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Better Business Bureau Group Creates Voluntary Standards For Charities

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WASHINGTON (AFP eWire - March 14, 2003) - The Better Business Bureau (BBB) Wise Giving Alliance has released new guidelines that it will use to evaluate charities.

The Standards for Charitable Accountability, released March 3, will determine whether a charity receives a BBB "thumbs up" or a "thumbs down" based on criteria in the areas of:

  • governance and oversight,
  • measuring effectiveness,
  • finances and
  • fundraising and informational materials.

The alliance was created with the 2001 merger of the National Charities Information Bureau and the Council of Better Business Bureau's Foundation and its Philanthropic Advisory Service. The new standards incorporate some of the former guidelines of both groups and include new requirements. Most requirements took effect this month, but some of the new requirements will not take effect for a year or more.

Of possible concern to fundraisers is the requirement that charities spend at least 65 percent of their total expenses on program activities and no more than 35 percent of contributions on fundraising. The guidelines also want charities to "avoid accumulating funds that could be used for current program activities." This would require a charity's unrestricted net assets available for use be no more than three times the amount of the previous year's expenses, or three times the amount of the current year's budget, whichever is more.

An organization that does not meet these financial standards may provide evidence to show that its use of funds is reasonable. According to the standards, possible reasons why a charity might not meet the financial measures include:

  • higher fundraising and administrative costs of a newly created organization,
  • donor restrictions on the use of funds,
  • exceptional bequests,
  • a stigma associated with a cause, or
  • environmental or political events beyond an organization's control.

The issue of establishing arbitrary limits on fundraising costs is part of a U.S. Supreme Court case that was argued earlier this month. In Madigan vs. Telemarketing Associates (formerly Ryan vs. Telemarketing Associates), the Court may decide whether limits can be established on how much a charity can spend on fundraising. In the case, the Illinois attorney general attempted to sue Telemarketing Associates for fraud for not telling donors the percentage of contributions that would be spent on expenses by the telemarketing firm compared to the percentage that would go directly to the charity.

AFP filed its first ever amicus curiae brief in the case, arguing against the establishment of state-mandated limits on charities' costs. The Supreme Court has not yet ruled on the case.

The Wise Giving Alliance standards also call for a board of directors - with a minimum of five voting members - that provides adequate oversight of the charity's operations and staff. The board should meet at least three times a year. Also, charities should make annual financial statements and annual reports available upon request. Annual reports should include a mission statement, a summary of the year's program accomplishments, a list of officers and board members, and financial information. The same information, plus a mailing address and electronic access to its most recent IRS Form 990, should be included on any charity website.

Charities that meet the standards may choose to take part in the Wise Giving Seal program. The program, which is expected to start this summer, will allow charities to display a seal of approval in their materials.

Unlike the BBB charity standards program - which is free for charities to be evaluated and for donors to review the information - the optional seal program charges an annual fee. Only national, publicly soliciting charities that are at least two years old may take part in the seal program. Fees are based on a sliding scale and range from $1,000 to $15,000, depending on a charity's contribution revenue.

AFP took part in the creation of the voluntary standards, which was a three-year process.

"AFP submitted comments on drafts of the standards, and we are pleased that the standards recognize the importance of donor privacy and address charity websites," said Paulette V. Maehara, CFRE, CAE, AFP president and CEO of the Association of Fundraising Professionals (AFP).

More information and an implementation guide, which provides details about the standards and the effective dates, are available at

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