BBB Reconsiders Overhead Ratios

Recognizing that charities across the country are struggling financially in the current economy, the BBB Wise Giving Alliance announced last week that it would use the flexibility permitted under its Standards for Charity Accountability to consider the recession’s impact when evaluating charities’ fund raising and program expense ratios.

“BBB Wise Giving Alliance recognizes that donations are just not coming in as they have in the past and this will negatively affect the financial ratios for many organizations that do fantastic work,” said Art Taylor, President and CEO of the BBB Wise Giving Alliance. “Spending ratios have limited value in assessing the worth of a charity and too much reliance on them is unwise. With the economy going sour, donors who fail to look beyond overhead ratios can unduly penalize good charities. We all need to be reasonable, particularly to those charities that otherwise meet rigorous accountability standards.”

The BBB Wise Giving Alliance evaluates more than 1,200 nationally-soliciting charities against 20 Standards for Charity Accountability that address charity governance, finances, effectiveness, fund raising practices and donor privacy. Two of the twenty standards require that a charity spend at least 65 percent of its total expenses on program activities and spend no more than 35 percent of contributions on fund raising. Because so many charities are seeing a severe decline in donations, their spending ratios may be impacted and fall below the required standards until the overall health of the economy improves. The BBB Wise Giving Alliance has decided to allow charities up to a 10 percent deviation for Standards 8 and 9, which use ratios. This leeway will be considered on an individual basis for evaluations of charity financial statements for fiscal years ending in 2008 through June 2010.