ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, December 22, 1996 TAG: 9612230175
SECTION: BUSINESS PAGE: 1 EDITION: METRO
DATELINE: ST. LOUIS
SOURCE: JIM SALTER THE ASSOCIATED PRESS
It's a $144 billion industry with little government oversight. Financial reporting requirements are lax, although millions of Americans are affected by it.
Is this any way to run a business?
No, but it's the American way to operate a charity. And a small watchdog group working out of a cramped St. Louis office is trying to do something about it.
``There is a vacuum out there for good evaluative information on charities,'' said Daniel Borochoff, president of the group, the American Institute of Philanthropy. ``Most people feel they don't have enough information to make a well-informed giving decision.''
No wonder. The growth of nonprofit organizations has been tremendous. This year, about 30,000 new ones joined the 1.2 million existing charities.
``There are over 400 [charitable] organizations with cancer in their name,'' said John Seffrin, chief executive of the American Cancer Society.
``One value of the AIP's service is to sometimes separate the wheat from the chaff,'' Seffrin said. ``You can probably make a more intelligent decision and feel more comfortable that the money you give will make a difference.''
The average family gives more than $1,000 each year to nonprofit groups, including churches and other religious organizations. About a third of all giving takes place during the holiday season.
Yet aside from meeting fairly minimal requirements, the government requires little of the charities. Financial reports are hard to come by and contain broad categories that make it difficult for givers to know if their money is being spent appropriately, Borochoff said.
The AIP comprises Borochoff, three other paid employees and about a dozen volunteers. Borochoff gave up a career as a financial analyst to head the organization, which began operation in 1994. Funded through private donations, the AIP has an annual budget of about $150,000.
Its chief purpose is publishing the quarterly ``Charity Rating Guide & Watchdog Report.'' The guide gives national charities grades ranging from A-plus to F based on three criteria: the percentage of their budget spent on charitable purposes; how much is spent on fund raising; and how much money the organization has stockpiled rather than spent on its clientele.
``We can help people better allocate their charitable dollar, to find the most efficient groups, the most accountable groups to give to,'' Borochoff said.
The main way Americans give is simple, Borochoff said - they're asked.
``Why limit yourself to only those organizations asking you?'' Borochoff said. ``The ones that are doing the best fund raising aren't necessarily the ones doing the best work.
``The burden is on the donor to find out how the charity is spending its money.''
While the AIP seeks to root out shady or questionable charities, it has also been tough on some of the biggest names in the nonprofit world.
When several major charities were duped into giving millions to what was alleged last year to be a pyramid scheme orchestrated by New Era Philanthropy, the AIP named names. A chart in the guide listed charities that lost money through New Era.
According to the guide, the American Red Cross of Philadelphia lost $400,000, the Juvenile Diabetes Foundation International lost $1 million, and the United Way of Southeastern Pennsylvania lost nearly $2 million.
In perhaps its most notable case, Father Flanagan's Boys' Home in Omaha, Neb., known as Boys Town, sued the AIP after getting an F grade.
Although Boys Town got high marks otherwise, the grade was based on the organization's stockpile of over $500 million. The AIP gave an automatic F to any group with reserves amounting to five years or more of its annual budget.
``Not to say that they're bad, but most charities are poor,'' Borochoff said, defending the grading system. ``Would you want to see a soup kitchen close down because you'd rather give to a charity that has five years of available assets?''
Boys Town officials declined comment. The American Cancer Society's Seffrin, although a supporter of the AIP, isn't sure the F was merited.
``There are some awfully sound organizations that get an F grade,'' he said. ``When I see an F, I think, `failure.'''
The Boys Town lawsuit was settled in May when the AIP agreed to differentiate which organizations got Fs based strictly on their reserves, and to show what their grades would otherwise have been. Boys Town got a B-plus discounting its high level of assets.
``I think we earned a lot of respect that we would stand up to legal threat,'' Borochoff said. ``I hope the American public appreciates we are sticking our neck out as nobody else has done.''
Many states do appreciate it. Attorneys general around the country are suggesting the AIP guide to consumers before they make donations.
``We don't suggest that everybody believe the ratings are 100 percent right,'' said Jan Soifer, deputy chief of the Texas consumer protection division. ``But it's important to have watchdog organizations like this that look at charities.''
Tips for giving
* Research your charity. ``Never give to a charity you know nothing about,'' Borochoff said. ``Request written literature and a copy of the charity's latest annual report.''
* Find out where your money goes. Borochoff suggests asking how much of your donation goes for general administrative costs and fund-raising expenses, and how much is left for the program services you want to support. The AIP recommends that at least 60 percent should go to program services, and less than 40 percent should be spent on raising funds.
* Do not respond to pressure. ``No legitimate organization will pressure you to give immediately,'' Borochoff said.
* Keep records of your donations. The AIP recommends giving only through a check or money order. And Borochoff warns against giving your credit card number.
* Remember ``tax exempt'' does not always mean ``tax deductible.'' ``Tax exempt'' means the organization does not have to pay taxes. ``Tax deductible'' means you can deduct contributions to the charity on your federal tax return.
* Don't be misled by a charity's familiar name. Some questionable charities use a name that closely resembles the name of a respected, legitimate organization.
* Do not be enticed by emotional appeals. Question phone solicitors or direct mail appeals which tell you nothing of the charity or of how the money will be spent.
* Ask if the charity is registered with federal, state and/or local authorities.
* Beware of charities offering gifts. Free greeting cards, calendars, address stickers and other gifts in direct mail solicitations often mean high fund-raising costs.
* ``Once you are satisfied that the charity is worthwhile, give generously if you can,'' Borochoff said.
To receive a copy of the AIP Charity Rating Guide and Watchdog Report, send $3 to AIP, 4579 Laclede Ave., Suite 136, St. Louis, MO 63108.
LENGTH: Long : 131 lines ILLUSTRATION: PHOTO: AP. Daniel Borochoff is president of the St,by CNBLouis-based American Institute of Philanthropy, which rates charites
from grades randing from A+ to F. color.