BBB WISE GIVING ALLIANCE
STANDARDS FOR CHARITY ACCOUNTABILITY
PREFACE

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The BBB Wise Giving Alliance Standards for Charity Accountability were developed to assist donors in making sound giving decisions and to foster public confidence in charitable organizations. The standards seek to encourage fair and honest solicitation practices, to promote ethical conduct by charitable organizations and to advance support of philanthropy.

These standards replace the separate standards of the National Charities Information Bureau and the Council of Better Business Bureaus' Foundation and its Philanthropic Advisory Service that were in place at the time the organizations merged.

The Standards for Charity Accountability were developed with professional and technical assistance from representatives of small and large charitable organizations, the accounting profession, grant making foundations, corporate contributions officers, regulatory agencies, research organizations and the Better Business Bureau system. The BBB Wise Giving Alliance also commissioned significant independent research on donor expectations to ensure that the views of the general public were reflected in the standards.

The generous support of the Charles Stewart Mott Foundation, the Surdna Foundation, and Sony Corporation of America helped underwrite the development of these standards and related research.

Organizations that comply with these accountability standards have provided documentation that they meet basic standards:

In how they govern their organization,

In the ways they spend their money,

In the truthfulness of their representations, and

In their willingness to disclose basic information to the public.

These standards apply to publicly soliciting organizations that are tax exempt under section 501(c)(3) of the Internal Revenue Code and to other organizations conducting charitable solicitations. The standards are not intended to apply to private foundations, as they do not solicit contributions from the public.

The overarching principle of the BBB Wise Giving Alliance Standards for Charity Accountability is full disclosure to donors and potential donors at the time of solicitation and thereafter. However, where indicated, the standards recommend ethical practices beyond the act of disclosure in order to ensure public confidence and encourage giving. As voluntary standards, they also go beyond the requirements of local, state and federal laws and regulations.

In addition to the specific areas addressed in the standards, the BBB Wise Giving Alliance encourages charitable organizations to adopt the following management practices to further the cause of charitable accountability.

Initiate a policy promoting pluralism and diversity within the organization's board, staff, and constituencies. While organizations vary widely in their ability to demonstrate pluralism and diversity, every organization should establish a policy, consistent with its mission statement, that fosters such inclusiveness.

Ensure adherence to all applicable local, state and federal laws and regulations including submission of financial information.

Maintain an organizational adherence to the specific standards cited below. The BBB Wise Giving Alliance also encourages charities to maintain an organizational commitment to accountability that transcends specific standards and places a priority on openness and ethical behavior in the charity's programs and activities.

STANDARDS FOR CHARITABLE ACCOUNTABILITY

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GOVERNANCE AND OVERSIGHT
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The governing board has the ultimate oversight authority for any charitable organization. This section of the standards seeks to ensure that the volunteer board is active, independent and free of self-dealing. To meet these standards, the organization shall have:

1. A board of directors that provides adequate oversight of the charity's operations and its staff. Indication of adequate oversight includes, but is not limited to, regularly scheduled appraisals of the CEO's performance, evidence of disbursement controls such as board approval of the budget, fund raising practices, establishment of a conflict of interest policy, and establishment of accounting procedures sufficient to safeguard charity finances.

2. A board of directors with a minimum of five voting members.

3. A minimum of three evenly spaced meetings per year of the full governing body with a majority in attendance, with face-to-face participation. A conference call of the full board can substitute for one of the three meetings of the governing body. For all meetings, alternative modes of participation are acceptable for those with physical disabilities.

4. Not more than one or 10% (whichever is greater) directly or indirectly compensated person(s) serving as voting member(s) of the board. Compensated members shall not serve as the board's chair or treasurer.

5. No transaction(s) in which any board or staff members have material conflicting interests with the charity resulting from any relationship or business affiliation. Factors that will be considered when concluding whether or not a related party transaction constitutes a conflict of interest and if such a conflict is material, include, but are not limited to: any arm's length procedures established by the charity; the size of the transaction relative to like expenses of the charity; whether the interested party participated in the board vote on the transaction; if competitive bids were sought and whether the transaction is one-time, recurring or ongoing.

