AMERICAN PERISCOPE. Watch those NGOs

December is the time for charity in the US — it is estimated that 20 per cent of all donations are raised in this month. First, it is the holiday season and the malls are full of shoppers. The Salvation Armytries to tap into the mood by placing their volunteers in Santa costume outside shopping areas to donations.

Second, December is the last month of the tax year in the US. Charitable organisations don’t hesitate to remind you that your donation is tax deductible and encourage you to rush that cheque to take advantage of the benefit. Reports suggest that the last few hours of the year sees a surge in traffic on websites as donations are made.

The problem is that many NGOs seem to be organised to raise funds for their own consumption rather than the activities they are supposed to promote.

There are three main criteria to evaluate an NGO’s expenses. One is the amount spent on programmes and projects. This is the main reason for the existence of the NGO and best practice requires that at least 75 per cent of funds be spent in this area.

The second is administration. NGOs need to be able to attract good managerial talent but they often cannot pay market salaries, and try to seek talent for less pay, such as student volunteers and retired personnel.

The third is the amount spent on fund-raising. Often, the founder is the driving force and if he or she spends too much time on fund-raising, the programme activity suffers, and vice versa. Some NGOs contract fund-raising it to other agencies.

Several scandals have highlighted the need for increased scrutiny of NGOs and how they operate. A few years ago, when the CEO of the American Red Cross was forced out with a severance package of about $2 million (₹12.4 crore), it drew attention to what is happening at senior levels in charities. In 2010, top executive pay at the American Red Cross (independent and affiliated to the international organisation) was found to be $4.5 million (₹27.9 crore), but that is acceptable for an organisation that raised $3.6 billion (₹22,320 crore). Their executives get close to market salaries and they have worked to repair their image. Recent reports show that they spend 92 per cent on their programmes and only 4 per cent each on administration and on fund-raising.

Organisations have emerged to serve as watchdogs of this process of donations and reporting. The Charity Navigator monitors and ranks charities. In a variety of categories, they put out a ‘nice’ and ‘naughty’ list of charities.

The American Jewish Congressspends 71 per cent on its own administration and just 17 per cent on its programmes. The National Center for Charitable Statistics and The Philanthropic Research Inc allow you to view the Form 990 that organisations submit to the Internal Revenue Service and judge for yourself their financial performance, executive pay and lobbying expenses. They also collect data directly from the NGOs and these reports are accessible through a free registration. These organisations are themselves NGOs and require our donation to keep an eye on others!

The writer is a professor at Suffolk University, Boston, and Jindal Global Business School, Delhi NCR

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