Sorry David: Why audited financial statements still matter in analysing charities.

Kate Bahen

David Common asked today why I rant on about financial transparency and audited statements. It is food for thought. My colleagues tease me about this obsession. Who takes the time to read audited financial statements? And does it really matter? With gaps between headlines and facts, audited financial statements matter.

Audited financial statements are the fine print. Financial statements show a charity’s “ingredients”. Like the current fuss over “ginger” “ale”, while the label says one thing, the list of ingredients shows how much ginger is in the can.

Here's a good example. Donors were likely reassured by news headlines like CBC’s: “89.5 per cent of the $325 million Canadians and governments donated has been spent, says Red Cross.” 

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Canadian Red Cross’s audited financial statement report that $254 million was spent – 78% of total funds received. The difference is in the fine print. Canadian Red Cross reported it had spent and committed $291 million. Charity Intelligence highlighted the twist of “spent and committed” in May 2017.

$291 million vs. $254 million. Is 12% material? Does $37 million matter? That’s a decision a donor needs to personally assess. It matters to me. It likely matters to the people and charities in Fort McMurray. This was why Canadians gave in the first place. And $37 million is a lot of money, especially in the charity sector.

Maybe it also matters to Canadian Red Cross and that is why it headlined with the bigger number. Donors want fast disaster responses. Those affected by disasters also want fast support. Speed matters in disaster responses.

“Another $50 million went to community groups such as shelters and food banks”, CBC reports.  Wrong. In June 2016 Canadian Red Cross promised to share $50 million with Fort McMurray’s local charities and organizations. The audited statements show that in Year 1 Canadian Red Cross shared $8.2 million and, in Year 2, $12.2 million. So far, $20.4 million in support for community groups – only 40% of the promised $50 million.

As to shelters and food banks getting support? Wood Buffalo Food Bank has received three significant grants of more than $1.4 million. In contrast, Fort McMurray’s shelters have received chump change. Canadian Red Cross names the local groups receiving money, not the dollar amounts as United Ways report. 

This is sad. Many of Fort Mac’s local charities are still hurting and struggling after the fire. These local frontline charities needed funding over the last two years, not three years from now. 

CBC goes on to report "Our team is still very busy in Fort McMurray," McManus said. "We are meeting one on one with families and individuals in the community. And what we are seeing is that people's needs are emerging over time.

Total spending on helping individuals and families was $12.2 million over the entire year ending March 2018. From the donor report released earlier, Charity Intelligence reported $30 million was spent and committed to help individuals and families. Again, it turns out that most of this $30 million is commitments for future periods rather than actual cash spent in the last year.

Only spending $12.2 million over Year 2 is unsettling. At the start of Year 2, Dana Woodworth, team leader of Wood Buffalo Recovery Committee said, “We are in for the toughest period of the recovery so far.” Year 2 should have been a year of larger spending.

Canadian Red Cross is seeing and monitoring needs. It has a hard decision. Does it spend now in Year 3 to meet needs, or hold back to meet future emerging needs? Evidence-based research funded by the Gates Foundation shows that meeting needs within the first two years is more effective in getting people back on their feet after a disaster. Left neglected, needs compound into other issues like mental health, domestic abuse, and foreclosure. Does a dollar spent in the first two years have greater impact than a dollar spent in Year 5? Most likely.

Canadian Red Cross has $71.4 million in funds remaining. It has signed contracts and commitments to spend $37.9 million over Year 3 through Year 5. It holds $33.5 million in “uncommitted” funds.

Canadian Red Cross’ audited financial statements show it plans to spend $53.7 million in Year 3. For comparison, it budgeted to spend $55.0 million in Year 2. It missed this estimate by a wide mark, only actually spending $31.3 million. Let’s hope Year 3 gets back on track. 

Journalists are not at fault. Journalists can only go by what the charity reports. The audited financial statements are not posted until months after the disaster anniversary, and without fanfare. It takes time and expertise to crunch the numbers. Charity Intelligence’s analysts focus on financials and charity results. We troll websites. It’s all we do.

If donor reports and the audited financial statements both showed the same numbers, one wouldn’t need to read audited financial statements. Yet when donor reports lack full disclosure or only highlight stories and snippets, the audited financial statements are essential to see the full picture.

Until we get to that glorious age of “reconciliation” with full and frank disclosure, I’ll keep campaigning for financial transparency and audited financial statements. Sorry, David.

Sources:

David Thurton, “Red Cross still helping people in need 2 years after Fort McMurray wildfire: 89.5% of the $325 million Canadians and government donated has been spent, says Red Cross”, CBC Edmonton, May 2, 2018 

Canadian Red Cross – Alberta Fires Fund Audited Financial Statements March 2018 

Canadian Red Cross, 2016 Alberta Fires Two Year Donor Update, 

Food bank again, not shelters - List of Fort McMurray local organizations supported in Year 2

Dana Woodworth’s comments reported by Cullen Bird, “Spring rebuild will be tough, Recovery Committee told”, Fort McMurray Today, April 5, 2017 

Canadian Red Cross 2018 audited financial statements, Financial Note 8: Deferred contributions for Alberta fires fund. In accounting, “current” is distinct from “long-term”. Current refers to the next 12 months from the balance sheet date. CRC’s balance sheet date is March 31.

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More background from Charity Intelligence

Not so fast: Fort McMurray recovery (May 2017)

2 year update on Fort McMurray recovery (May 2018)

Canadian Red Cross promises $40 million to Fort Mac local charities (June 2016)