Paying for Charity Evaluations Saves Money: A Recent EIG Research Assignment Uncovers Scandal

A money manager recently asked me: "Is it difficult for Excellence in Giving to find philanthropists who will pay for charity evaluations?" The simple answer is "yes." Although blogs and news articles are beginning to recognize the field of philanthropic advising, most big and small philanthropists do not recognize the value of paying experts to evaluate potential grantees. They do want to support the best organizations but typically balk at the idea of putting significant money into the necessary research that identifies high-performing, well-managed, difference-making nonprofits. Most of the time that hesitation results in donations given to a number of "good" organizations but not necessarily the "best." Sometimes it means donors unwittingly support scandalous frauds.

Last week an Excellence in Giving client sent a grant request from the Texas Highway Patrol Association & Museum (THPA) to our research team for review. A couple hours later we had scandal, suspicious money trails, and felonies in the report. First, the public financial records for THPA showed that the Executive VP's salary topped $193,000 but only $13,000 worth of benefits to Patrol Officers had been provided. That seemed suspicious. Second, of the $1.8 million collected for the benefit of TX Highway Patrol Officers, over $1.1 million was spent on staff salaries. That doesn't leave much to directly benefit officers. Third, THPA had provided a direct loan to its founder Lane Denton and used its assets as a loan or loan guarantee for a private for-profit company called THPA Services, Inc. Why would a nonprofit organization be sharing its assets with a for-profit company whose president, Lane Denton, is also the founder of THPA and the recipient of a THPA loan?

The research trail eventually led to Lane Denton's past. He is a felon. He was convicted in 1992 on felony charges for funneling money from a nonprofit organization to a friend's bank account. He received 60 days in jail and 6 years of probation. In 1993, he started a new nonprofit, THPA. He has 5 call centers in Texas with 312 employees who spend their days calling Texas residents asking for money. Employees at the call centers are taught to impersonate state troopers and recount the latest true story of a TX Highway Patrol Officer killed on duty. In FY 2009, the THPA fundraising machine turned the death of one officer into $1.8 million in donations. That officer's family received $10,000. That's a scandal.

If you ask me: "Is it difficult for Excellence in Giving to find philanthropists who will pay for charity evaluations?" The simple answer is "yes." But if you ask: "Is it worth it?" The answer is also "yes." Philanthropists can get a tax deduction for giving to great, good, or scandalous nonprofits. That part is easy. But making a difference takes diligent research and evaluation. In the end, paying for charity evaluations does save money. Money that could be wasted becomes an investment in the best organizations available.

Your joy in giving can move from the act of giving to the knowledge of changing lives for the better. But there is no short cut. It takes serious investment of your philanthropic capital. It will include paying for charity evaluations that provide you with confidence in your philanthropy. And the wisdom you apply to your giving will ultimately defund low performers and drive underhanded schemes out of business.