Ensuring Worthy Giving.

• Author: Cummings, Michael
• Position: ECONOMIC OBSERVER - ImpactMatters

ANYONE WHO ever has given to charity likely endures a flood of email solicitations over the holidays from nonprofits seeking donations. Choosing a cause to support is just the first step in charitable giving, as discriminating donors should ask whether a nonprofit produces evidence of its effectiveness. ImpactMatters (TM), an initiative launched two years ago by then-Yale economist Dean Karlan--now professor of economics and finance at Northwestern University--helps donors identify effective charitable organizations and shows nonprofits how to use and produce sound evidence of their impact.

The mission of ImpactMatters, is "to help nonprofits learn how to use and produce better evidence of their impact and to help donors know which nonprofits do this most effectively," says Karlan. "[The idea is] to help donors know which nonprofits will be good stewards of their money--meaning careful, thoughtful organizations that pay attention to what works and produce appropriate evidence of their impact. [ImpactMatters wants] to help nonprofits with feedback on how to improve their use and production of evidence in order to guide them to become better organizations.

"To do this, [it conducts] an audit of the nonprofit's impact, which, similar to an accounting audit, provides a short-run assessment of a nonprofit to certify to stakeholders and guide its internal management."

ImpactMatters "is different in a few dimensions--one is that there is no review system that I'm aware of that gives the nonprofits feedback. Most just provide external reviews," notes Karlan. "Second, with one exception, none of the nonprofit evaluators focus on evidence of impact. They are focused on things like financial data and the nonprofit's board of directors. They put a very heavy emphasis on self-reported data on overhead, which is misplaced and can lead to some really bad incentives for nonprofits."

What aspects of nonprofits do the impact audits evaluate? Explains Karlan: "The impact audit answers two big questions. First, impact: does the nonprofit change the world? Second, operations: does the nonprofit do what it says it does? In terms of impact, [IM] look[s] at evidence on outcomes and cost. What is the nonprofit's 'theory of change'--in other words, the chain linking the nonprofit's activities to positive changes in the world, and is that chain logical and sufficiently supported by evidence?

"For example, if a nonprofit says it provides bed nets to households to...