Donors must independently figure out if a charity actually needs the money it is asking for. Charity Intelligence's reports may help. This year, intelligent giving matters more than ever.
As featured in Calgary Herald
Nearly 20 years ago, Harvard Business Review published a startling finding. Some charities fundraise because they can, not because they need money. One would hope that charities would only fundraise when they need money. One would hope, especially now with an economic recession coupled with a global pandemic, campaigns to raise excessive funds would halt. Sadly, no.
Fundraising campaigns that bring in more money than needed create surpluses. These surpluses accumulate funding reserves. Charities need these reserves as a buffer against unexpected costs or market fluctuations. Yet today donors need to look extra hard at the appropriate amount of these funding reserves.
Here is one recent example, one of many: a moderately-sized Calgary charity has enough cash to run its charity programs for seven years. Seven years. It has enough money to operate at current levels for seven years without raising another penny. Yet now it is launching a new campaign to raise even more money.
I asked this charity’s management team “How much is enough? Is there a threshold when it will stop fundraising since it does not need money? Is 10 years of program coverage enough? Or 15 years?”
The answer was giggles. Perhaps nervous laughter. But going after scarce donations it does not need is not a joke.
It is also offside of regulatory guidelines. The Charities Directorate’s guidance against excessive fundraising states that “when a charity has sufficient income for its uses or needs, the need for new fundraising may be questionable.” Yet these are just guidelines without enforcement.
Maybe charity directors should consider the greater community needs before approving a new fundraising campaign? Many frontline charities are facing an unprecedented surge in demand, yet with small reserves to sustain their operations. Are charities that fundraise while holding large surpluses considering these sector-wide needs? Apparently not.
Without checks and balances, donors must independently figure out if a charity actually needs the money it is asking for.
Charity Intelligence’s reports may help. Every report on a charity has a financial review section that shows three numbers for the recent years: 1. a charity’s funding reserves, 2. its spending on charity programs and, 3. the percent that funding reserves cover annual program spending – the program coverage ratio. During COVID, Charity Intelligence recommends donors support charities with less than 150% coverage - that’s 1.5 years of funding.
Typically, donors hyper-focus on a charity’s cents to the cause - how much of every donation goes to charity programs after fundraising costs and administrative overhead. In these dire times donors need to pivot and also review a charity’s balance sheet. Donors need to ask how much money a charity already has in reserves to assess the real value of their donation.
This year, philanthropic giving matters more than ever. Imagine Canada estimates individual giving will decline by between $4.2 billion and $6.3 billion, a 25%-36% drop. Funding reserves are nice to have for unforeseen circumstances and rainy days. But well-off charities should now tap their reserves, rather than asking for more. And donors should consider whether their gifts will idle in investment accounts, or go to those most in need.
More Ci articles about excessive fundraising:
Like toilet paper hoarders, some charities are fundraising despite having years of funding reserves to weather the coronavirus pandemic, March 24, 2020
Charity Intelligence’s reports on 64 of Calgary’s largest donor-supported charities
Comments added: Anne B:
" This is an interesting perspective. From what I've read previously, for example, campaigns for breast cancer research inspire a lot of passion, but the monies are awaiting new initiatives. So in spite of the significant degree of funding, little has changed in breast cancer treatment that isn't largely attributable to earlier detection.
Food banks, not-for-profit addiction treatment, domestic violence/shelters, and the many agencies funded by the United Way regularly struggle to help everyone who needs it. It's worth checking out Charity Intelligence to learn if you should be choosing other charities for your giving if you're genuinely interested in making a difference. "
Frank Johnston, Partner, Impact8 Inc. :
"The response among colleagues to the Op-Ed by Kate Bahen from Charity Intelligence ranged from deep disappointment to anger. She suggests “many” charities are fundraising despite having substantial reserves. She relies on narrowly defined financials to make her claim.
By contrast, the people I polled have the lived experience of being board directors, staff and advisors. They tell me the incidence of charities carrying surplus reserves is a rare thing.
While a reserve may look large, there are good reasons why this may be so: it could be intended for a major capital project, to establish an endowment, or is the consequence of generous bequests. Bahen also recommends that the reserve not exceed 18 months of an operating budget, a reasonable rule of thumb during normal times. But with future funding iffy at best, a charity could easily require more than two years to replace lost grants and donations.
Charities understand that they need to be excellent stewards of donor gifts. And, yes, donors need to do their diligence. The financials tell only a small part of the bigger story. Donors should get to know the organization, learn how it operates, and what it accomplishes."
Additional comment: The deep disappointment and anger among charity directors and advisors is welcomed. Frank Johnston's raises an additional point. I wrote "many charities" and Frank Johnston's survey finds this example of large funding reserves "rare".
Charity Intelligence has data on 804 charities that include the largest charities supported by donors. These 804 charities account for 57% of annual Canadian giving.
In our data set, 131 charities have more than 3 years of funding reserves, or 16%. In our data set, 70 charities have more than 5 years of funding reserves. This is 9%.
Is 9% rare? Is 70 charities "many"? I hope we can split the difference: many, but not most charities.
I appreciate that the audited financial statements are narrow, with specific information. The financials only tell a small part of the bigger story. Yet audited financial statements accurately tell donors if a charity needs money or not. If you want your giving to support charities that need money, the 72% of charities with less than 1.5 years of funding, you can listen to stories or you can use financial facts. It's always your choice.
In a crisis like COVID, I hope all give greater consideration as to whether this is the most appropriate time to build endowments.
1. Bill Bradley, Paul Jansen, Les Silverman “The Nonprofit Sector’s $100 Billion Opportunity”, Harvard Business Review, May 2003
2. Charities Directorate Guidance on fundraising by registered charities CG-013 Issued April 20, 2012 Section F When fundraising is not acceptable? 63. Fundraising without an identifiable use or need for the proceeds. Accessed August 27, 2020
3. Steven Ayer, David Lasby, Brian Emmett “Forecasted economic impacts of coronavirus on the charitable sector in 2020”, Imagine Canada, March 24, 2020