OHF - Operation Hope Foundation

Is Your Donation Helping the Poor?

17 March 2015

by Robert Kee

Let me start by saying that I am not just referring to Singapore charities but to charities worldwide as a whole. First and foremost the financial needs of the charity must be taken care of. Of course the bigger the charity, the bigger their budget since 10% of one million is just $100,000 while 10% of one billion is $100 million (Yes there are charities with annual turnover exceeding a billion dollars). Second, publicity and marketing takes out a huge chunk of money. Think of the USA presidential campaigns and how much is spent on PR! Fund raising costs can be immense. Third, the funds goes to a third party to execute the project. This third party may outsource to another party to carry out the program. Fourth, there is the cost of monitoring the program . For a very large program it may be necessary to go through these channels but how effective are they? Finally, what are the benefits delivered to what the poor needs?

We have to be careful in deciding what charities to support. In this article, CNN reveals some of the worst charities in America. According to the article, Kids Wish raised $18.6 million and used only $240,000 to grant wishes. http://www.cnn.com/2013/06/13/us/worst-charities/. These are the terrible ones that spent only 0% to 2% of their donations on the beneficiaries. But what is an acceptable percentage?  Would you be happy if only 20% of your donation actually reaches the poor?

The Charity Navigator is a US web site that evaluates and gives star ranking to charities. However their definition of program expenses is not the same as benefit. If a charity outsources the program to one charity who then outsource it to another, what eventually reach the poor may be a fraction of what has been donated. The cost of monitoring a program can be very high and this too is considered as program expense. It would be better if Charity Navigator uses Benefit to Cost ratio as an indicator of effectiveness where benefit is the actual cost of service or goods received by the poor and cost is the program cost including program monitoring.

However measuring the value of benefit may not be easy but can be done if more details are provided. For example instead of saying we have improved the health of the community significantly thereby reducing the number of water-related health issues, we can state the number of wells we have constructed and the cost per well. OHF have worked with Foundations on this basis where we specify the  benefits being delivered rather than big words like capacity building, community development and impact development. Donors should look beyond the big words and ask what exactly has been delivered. We should not assume program cost is what the poor receives. It is the cost of executing the program. Let us take as an example, Halliburton a large US company that was awarded billion dollars contract to rebuild Iraq. Halliburton uses thousands of contractors who uses sub contractors who then uses sub sub contractors to deliver the results. The benefit is what was actually built but the cost is what Halliburton charges the US Army. Both are very different figures !

Another issue is that the benefit delivered may not be what the people need. Charities rush in during a disaster to provide what they know rather than what is needed. In this Channel News Asia report (http://www.channelnewsasia.com/news/singapore/asian-tsunami-10th/1548264.html) , a new pier was built in Meulaboh for S$6 million and a kindergarten for S$730,000. However we don’t know if the contract was awarded based on Bill of Materials rather than a lump contract. Ten fishing boats were donated at S$250,000 each. However when a boat was spotted that looks unused, this was the reply: Said Mr Muhammad Siddiq, former Secretary of Meulaboh's Fishermen Development Cooperation: "It is not suitable for our needs, because the boat is too big. What is suitable are smaller boats. We are just the receiver, we didn't ask for this.”. Mr Siddiq gave a frank and honest answer.

Program monitoring can be very difficult in developing countries as transparency is hard to achieve. For example you donate a house but are you sure you are the only donor? How do you know if there are ten other donors from different countries for the same house?  How do you know that you are the only donor for that program?  How do you know if the villager was asked to pay for the house? Monitoring a program in a developing country requires travel over muddy roads and staying in rural villages. As such many charities depend on reports and the integrity of the person writing the report. If the person writing the report is the same person that receives the money, we cannot expect an unbiased report.

However reports can be useful if they are the right reports. Knowing how much is spent on food in a children home per month is not as useful as what is the average cost per kilogram of the food purchased. Food cost can be very subjective. If each child eats 300 grams of meat or fish per meal, the cost could be much higher than if the same child were to eat on the average 30 grams of meat or fish per day or if the child had a totally vegetarian meal.  Thus the food cost per month is meaningless unless we know what ingredients were used for each meal and what were paid for these ingredients. There is a need to micro manage financial reports but most organisations rely on big picture reports .

Donors must ask what is the benefit to cost ratio. If they sponsor a child, they have to know what direct benefits the child receives and even if indirect benefits were stated, what are the cost of these indirect benefits and how many children gain from this indirect benefit.  Ignore the big words and ask for answers that you understand! Don’t get smoked by words like capacity building!