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MEASURING EFFECTIVENESS
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An organization should regularly assess its effectiveness in achieving its mission. This section seeks to ensure that an organization has defined, measurable goals and objectives in place and a defined process in place to evaluate the success and impact of its program(s) in fulfilling the goals and objectives of the organization and that also identifies ways to address any deficiencies. To meet these standards, a charitable organization shall:

6. Have a board policy of assessing, no less than every two years, the organization's performance and effectiveness and of determining future actions required to achieve its mission.

7. Submit to the organization's governing body, for its approval, a written report that outlines the results of the aforementioned performance and effectiveness assessment and recommendations for future actions.

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FINANCES
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This section of the standards seeks to ensure that the charity spends its funds honestly, prudently and in accordance with statements made in fund raising appeals. To meet these standards, the charitable organization shall:

Please note that standards 8 and 9 have different denominators.

8. Spend at least 65% of its total expenses on program activities.

Formula for Standard 8:
Total Program Service Expenses should be at least 65%
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Total Expenses

9. Spend no more than 35% of related contributions on fund raising. Related contributions include donations, legacies, and other gifts received as a result of fund raising efforts.

Formula for Standard 9:
Total Fund Raising Expenses should be no more than 35%

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Total Related Contributions

10. Avoid accumulating funds that could be used for current program activities. To meet this standard, the charity's unrestricted net assets available for use should not be more than three times the size of the past year's expenses or three times the size of the current year's budget, whichever is higher.

An organization that does not meet Standards 8, 9 and/or 10 may provide evidence to demonstrate that its use of funds is reasonable. The higher fund raising and administrative costs of a newly created organization, donor restrictions on the use of funds, exceptional bequests, a stigma associated with a cause and environmental or political events beyond an organization's control are among factors which may result in expenditures that are reasonable although they do not meet the financial measures cited in these standards.

11. Make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles. When total annual gross income exceeds $250,000, these statements should be audited in accordance with generally accepted auditing standards. For charities whose annual gross income is less than $250,000, a review by a certified public accountant is sufficient to meet this standard. For charities whose annual gross income is less than $100,000, an internally produced, complete financial statement is sufficient to meet this standard.

12. Include in the financial statements a breakdown of expenses (e.g., salaries, travel, postage, etc.) that shows what portion of these expenses was allocated to program, fund raising, and administrative activities. If the charity has more than one major program category, the schedule should provide a breakdown for each category.

13. Accurately report the charity's expenses, including any joint cost allocations, in its financial statements. For example, audited or unaudited statements which inaccurately claim zero fund raising expenses or otherwise understate the amount a charity spends on fund raising, and/or overstate the amount it spends on programs will not meet this standard.

14. Have a board-approved annual budget for its current fiscal year, outlining projected expenses for major program activities, fund raising, and administration.

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FUND RAISING AND INFORMATIONAL MATERIALS
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A fund raising appeal is often the only contact a donor has with a charity and may be the sole impetus for giving. This section of the standards seeks to ensure that a charity's representations to the public are accurate, complete and respectful. To meet these standards, the charitable organization shall:

15. Have solicitations and informational materials, distributed by any means, that are accurate, truthful and not misleading, both in whole and in part. Appeals that omit a clear description of program(s) for which contributions are sought will not meet this standard.

A charity should also be able to substantiate that the timing and nature of its expenditures are in accordance with what is stated, expressed, or implied in the charity's solicitations.

16. Have an annual report available to all, on request, that includes:

the organization's mission statement,

a summary of the past year's program service accomplishments,

a roster of the officers and members of the board of directors,

financial information that includes (i) total income in the past fiscal year, (ii) expenses in the same program, fund raising and administrative categories as in the financial statements, and (iii) ending net assets.

17. Include on any charity websites that solicit contributions, the same information that is recommended for annual reports, as well as the mailing address of the charity and electronic access to its most recent IRS Form 990.

18. Address privacy concerns of donors by

providing in written appeals, at least annually, a means (e.g., such as a check off box) for both new and continuing donors to inform the charity if they do not want their name and address shared outside the organization, and

providing a clear, prominent and easily accessible privacy policy on any of its websites that tells visitors (i) what information, if any, is being collected about them by the charity and how this information will be used, (ii) how to contact the charity to review personal information collected and request corrections, (iii) how to inform the charity (e.g., a check off box) that the visitor does not wish his/her personal information to be shared outside the organization, and (iv) what security measures the charity has in place to protect personal information.

