Wednesday, March 16, 2016

Faith in Doing Good Work

Faith in Doing Good Work

The Department of Justice attorney in the bid collusion case said the DOJ did not like to hurt companies that do good.  In the same vein, HUD, the County of Santa Clara, and the City of San Jose expressed their confidence in the good work that HomeFirst did.  Can we base our confidence in nonprofits on anything other than faith[1]?

A nonprofit like HomeFirst can be difficult to understand.  Its revenues came from thirty or more federal, State and local government grants, restricted and unrestricted private grants and contributions, rents, service fees, and other sources.  A wide variety of liens and restrictions applied to the use of its assets.  The deliberations of its self-perpetuating Board were kept private[2].  The costs of its exemption from property taxes and the tax-deductibility of its donors’ contributions were undisclosed.

Its performance and impact on society were difficult to measure[3].  Like its competitors, HomeFirst does not systematically report the outcomes from its work.  It does not describe how many clients are served in its program areas.  It does not state the number of clients who move from homelessness into housing as a result of its efforts.  It does not report revenue and costs for any of its program services, thus keeping secret how much additional support is needed for any program.  A potential funder has no rational basis for judging the effectiveness of the services that HomeFirst provides or comparing the cost-effectiveness of HomeFirst to any other service provider.  In all that, though, HomeFirst is very much like its competitors who are similarly reticent.

HomeFirst’s mission – to confront homelessness by cultivating people’s potential to get housed and stay housed – does not lend itself to quantitative measurement.  HomeFirst is not unique among nonprofits in offering a vague vision.  Its competitors voice goals like “ending homelessness,” “fighting poverty,” and “strengthening communities.”  They, too, shun performance statistics[4] in favor of the individual success stories that are known to be effective fund-raising tools[5].

Scandals have occasionally hit for-profit companies, but critics have seldom targeted nonprofit accountability.  Nonprofit leaders avoid speaking out against fraud because they think that bad deeds are so rare at charities (with one notable exception or another) and their community value is so obvious[6].   But assuming that community value exists can, by itself, delay demands for accountability for waste and wrongdoing.

Reasons for charitable giving are varied, including social pressures, religious orientation, income level, empathy for those the charity serves, and many other drivers.  But with the exception of a small group pressing for effective altruism, which is sometimes criticized for directing donors away from feel-good charitable giving, few express concern for evidence that their charities actually do good with their contributions.

The tax-exempt status of nonprofit companies opens them to governmental oversight to ensure that they are not entirely dysfunctional and they are reasonably transparent and honest[7].  While the potential for official oversight exists, with limited scope, ambiguous standards and constricted resources practice can fall short of potential.  For example, despite increasing numbers of tax-exempt organizations and donations to them, IRS budget cuts contributed to a 7% reduction in IRS tax-exempt examination staff from 2010 to 2013.  The examination rate for tax-exempt organizations was just .71% in 2013, roughly half the rate for other corporations[8].   Of the 6,940 nonprofit-related complaints received by the IRS in 2013, only 355 (5%), resulted in examinations.  

Nonprofit managers argue that an emphasis on accountability through financial and governance reports serves the short-term interests of funders but diverts attention away from important longer-term, strategic concerns[9].  They contend that measuring outcomes, like the number of people who move into and remain in permanent housing, can describe better the impact of the organization on the community.  Managers, however, tend to favor an appealing long-term goal, like ending homelessness, over which they have little control and where measurement of success will occur after they have moved on to different companies[10].

One study of clients served in 2007-2012 determined that the average chronically homeless individual cost Santa Clara County $83,000 for public services from its hospital, mental health, criminal, and other systems.  The study found that a program targeting these individuals could generate net savings of $43,000 per client on average.  The study encouraged the County to select a competitor of HomeFirst to run a “pay for success” project targeting the chronically homeless.  Although this client group was key to HomeFirst’s business, it did not apply for the grant.

The pay for success model seems an attractive way to build accountability into nonprofit work, but it does not apply to most HomeFirst programs, whose economic savings are difficult or impossible to measure.  Outcomes measurement, while potentially valuable, was also elusive for HomeFirst because testing whether housing was found as a result of the client’s or HomeFirst’s effort and whether the  client remained housed was expensive or impractical. 

If donors choose to contribute money to a nonprofit that does not report its results and effectiveness, perhaps no one is harmed but the donors.  If a government agency chooses to give money to a nonprofit whose reported results are unconvincing, perhaps the harm done to any individual taxpayer is small.  But when authorities favor a nonprofit based primarily on its assumed but unverified goodness, then the whistleblower can feel the full force of that unjustified faith.




[3] Kearns, Kevin P. “Ethical Challenges in Nonprofit Organizations: Maintaining Public Trust .” In Ethics in Public Management.  H. George Frederickson and Richard K. Ghere (eds.). Armonk, NY: M.E. Sharpe, 2nd ed. 2013
[4] Stern, Ken. With Charity for All. New York: Doubleday. 2013
[5] Higman, Rebecca and Katya Andresen. “The Secret to Getting People to Give: 15 Reasons Why People Donate.” Network for Good.
[7] Wells, Catharine. “Holding Charities Accountable: Some Thoughts from an Ex-Regulator.” The Hauser Center for Nonprofit Organizations and The John F. Kennedy School of Government Harvard University Working Paper No. 33.1. October 2006
[9] Ebrahim, Alnoor. “The Many Faces of Nonprofit Accountability.” Harvard Business School Working Paper 10-069.  2010
[10] Campbell, David. “Outcomes Assessment and the Paradox of Nonprofit Accountability.” Nonprofit Management and Leadership 12.3, (Spring 2002): 243-259

No comments:

Post a Comment