A Closer Look at Charity Efficiency Ratings

By mborum

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BOSTON—Since the deadly tsunami struck southern Asia on Dec. 26, Americans have contributed more than $200 million to humanitarian groups rushing to help the survivors. Oxfam America has been among the primary beneficiaries of that outpouring of generosity, having received more than $16 million in less than two weeks.

Donors want as much of their money as possible to go toward saving people's lives and rebuilding their communities. Charity ratings agencies, web sites and news reports frequently compare charities based on their so-called "efficiency" rating, which is simply the ratio of their overhead and fundraising costs to program costs. But such listings can be misleading. Donors who wish to make an informed decision about where to donate should measure the true return on investment (ROI) of their donation, including evaluating the actual impact of the agency's work.

For emergencies like the current Asia Earthquake Fund appeal, Oxfam America spends relatively little on overhead. In fact, more than 90 percent of the money we are raising for that crisis will go directly to relief and rehabilitation efforts in southern Asia—a figure that equals or surpasses that of many similar organizations.

Overall, Oxfam America spends about between 18 and 23 percent of its annual budget on overhead and fund-raising to support all of its comprehensive programs, so its efficiency rating reflects that. In years with major emergencies, the overhead is less. Our work is primarily funded by hundreds of thousands of small donors, so our overhead costs are higher than agencies that receive large US government grants. Although the annual ratios for our overall aid work may be higher than some of our peers, the long-term return on investment is superior.

Oxfam's general fund-raising costs are higher than its emergency fund-raising costs in part because of the nature of our work: Oxfam has a long-term commitment to ending poverty through global grassroots development programs. Our approach to helping people overcome poverty and be better protected against future disasters focuses on creating lasting solutions. It costs more to raise funds for less "imminent" needs. Ironically, this larger program scope is also part of what makes Oxfam so effective in humanitarian emergencies like the crisis in Asia.

Oxfam's approach is truly efficient. For example, when the Tsunami struck Sri Lanka, Oxfam staffers were already on the ground doing development work and had recently even done preparedness drills. This enabled Oxfam to immediately save lives because we were already there. Further, Oxfam's highly effective approach to aid involves collaborating with local partners, people native to the regions Oxfam works in who have intimate knowledge of the local language, culture, and political dynamics. Oxfam ensures that the aid it sends is not only appropriate and essential but is delivered quickly to the people in most urgent need.

Oxfam works 365 days a year to find lasting solutions to poverty, hunger and social injustice. The fact that there are 2 billion people living in the world on less than $2 a day is also a humanitarian emergency. A slow, painful death from chronic malnutrition or lack of clean water is just as urgent, and just as important, as the suffering that has grabbed attention following this massive earthquake and tsunami. Oxfam will not save people today only to return them to poverty tomorrow. We work with others to change the underlying conditions that keep people in poverty. We know that our donors appreciate this exceptional return on investment—indeed, they expect nothing less.

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