five independent mem- cago offers a splendid view of about $150,000, mentions a Pakistan and was co-founded by Greg bers, whether it has a whistle- Chicago in 2002, in part figuring he could better represent donors from the of Lake Michigan, but that’s few interests—tennis, travel, Mortenson, co-author of the widely ac- blower policy, and whether it “heartland”about as luxuriousthan from Washington.as the opera- a conversation club he belongs claimed book Three Cups of Tea. Mr. posts certain information on its Thetion bulk gets. of Its the five group’s staff revenue,members which to—but was $477,000 concedes in 2011, his work comes is Borochoff voiced concerns that Mr. Web site. Mortenson was pro ting improperly from its members—about 9,000 people who“all-consuming.” pay $40 a year to get a thrice- Mr. Berger says about a third work in a converted high-rise from book royalties and speaker’s fees. yearlyapartment, newsletter answering that offers the phone latest charityMr. grades Borochoff and watchdog-style says he is of the groups that it rates have articles.calls and collecting and poring guided by the Hebrew phrase How regulators responded: Montana’s made changes to such policies CharityWatchover documents. spends little money on“tikkun fundraising olam” and (“repairing does not seek the attorney general investigated the accu- since Charity Navigator intro- Next to Mr. Borochoff, the world”). sations and in April ordered Mr. Morten- duced the new system last Sep- big foundation grants, since Mr. Borochoff does not want to worry about son to pay the charity $1-million. offendingmost visible a donor’s CharityWatch grantees. “A em lot- of people“Just in thinkphilanthropy about are it —$300- in bed tember. withployee each isother,” Laurie he says.Styron, an an- billion given away a year,” he O Disabled Veterans National Foundation (2012) The organization is now lay- alyst who has been with the says. “If we can influence even ing plans to expand both the Influencinggroup for nineDonors years and helps a small percentage of that—to How CharityWatch responded: Mr. Borochoff worked with CNN on number of charities it rates and a story about the Disabled Veterans National Foundation, a charity Theher smallboss decipherbudget limits financial the group’s doc- scope:give thoughtfully,CharityWatch reviews to give only bet - the criteria it uses to evaluate that has high fundraising costs and spends little of its money on pro- aboutuments 600 charities,and handles and mostsome of news- the gradester—think are available of the only good, to members the lives grams for veterans. them. It is finalizing a business (thoughmedia the interviews. Web site lists the top-rated charities).that could be saved, the suffer- plan that calls for it to evaluate ButMr. Mr. Borochoff Borochoff moved says media the or coverage- ing relieved, helps the the group environment expand its How lawmakers responded: The Senate Finance Committee opened 10,000 charities by 2016. ganization from suburban cleaner, the animals protected. an investigation asking the charity to provide information about the And in an effort it dubs “CN reach. money it pays to Quadriga Art, a direct-marketing rm, and its sub- Washington to Chicago in 2002, When you get down to it, that’s 3.0,” it is working with a panel When asked if he has any passions outside of work, Mr. Borochoff, sidiaries. It cited the group’s F grade from CharityWatch. whoin earns part a figuring salary of heabout could $150,000, bet- mentionswhat’s driving a few interests—tennis,me.” of nonprofit leaders on an effort ter represent donors from the to further refine its four-star