Smart Charitable Giving

One of our objectives at Cornerstone is to provide to our clients information and access to various resources and ideas that we encounter as a result of our research. One issue that we have recently investigated is charitable giving. How do you know that the charity that you contribute to is effectively spending the gift that you have provided?

We have found a website that addresses this issue for over 500 Christian charities at MinistryWatch.com. Although many of these ministries are governed by the principals of the Evangelical Council for Financial Accountability, the information provided by Ministry Watch is a detailed financial analysis of an entity's performance and financial accountability.

Rusty Leonard, CFA founded Ministry Watch after discovering that there was no quantitative way to evaluate these concerns. All of the information that contributors were getting about a charity's performance was from the charity itself. After working for years with the prestigious Templeton Investment Council, he decided that there should be some way to evaluate charities using the same methodologies that are used for other entities. The basis for this evaluation is similar to the analysis that Morningstar does for mutual funds. "By providing an unbiased opinion on the merits of various mutual funds, Morningstar contributed greatly to the amazing growth of the mutual fund business," Leonard said in an article in the AIMR (Association of Investment Management and Research) Exchange in January of 2002. "I thought, we could do something like Morningstar but focus on ministries."

Ministries within the database are divided into discreet sectors, and searches can be done for a particular ministry based on name, sector, location, and other parameters as well as by any combination of them. These sectors are as follows:
Each ministry is given a "star" ranking (from one to five, five being best) based on their financial efficiency. This provides a measure for how well the organization is "getting the most mission-related activity out of the least amount of financial resources." These are objective ratings based on the entity's financial statements and are relative, meaning that comparisons are made to other organizations with similar objectives. There are three parameters for evaluation of a ministry's financial effectiveness, which are explained in detail on the website itself: fund-raising effectiveness, spending effectiveness and asset utilization. In addition to the financial efficiency rating system, Ministry Watch also provides a transparency grade that details an organization's responsiveness and disclosure. Needless to say, there are some ministries that do not desire to disclose their financial statements and are less than compliant with these requests. It may be worth considering this measure as much for the information content that is not provided as for the disclosures that are.

A charitable giving decision is often a qualitative decision regarding your thoughts on a ministry and its particular mission, and that should supercede any other aspect of your giving. However, MinistryWatch.com can provide a real source of information regarding your charity of choice, one that you can use to factor in to your decision to determine how effectively your charity uses the contributions that it receives.

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