The headquarters for the Children’s Wish Foundation is located on the top floor in an unremarkable plaza just outside Toronto. It employs 90 full-time workers, which is fairly large in the charitable giving sector, yet its total compensation costs are well below charities of similar size. This charity is built to deliver lifetime memories for kids suffering from life-threatening illnesses, but their base of operations is completely forgettable. To the average donor that’s not such a bad thing—donors want their charity of choice to be frugal. The less a charity spends on itself, the more there is for the cause—or so goes the logic.
Still, here at MoneySense we give the Children’s Wish Foundation a ‘D’ for its efficiency and fundraising in our sixth annual Charity 100, where we grade the largest charitable organizations in Canada based on how much money they raise from the public. Why a ‘D’? And where is the money going? Before we go on, it’s important to note this is not meant to draw undue attention to the Children’s Wish Foundation; these are questions that should be asked of every charity on our list—regardless of their grade.
We ask questions because we, like donors, want one thing—assurances that our money isn’t wasted. That’s where the MoneySense Charity 100 comes in. Our ratings are designed to determine if charities are meeting generally accepted standards for financial management in their sector, based on information from the charities’ tax filings. Each organization also fills in a detailed questionnaire to ensure their governance practices adhere to the highest standards.
With respect to the Children’s Wish Foundation, every $100 the foundation raises through fundraising costs them $36. So more than a third of your donation is spent before the rest goes to the cause. We want to see costs below $10. Add in administration costs and only 54% of the money left goes towards granting wishes for needy kids.
So where’s the money going? That’s where things get complicated. An organization that earns a low score in our report for overall efficiency doesn’t necessarily mean it is squandering donations—and there’s certainly no reason to suspect that of the Children’s Wish Foundation, which earns a ‘B’ overall. Despite receiving some low scores Chris Kotsopoulos, who heads up the charity, feels these grades serve a purpose. “There are organizations that need to be held accountable and the scores are one way to ensure that the public is aware of that,” he says. Of course, his organization is always looking to do better, which is why it’s taking a hard look at its lottery— which costs $2.2 million to run but only nets $163,000 after expenses—to decide if it’s worth the effort. But sometimes hands get tied. “Organizations are at different stages and don’t always have the ability to use certain revenue streams that are very low-cost,” he explains.
There’s the rub. Charities are competing for dollars just like everyone else. And it’s getting more challenging as economic fears mount and the number of volunteers drops. For some, fundraising is easy. People give willingly and frequently because they feel a personal connection with the organization’s mandate or as part of a sudden outpouring of support in the wake of some calamity, as they did following last year’s Ebola outbreak. Then there are organizations like the Children’s Wish Foundation, which has to work harder to attract those coveted donation dollars. For these organizations, lotteries and events may be the only way to attract more money. This drives up fundraising costs and drives down scores.
Of course, everyone agrees these organizations are doing important work, but at times charities have to choose between getting some incremental donor dollars, perhaps by running an expensive event, versus not being able to help someone or some community in need. For the Children’s Wish Foundation, it could mean the difference between granting a child’s wish, which can run upwards of $10,000, or saying “No.” “Demand for wishes is growing and we are trying to find that balance between what’s the most efficient and effective way to bring that dollar into the organization that is respectful of the donor and what they’d like to see,” explains Kotsopoulos.
These difficult decisions impact a charity’s grade, but if it has good governance practices in place it should still end up with a solid overall grade. Our final grade considers four main categories: charity efficiency, fundraising costs, governance, and cash reserves. We encourage you to focus on the overall grade and use the other categories to direct your questions. To help even more, for the first time we’re also flagging charities that have been given top marks by Charity Intelligence Canada for their ability to deliver on their mandate. The non-profit group provides independent analysis of the charitable giving sector and has developed a methodology to track what it calls social results reporting, which gauges how charities use donations, the impact of their work and how well they report this information back to donors. This will help you spot the organizations that may have high costs, but are squeezing the most out of every dollar for the greatest impact. Online, we also tell you how charities measure their impact and how well they did against those measures.
Charity Efficiency
Charity efficiency is how much of your money goes towards supporting the organization’s mission. The truth is that running these organizations costs money. Some employ a huge staff and manage hundreds of millions of dollars. Paying and retaining top talent is just as important as it is in any business. Plus there’s no avoiding the overhead costs required to buy office supplies, pay salaries and keep the lights on. But there are limits; the lower these costs are, the better. For organizations that don’t run programs directly, such as hospital foundations, we award top marks to those that pass along 90% or more of donated money to the charity or institution being supported.
Fundraising Costs
While salaries and overhead costs add up, fundraising can be an even bigger expense. Galas, direct mailouts and lotteries are popular fundraising vehicles, but they come with significant operating expenses. We calculate how much it costs each charity to raise $100. Ideally, we want to see charities spending less than $10 per $100 raised, while fundraising organizations that raise money for hospitals or other charities only get top marks if they spend $5 or less. Still, the majority of charities tend to exclude costs associated with special events and lotteries in their annual reports, but we’ve added those hard costs back in.
Governance & Transparency
While efficiency is essential, charities need a strong governance in place to ensure donors’ money is being spent wisely. To do this we start by looking to see whether each charity adheres to standard non-profit governance models and whether it lets donors know exactly how their money is being used. We send out a detailed questionnaire every year that asks a number of policy questions, including whether or not they have bylaws or multi-year strategic plans. We then follow up with each charity. Organizations that don’t reply at all are penalized in the questionnaire portion of this category. Our reasoning is simple: if charities want public support, they have an obligation to inform us about how they’re run. In 2011, a little over half of charities responded to our questionnaire. This year more than 80 out of 100 charities responded.
Cash Reserves
Everyone needs to plan for a rainy day and charities are no different. Well-run organization need a reserve fund to ensure bills can be paid should donations dry up. That requires a delicate balance: save too little and they’ll have to shut their doors too quickly; save too much and the charity is sitting on cash that could be better spent. If a charity has enough money squirreled away to run its programs for years to come, perhaps it’s not in urgent need of your donation. We give top marks to charities that hold three months to three years of reserves.
How to use the Charity 100
Giving is a personal decision and far be it from us to tell you where to donate your money. But don’t make it an afterthought. Giving is much like investing except that the payoff is measured in social benefit rather than as a financial one. And you still need to do your due diligence. Start by identifying the causes you are passionate about. To ensure your dollars go far, give directly to the charity rather than through street canvassers or lotteries that drive up administration costs. And be sure to develop a giving plan. This may mean writing bigger cheques to fewer charities, making annual donations, or politely declining requests from well-meaning friends or co-workers. Once you know what cause you want to support, scan our Charity 100 list to see which organizations meet or beat their sector standards.
Understanding how a charity performs is important, says Bruce MacDonald, president and CEO of Imagine Canada, a non-profit organization that helps charities engage individuals and communities, but viewing it solely that way will leave you with an incomplete picture. We agree. If your chosen charity ranks below par, don’t consider it an indictment of the organization; instead, view it as an opportunity to proactively ask questions. If you’re happy with the answers you may want to support them even more. The Charity 100 should be a companion to aide your giving decisions and help you understand if your dollars are being spent wisely. Imagine Canada says real impact requires real investment. Just make sure you take the time to pick the right one.
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Source: http://www.moneysense.ca/
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