There’s been a ton of local coverage of the Scripps Howard study of IRS-reported (or not!) fundraising expenses by large US nonprofits. None of it flattering to the fundraising ‘industry’.
Scripps Howard looked at the most recent IRS Form 990′s for the nearly 38,000 nonprofits and charities that raise at least $1 million per year, and found that 41% of them told the government they raised their funds at no cost.
So much for transparency in the charity sector!
Sure, there are some extenuating circumstances. For example, I happened to stumble across the story as it was told on WPTV in West Palm Beach, FL (online, of course, I’m not allowed vacations). They examined the 990′s of the inter-related Martin Memorial Medical Center, which had no fundraising expenses, but received $3.1 million in ‘contributions and grants’, and the Martin Memorial Foundation, which appears to have spent $1.2 million on fundraising to raise $5.6 million in ‘contributions and grants’, of which $2.8 million was given away (presumably to the Medical Center).
So the Center shows up on the Scripps Howard list of non-reporters of fundraising expense, but that doesn’t tell the full story. Obviously the Foundation is the legally distinct fundraising arm of the Center. Nothing seems terribly ‘wrong’ about that … it’s just a mite confusing to the average donor (who in this case might wonder anyway what happened to the other $2.8 million in contributions that didn’t get given away!).
But such detail won’t be apparent to the average would-be donor around the country, whose takeaway is likely to be quite simple … “Sure are a lot of deceptive charities out there … four out of ten to be exact. It’s not coming out of my wallet!”
Here’s the link to the Scripps Howard study.
Tom
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At this year’s AFP, the founder of charity:water spoke about how they have segmented their business so that 100% of donated dollars go directly to program. Does Nike tell the public that they dollars are segmented so that 100% goes to make shoes? We don’t question their salaries, their overhead – we choose to buy their shoes or not.
Nonprofits must start thinking the same way.
The definition of insanity is doing the same thing and expecting a different outcome.
The nonprofits in this county do incredible work and deserve to be paid for what they do.
Just as challenging: this may lead donors to think that large, successful non-profits can indeed raise money at no cost. If they can, why can’t you?
In general, the non-profit community has deliberately mislead donors about fund raising and marketing costs, and it is now suffering the consequences.
Non-profits have touted low fund raising costs to give donors’ the impression that most of a donor’s contributions goes to the cause. It rarely, if ever, does except for contributions made to small, local, all volunteer non-profits. There has even been an “arms race” of sorts among the large, professional non-profits where one group claims 15% goes to fund raising while a competitor counters with 12% or even 0%. These claims are made using accounting practices, as suggested in a previous post, that would make a Hollywood feature film studio blush. An example is groups that use interest from large endowment funds (which were built on previous donors’ contributions) to pay for fund raising so that a newly acquired donor’s contribution does, indeed, go to the cause. As I say, this is “creative” accounting. The fact is the contributions made by donors to the endowment did not go to the “cause”, as most likely thought would happen, but rather to fund raising.
The lack of understanding that most donors have about non-profit finance is a consequence of the practices and deceptive marketing strategies of the non-profit community itself. It has only itself to blame if donors irrationally demand that less and less money goes to the very “life blood” of non-profits: fund raising and supporter acquisition.
Regards,
S.
P.S. I wonder how often the curse of the charitable sector, foundations, have made large, meaningful, long term grants to small, effective charities (or better still non-profits) so that they can build their membership numbers and become more effective?
Stephen, I think you may unwittingly perpetuate part of that problem when you separate “the cause” from fundraising.
Donors give to further the cause. Making people aware of the cause, making it possible for them to join – that’s all part of fundraising, and except in some rare instances, necessary. It shouldn’t be looked at as taking money from the cause, any more than paying the salaries of program people is. Unless you’re advocating a totally volunteer led sector (and even there, there are costs), money will be spent on salaries, offices, etc.
Adding to the complexity…if anyone ever did a comparative study, small nonprofits would look even more awful to anyone who thinks it’s inherently better to spend less on fundraising.
I think at a small group you really may be more likely to spend more (as a percentage of the whole) on fundraising than a really big organization – and then you add onto that the potential to not be as sophisticated (or deceptive) in accounting and it would appear there’s a huge gap between spending at small and large groups.
But the unique value a donor gets from participating with a community based organization or other small group that is really on the pulse of its issue is unparalleled.
As was noted, the challenge is to educate our members to these facts. I think most of the folks who already give to my organization understand some of this reality.
I got into a debate about this very issue with my mom and stepdad the other year, with my mom believing that in a some organizations there may be a legitimate reason for fundraising costs to be higher as a percentage as compared to other groups…and she felt, if they are really doing what they say and what you want to support, then that’s all you need to know. My stepdad felt a percentage is a fair measure. He has been totally sold on the idea that more than X% on fundraising means the group is wasting money…no ifs ands or buts.
I hope his idea will become passe someday.
Did you all see Dan Pallotta’s sartorial take on the subject? http://shop.danpallotta.com/products/im-overhead-shirt-1