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Charity 'industry' chafes under growing regulation

Charity is a full-blown American industry that raised some $43 billion in 1979. When figures for 1980 are in, the total take is expected to be up. And, like a lot of business people, those engaged in fund raising for charities complain of government overregulation.

Sophisticated new fund-raising methods and computer technology are boosting productivity year by year. But there is a differrence between fund raising and running a profitmaking company: There's no bottom line.

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In most cases, there is no clear way to tell how much good each donated dollar does. This becomes more an issue as charity moves out of the realm of bake sales and afternoon bridge parties and into the realm of computerized lists and cost-efficiency analysis.

Both charities and the public want accountability, especially in a squeaky-tight economy where extra money is harder to get.

If $10,000 of an organization's budget goes to pay the salary of a doctor in Southeast Asia, who can tell from here much he accomplishes?

Or how can a donor know whether $20 contributed to a group promoting racial equality actually does anything to ease inequities?

The problem is built-in. the nature of charity is in one party paying for services provided another. You don't get what you pay for; someone else does.

There are clues, however, to how trustworthy a charity is. Two groups, the Council of Better Business Bureaus (CBBB) in Washington and the National Information Bureau (NIB) in New York, have set up standards for checking fund-raising organizations. Their criteria differ in some respects, but the basis ones are:

* An organization should be open about finances and how much is spent on fund raising and administration.

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* There should be an active, volunteer governing board without financial conflict of interest. (Example: a board member who works in professional fund-raising firm used by the charity.)

* Programs should back up advertising claims with specific approaches to their state purpose.

But measuring a charity by these standards can be misleading. "There can be a group with horrendous fund-raising costs, a lousy governing structure, no governing board -- maybe it's just one guy -- but that one guy could be tremendously effetive," says Nancy DeMarco, director of CBBB's Philanthropic Advisory Service.

A new organization, especially one with a hard-to-locate public, could very reasonably have 80 percent fund-raising costs at first. Mrs. DeMarco says. This is because an organization needs to raise money intially before it can begin to operate as a charity. But after three or four years, she adds, fund-raising costs should be down to between 20 and 30 percent at most.

Even a well-established nonprofit group like the Wilderness Society can appear to lose its credibility as a good place to invest charity dollars. The CBBB, using 1979 statistics, find the society in conformity with its standards. The NIB, using later information, doesn't. The problem, according to the society itself, is that after a bleak period of declining membership in the late 1970s, it launched a major direct-mail drive for new members. The cost of these fresh mailings -- always expensive until a good list of donors has been culled -- swelled the Wilderness Society's fund-raising cost to 33 percent of the receipts.

This was unreasonably high by NIB standards. "A judgement call," says Nancy DeMarco.

Government regulations can be less forgiving.Most states, over two-thirds, have statutory ceilings on how much of its take a charity can spend on fund raising. Pennsylvania is strictest, with a 15 percent limit.

A similar limit was ruled an unconstitutional infringement on free speech by the US Supreme Court last year. Pennsylvania skirts this by allowing for exceptions on request.

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