Tsunami Spending Fraud - Time to Crash the NGO Gates

The following is cross-posted from the Direct Change blog. Direct Change is a new non-profit designed to use social networking to help African children through supporting the programs of small, efficient, local grassroots organizations.  There are many "gates to crash"!

Conventional marketing wisdom is to start with a positive message. However, after reading marketing guru Seth Godin's post the other night on "the intuition vs. analysis conundrum" and then reading yesterday's story in the New York Times  on the tremendous mismanagement of funds raised for Tsunami reconstruction I decided to just dive in and get this blog going.   Time to stop planning and just do it, so here it goes.

Yesterday's NYT's covered a report from the Tsunami Evaluation Coalition, that includes examples of how aid agencies "displayed 'arrogance and ignorance' and were often staffed by 'incompetent workers' who came and went quickly."

Unfortunately, the NYT story does not stand alone in increasing the public’s cynicism in charities. There are almost identical stories about the responses to Hurricane Katrina.

Donations to non-profit charities will not be able to keep up with the need unless the public’s trust in these organizations increases. While press censorship or repression might have worked in another era, in the age of the Internet the only way to decrease the cynicism is to provide better approaches to charitable work.

Just to be clear, the large charities that responded to the Tsunami and Katrina and the ones that provide assistance to those suffering in the world on an ongoing basis, do great work in many areas.  Besides helping millions of people, one of the other areas that the international aid community has done a wonderful job is providing self-critique.

In the introduction to the report from the Tsunami Evaluation Coalition, former President Bill Clinton lays out some clear recommendations that can easily be applied to other charitable causes including:

"First, we must do better at utilizing and working alongside local structures. With nothing but good intentions, the international community descends into crisis situations in enormous numbers and its activities too often leave the very communities we are there to help on the sidelines. Local structures are already in place and more often than not the 'first responders' to a crisis. The way the international community goes about providing relief and recovery assistance must actively strengthen, not undermine, these local actors."

This recommendation is at the center of the approach that we are developing at Direct Change. Local grassroots organizations can almost always deliver services more effectively and efficiently then large international organizations.

Direct Change will be focusing our own work on providing assistance to orphans and vulnerable children in Africa. A very insightful report from Save the Children UK shows the specific "Bottlenecks and Drip-feeds" that the international community faces in channeling resources to local communities in southern Africa to assist orphans and vulnerable children.  To avoid these bottlenecks, Direct Change is developing mechanisms to bring together donors and local grassroots organizations that provide direct assistance.

Another reason for the increased cynicism in charitable giving comes from the growing awareness of the high fundraising and administrative costs. Estimates that I have heard from several current and former officials involved in international aid efforts range from only 8 to 15 cents of every dollar raised actually making it to help the intended recipients.  Finding better ways to leverage the Internet is one clear way to keep these costs down.

Non-profits have embraced the Internet enough so that when a disaster happens and the public is highly motivated they go to an organization's web site and make a contribution. This process does dramatically drop the fundraising costs and a higher percentage of the funds get to the intended recipients.

However, for the most part the non-profit world has not embraced the power of online social networking  (also known as Web2.0) to transform the way they raise money.   Starting with the Dean Campaign, the political world has been embracing these techniques which decrease fundraising and overhead costs.  The best example of such an approach is ActBlue, that if my reading of their recent reports is accurate, appear to be raising over $1 million a month for Democratic candidates at no cost to those candidates.

The approach that most non-profits have taken to embracing the Internet is to apply the direct mail paradigm  - build a big list, send email appeals to the list, measure success by keeping acquisition costs lower then list development costs and count on a large enough percentage of the donors to give again to fund programs.  If an organization only views its supporters as donors then this approach makes sense.

However, if an organization is willing to let its supporters be "connectors" and give them the freedom to build support in the way that they see fit, then that organization has the potential to dramatically cut fundraising costs and focus a higher percentage of their revenue on actual programs.  Such an approach will be at the center of Direct Change's outreach effort.

Over the next few months, Direct Change will leverage social networking to offer a simple inexpensive concept of fundraising combined with a simple mechanism to deliver these funds to the needy through small, efficient, local grassroots organizations.