Paul Nelson, president of the Evangelical Council on Financial Accountability (ECFA), says that various systems that rate nonprofits’ financial efficiency, including Wall Watchers and our website www.MinistryWatch.com, “must be used with caution” (“Useful, but Limited,” January/February).
Nelson makes a valid point. There is currently little rigorous comparative reporting done on the outcomes of nonprofits’ programs that can be systematically analyzed. But this is not so much a problem with rating groups as with the entire nonprofit community. Rating groups like Wall Watchers want to perform such analysis, but little relevant comparative data is available for us, or anyone else, to review. Only a combination of efforts by nonprofit self-regulators, such as ECFA, and increasing demands by donors for such information are likely to change this unfortunate circumstance.
Nelson’s contention that ratings are problematic because different groups produce a variety of results is overstated. Once a base knowledge about a nonprofit organization is acquired, donors should use as many rating groups as possible to formulate an accurate judgment before donating.
Rating groups will provide different insights, but the array of results and approaches should be celebrated rather than feared. Our financial markets function extremely well in distributing capital even though investors in for-profit companies face a flood of contradictory information. The same can be true in the nonprofit marketplace.
Besides, one suspects that very dissimilar results are not the norm. Extreme examples can be found among the hundreds of groups that the rating groups cover, but these more often than not represent oddities in the data rather than a pattern of widely diverging opinions. The American Bible Society, with its huge endowment, is a clear example of such a situation.
Donors should be encouraged to use rating systems wisely, but they should not be led to believe that in so doing their knowledge of a nonprofit is reduced. Even if the data are somewhat imperfect, it is certainly preferable to no information, especially when the discerning donor makes a diligent effort at collecting comprehensive information from a variety of sources.
Nelson also overlooks the fact that many of the ratings groups offer more than ratings to prospective donors. Such is the case with Wall Watchers, which was established to assist the Christian donor. In addition to ratings, we provide reports on more than 500 Christian nonprofits on our free website. These reports are much like a Morningstar report on a mutual fund. They help the donor understand key issues in a ministry’s operations by including information on its purpose, organizational details, mission statement, history, program accomplishments, and current needs, as well as financial efficiency ratings and transparency grades. Some reports also contain an analyst’s report that includes information on the ministry’s strengths, weaknesses, and theological positions. Additionally, financial ratios, historical income statements and balance sheets, and recent news items relating to the ministry are displayed. The nonprofits are given an opportunity to respond to MinistryWatch.com’s analysis in the Ministry Response section of the report. At least in Wall Watchers’ case, ratings of financial efficiency are just one small piece of the total information package we make available to donors.
Given its role as a membership organization, it is impossible for the ECFA to make any judgments that would help donors distinguish the relative merits of one member over another. This would not be acceptable to its members. Thus, the approach that ECFA must take is to set the bar at a certain height and approve every ministry that can get over it, regardless of whether the bar is set at an appropriate height, was easily cleared, or was nearly knocked off. As a self-regulator, it cannot be in a position of judging its dues-paying members against one another. As a seal giver, the ECFA is fundamentally limited in the information it can offer about its members, and it can say nothing about nonprofits that are not members.
Still, Wall Watchers endorses the ministry of ECFA. As the leading self-regulatory group in the philanthropic world, ECFA’s standards are worthy of emulation by nonprofits outside the Christian ministry community. Without ECFA’s standard on disclosure of audited financial statements, Wall Watchers would likely have far less and/or far lower quality financial information to analyze on behalf of donors. Fundraising abuses would also be much more prevalent were it not for the ECFA’s standards in this area.
Donors have no need to fear ratings. Rating sites such as MinistryWatch.com are among the few places donors can turn for expert analysis and advice on the nonprofits they support. Funders who want to be the best possible stewards of their giving should actively use the information these ratings groups provide, which in some cases goes well beyond ratings.
Founder and CEO, Wall Watchers