LA Times article “The worst way to judge a charity”

Here is an interesting article entitled “The worst way to judge a charity”.  Notice in paragraph 3 an attack on Canada! 

The worst way to judge a charity
http://www.latimes.com/news/opinion/commentary/la-oe-shakely-charity-rating-kahneman-20120430,0,5220795.story

Here is an excerpt:

Donating to charity is a worthy action. But which charity? Would it surprise you to know that the criterion that is most often used to decide that question is also the most unreliable? Would it surprise you more to know that many charities are aware of how flawed the criterion is and play it like a violin?

A few months ago a friend of mine who runs an international relief agency phoned me complaining about another charity.

“Do you know what they’re doing?” he fumed. “They’re buying medicine in Canada for 10 cents a pill and booking the American retail cost of the medicine as an in-kind contribution. Do you know the retail value? Seven bucks a pill. They’re padding their in-kind contributions by millions of dollars.”

I hung up a little perplexed at first. It wasn’t like the organization was buying pills for a dime and selling them for $7; it was were giving them away. Outside of inflating their donations for bragging rights, I couldn’t see the harm. Then it hit me.

I went to the organization’s website and there it was, one click off the home page: Nearly 90% of its donations in 2011 went directly to the group’s programs. Its administrative costs? Just 5% of the budget. But if the agency was inflating in-kind contributions, it could hike the value of its donations to make its administrative costs seem smaller.

Why would it do that? Because low administrative costs are the holy grail in judging how well a nonprofit does its work. It’s not the only thing responsible raters look at, but it’s the shorthand. The best of the best in one Top 20 list last year, for example, was a charity that spent nothing, nada — 0.0%, as the list put it — on administration. Too bad that as a measure of value, low administrative costs are unscientific and meaningless.”

If you are wondering about the reference to Canada see: http://www.canadiancharitylaw.ca/index.php/blog/comments/chronicle_of_philanthropy_deals_with_valuation_of_drugs_for_development_and/

Also I have written on the subject of overhead and administration in this article: How Much Should A Canadian Charity Spend on Overhead http://www.canadiancharitylaw.ca/index.php/articles/how_much_should_a_canadian_charity_spend_on_overhead_-_an_article_by_mark_b/