19. Clearly disclose how the charity benefits from the sale of products or services (i.e., cause-related marketing) that state or imply that a charity will benefit from a consumer sale or transaction. Such promotions should disclose, at the point of solicitation:

the actual or anticipated portion of the purchase price that will benefit the charity (e.g., 5 cents will be contributed to abc charity for every xyz company product sold),

the duration of the campaign (e.g., the month of October),

any maximum or guaranteed minimum contribution amount (e.g., up to a maximum of $200,000).

20. Respond promptly to and act on complaints brought to its attention by the BBB Wise Giving Alliance and/or local Better Business Bureaus about fund raising practices, privacy policy violations and/or other issues.

Copyright 2003, BBB Wise Giving Alliance

Many Charities Founded After Hurricane Are Faltering
By STEPHANIE STROM, NY TIMES

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Since Hurricane Katrina, the Internal Revenue Service has used a fast-track approval process to grant tax exemptions to almost 400 new charities that said they planned to assist the disaster's victims. But one that distributes leather jackets to address the special needs of sadomasochists? Another that hands out new underwear?

Critics were opposed to the expedited process before it began, warning that many of the upstart organizations would have short shelf lives, prove difficult to track and monitor, and suck money away from more experienced organizations offering support and services. That is precisely what happened in many cases in the aftermath of the Sept. 11 terrorist attacks.

A spot check of the new Hurricane Katrina charities shows that some have indeed disappeared, while others are struggling to help storm victims or to broaden their mission after an initial spurt of activity. Over all, about $3.6 billion has been pledged to Hurricane Katrina-related charities, with roughly 60 percent donated to the American Red Cross.

Drop Yer Drawers, a new charity in Pearland, Tex., received a tax exemption just days after it filed an application to help collect and distribute underwear.

"It was painless," said Kay Barbour, who founded the charity with a friend, Robin Nichols. "Eight days is just unbelievable when you're dealing with the I.R.S."

But having distributed more than 20,000 bras, boxer shorts and other underwear to hurricane victims, Drop Yer Drawers is now pondering its future. Its aspirations are big  "We can be as big as the Salvation Army," Ms. Barbour said  but first it needs to find the money to rent a warehouse.

"Right now we've got bras in boxes, and they're stored in Robin's spare bedroom," Ms. Barbour said.

The Angel Pray Child Charity Foundation of King of Prussia, Pa., which received approval in 15 days under the expedited process, has not assisted any child displaced by the hurricane. It has, however, sent money to help several children in China.

The rush to create more charities, while grounded in a desire to let the charity dollars flow to the most needy, is contributing to what many charity experts say is an overabundance of nonprofit groups, many of which will fail to deliver the support they promised when applying for tax exemption.

While there are no accusations of wrongdoing, at the very least some groups seem to have stretched to include disaster relief in their missions.

Los Angeles Medical Professionals Inc., for example, received expedited approval because, according to its Web site, its "goal is to provide quality health care at no cost to all Hurricane Katrina evacuees who have been relocated to the Los Angeles metropolitan area, as well as the present uninsured and underinsured residents of the community."

But the organization does not know how many evacuees it has helped. "It's hard to say exactly," said Millena Gay, its director of operations. "We have a lot of patients that don't have insurance, and it's difficult to track where they all come from."

Dr. Joseph E. Pierson, its founder, said he used the fast-track program out of a genuine concern for hurricane victims, some 17,000 of whom ended up in the Los Angeles area. "I've always positioned myself to deliver free health care services," Dr. Pierson said. "But with the Katrina evacuees, I wanted to extend that mission to them as well."

Right after Hurricane Katrina hit the Gulf Coast, the Wise Giving Alliance of the Better Business Bureau, a charity watchdog and research group, urged the I.R.S. not to do what it did after Sept. 11, when it quickly approved about 350 new organizations clamoring to help the victims' families.

"Our feeling was that new organizations would not be in any position to offer significant immediate relief, and that if there was need for longer term support, the regular exemption process was sufficient," said H. Art Taylor, Wise Giving's president and chief executive.

Mr. Taylor and others argue that it exacerbates problems of accountability and fund-raising in a country that has been adding 50,000 charities a year to its total of more than a million.

Under the normal process, about 44 percent of potential charities receive the tax agency's approval within 60 days, but more than half wait at least six months. Some wait twice as long because their plans include extensive online solicitation, an unusual compensation structure or significant international work, all areas of concern to the I.R.S.

