How You Can Start and Operate a Soup Kitchen

Mission Possible: How You Can Start and Operate a Soup Kitchen

Opinion: Finding a better way to evaluate nonprofits' effectiveness

There are an astonishing 1.1 million charities in America, and this number does not include approximately 380,000 religious organizations that are public charities not required to register with the IRS. With that many charities, it’s not surprising that nonprofits account for approximately 10 percent of the economic lifeblood of the U.S.

According to a 2012 report by the Center for Civil Society Studies at John Hopkins University, nonprofit employment represented 10.1 percent of total employment in the country in 2010. With 10.7 million employees, the nonprofit workforce is the third-largest of all U.S. industries, behind retail trade and manufacturing. In Mercer County, nine of the top 25 private employers are nonprofits.

The services nonprofits provide are incredibly diverse; they anchor and support every aspect of our lives. The nonprofit sector is growing by 50,000 distinct, registered charities each year. Last year, the government gave $500 billion to charities and individuals, while corporations and foundations gave another $300 billion. This past year, charities took in more than $1.5 trillion. From those to whom much is given, much should be expected.

Nationwide, there are thousands of highly effective nonprofits. In Mercer County, many exemplary nonprofits are treating clients with dignity and love and making a difference in their lives. The problem is that it’s often difficult to distinguish the good charities from the bad ones without doing due diligence — which would include: reviewing the charity’s evaluation on various charity rating sites, visiting the charity, talking to individuals served by the charity, and speaking with experts in the area in which the charity operates to ascertain whether the charity is effectively carrying out its mission through its programming, which can range from addressing emergency circumstances to improving the quality of life to bringing about behavioral changes.

There is no easy way to ferret out which charities are doing an exemplary job and which are not. Tens of thousands of people are employed to evaluate the performance of mutual funds, and we can easily get tons of performance data on our favorite football, baseball and hockey teams and even on horses, but very little comparative data are available on America’s nonprofits. And what is available isn’t always what it appears. For example, a recent story in The Chronicle of Philanthropy pointed out that the highly regarded charity rating entity Charity Navigator had “allowed charities to count some money they spend on activities that involved fundraising ... as program costs on their financial statements of Form 990 filings.” While this is by no means a sin, it does point out the difficulty in relying simply on data.

At the core of the difficulty in identifying effective charities are the almost nonexistent threshold requirements to secure a tax-exempt nonprofit designation by the IRS. Anybody can apply to the IRS to become a tax-exempt 501(c)(3) nonprofit. All you need to do is file an Article of Incorporation, complete a very simple questionnaire and pay a one-time fee.

At present, 99.5 percent of all applications are approved, and the number of entities that lose their tax-exempt status is infinitesimally small. There is no requirement that the applicant establish that there exists a need for the service it wants to provide. There is no seed funding requirement, and no business and fund-raising plan is required. Neither is it required that founders have any specific expertise, education or training in the area in which the charity will operate. And the founders make no commitment to periodically objectively evaluate their services and make the findings publicly accessible.

Further, there is no annual or periodic review of any kind to see whether an entity granted tax-exempt status is an effective charity. Once an entity receives its 501(c)(3) designation, absent a verifiable evidence of outright fraud or misrepresentation, it will be around forever.

There is a movement afoot to more objectively evaluate the ongoing effectiveness of nonprofits. A new charity evaluation organization,, is addressing the specific question of whether a charity is effectively solving the social problem it has targeted. According to Ken Stern, in his book “With Charity for All: Why Charities Are Failing and a Better Way to Give,” GiveWell is “an organization dedicated to identifying demonstrably effective charities where donor money could be put to good use. Their approach (is based on) in-depth, research-driven evaluations supported by facts and data, not formulas and marketing brochures.” Unfortunately, GiveWell, with its small staff, has been able to evaluate only 400 charities over the last three years.

I believe the majority of America’s nonprofits do good work, but that may not be enough in the future.

As the nascent movement to better evaluate nonprofits grows, an increasing number of nonprofits will not be able to demonstrate on the basis of quantifiable data that they are producing measurable outcomes.

In many cases, this will be because of its lack of effectiveness; in others, it will be because of a lack of staff and resources to undertake the requisite program evaluation.

Foundations, corporations and government should consider earmarking funds for program evaluation to ensure that effective programs are not ended because a nonprofit lacks the resources to gather data and assess its programs’ success.