The agency says it expedites its approval process after any disaster. But after an event like Hurricane Katrina, it dedicates an entire team of agents to handle the requests.

Marvin Friedlander, the official in charge of technical issues for the I.R.S. unit that oversees tax-exempt groups, said the team had been far pickier after Hurricane Katrina than had the agents who looked at Sept. 11-related applications, kicking about 30 percent of them into the normal processing queue.

"A benefit concert that has a fixed date at which significant moneys would be raised would probably qualify for expedited treatment," Mr. Friedlander said. "On the other hand, a newly established museum or church that incidentally intends to raise funds for Katrina victims probably would not qualify for expedited treatment."

The charities that were expedited will receive extra scrutiny, Mr. Friedlander said, noting an obligation to the public to monitor them. "We'll be making sure they file their returns," he said, "and asking questions like: Are they doing what they said they were going to do? And if not, why not? And other red flags."

Determining whether an aspiring organization is truly motivated by a desire to help victims of the disaster at hand or simply exploiting the process is difficult. Even those with the purest of intentions often find that they have set the wrong goals.

The Angel Pray Child Foundation, which won expedited approval, has raised three times the money for schoolchildren in China as it has for children displaced by Hurricane Katrina. "Initially, I just wanted to help Katrina victims, but I learned charities cannot be specific to one thing," said Angelene Huang, its founder and president.

Ms. Huang said she was looking for a school in New Orleans to support with $500 of the $1,000 in donations Angel Pray Child received that were earmarked for Hurricane Katrina victims. The rest was spent on toys intended for children displaced by the storms that instead had to be distributed to homeless children in and around King of Prussia because, Ms. Huang said, no one was living in shelters after Thanksgiving.

While acknowledging the difficulties, Ms. Huang said charities like hers provided an alternative for contributors distrustful of big mainstream charities.

"When I planned to donate money after Katrina, I looked at a lot of Internet chat rooms and found people don't trust where their money goes," she said. "I know myself that I won't misuse this money, and I have a lot of friends, too, who I knew could use help at the end of the year for tax breaks."

In the case of the Texans for Better Science Education Foundation, a charity created to distribute educational materials to teachers that is loosely affiliated with a grass-roots advocacy group, Texans for Better Science Education, "the Katrina part of our application was pretty minor," said Mark Ramsey, a trustee.

The foundation distributed several hundred DVD's promoting alternatives to Darwinism to shelters and evacuation centers and to some displaced teachers who were helping in classrooms stretched by displaced children, Mr. Ramsey said.

He said the application for tax exemption identified two reasons a group could apply for the expedited process. "One was if you don't get approval in a timely fashion, will it have an adverse impact on fund-raising? And of course, almost any organization could say that, so we answered yes," Mr. Ramsey said. "The other was whether you were going to help people in a disaster, and we figured, well, go ahead and put that out there and maybe it will help."

Representatives of Share Your Home, another organization receiving expedited approval after Hurricane Katrina, could not be reached. Its Web site is defunct, and an e-mail message sent to Ellen Davis, one of the founders, was returned as undeliverable. A man answering the charity's toll-free number took a message that no one responded to, and thereafter, calls were answered by a recording saying the offices were closed.

Like Drop Yer Drawers and Angel Pray Child, several charities say Hurricane Katrina was just a starting point for bigger ambitions. The Lords of Leather Mardi Gras Krewe, the group behind one of the more flamboyant floats in the annual New Orleans parade, used the fast-track process to establish the Lords of Leather Hurricane Relief Fund. "As long as there are hurricanes, we'll be here," said Todd Cole, president of the club and the new charity.

The group hopes to assist disaster victims "who are into the S&M" and "the fetish and skin scenes, what you might generally call kinky scenes," Mr. Cole said.

"We don't discriminate against anyone, but we're targeting a very unique slice of the New Orleans scene," he said. "There are groups set up to help artists, restaurant people, even groups for newspaper people, but there are no groups that specifically target this community."

He would not say how much money the organization had raised so far, but he noted that fund-raisers had been held in Hollywood, Atlanta and Chicago. "We just had about 800 pounds of leather jackets and T-shirts and club gear shipped to us from the Midwest that we distributed," Mr. Cole said.

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