Three times a year, Kerry Gordan sits in front of her computer with a very specific intention: to donate to charity. For this stay-at-home mom and avid volunteer, this selfless act isn’t just about donating to a cause, it’s about taking a break from her busy schedule to reflect upon the time she had with her mom and dad.
Ten years ago, Kerry got a phone call: her dad had landed in a Calgary emergency room due to esophageal hemorrhaging. A week later, Kerry’s father died from ad- diction-related complications. “After years of abuse his body just gave up,” she says. Yet, despite an estranged relationship, Kerry never stopped loving her father.
“It’s one of the reasons I continue to give to the Calgary Health Trust and the Salvation Army,” explains Kerry from her Kelowna, B.C. home. “I’ve actually seen the work these organizations do and know the difference they make—both to those they help and to the families that are affected by addiction.” Kerry also donates approximately $1,000 each year to the Heart & Stroke Foundation. “My mom died from a sudden and massive heart attack just days after her birthday,” she explains. “My hope is that my donation will help find a cure, and prevent others from having to go through what we went through.”
Kerry’s decision to donate to charities with a personal connection is not uncommon. According to 2013 survey, 70% of donors actually choose a charity because of a personal link to the cause. “People respond to the issues that touch their lives,” explains Dr. Beth Breeze, director of Philanthropy Centre at the U.K.-based University of Kent. “They are motivated to help when a cause speaks to their personal passions and experiences.”
At MoneySense we know that everyone gives to charity for their own reasons, and that picking a cause is a very personal decision. But one thing is common among all donors: They don’t want to see their money wasted. “I have faith that these charities are using a good portion of my donation for the cause,” says Kerry, “but I’m guessing. I have no real way of knowing.”
That’s why we created the Charity 100. Now, in its fifth year, our charity rating system gives a letter grade to the 100 biggest charities in Canada, as measured by the amount of money raised directly from the public. Our examination is designed to determine if charities are meeting generally accepted standards for financial management and governance in their sector, based on information from the charities’ tax filings and a questionnaire sent out by MoneySense. Our aim is not to judge whether or not a charity is important—only you can do that. Instead, we examine whether charities are adhering to best practices in their specific sector. That means you still need to decide what type of charity you want to support, then you can use the Charity 100 to see which organization gets top marks for efficiency, transparency and accountability. Because let’s face it, most donors would prefer their dollars go to lean organizations that concentrate on their cause, rather than bloated institutions that soak up donations to support their own operation.
Once we gather all the data, we analyze it and assign each charity a letter grade in each of four categories—efficiency, fund- raising, governance, and reserve fund size. Finally, we tally up all the scores to arrive at an overall grade. In this way, the MoneySense Charity 100 helps donors get a better idea of how well their money is being used.
PHOTO GALLERY: Canada’s top-rated charities »
In order to measure efficiency, our system looks at how much of your money actually goes to the cause at hand. Of course, every charity needs to spend money on overhead costs—it’s crucial to keep the lights on, buy office supplies and pay salaries—but most donors will want the majority of their dollars to go directly to the cause, whether it’s feed- ing children, finding a cure for a disease, or supporting the environment. Charities get top marks in our ranking if they spend 85% or more of the money donated to them on their cause. For organizations that don’t run programs directly, such as hospital foundations, we give top marks to those that pass along 90% or more of donated money to the charity or institution being supported. Fundraising Costs Another factor we measure is how much it costs each organization to raise money. As a donor, you don’t want to see too much of your money spent on marketing, mail- outs, lotteries and gala events. So we calculate how much it costs each charity to raise $100. A charity that spends less than $10 per $100 raised gets top marks, and fund- raising organizations that raise money for hospitals or other charities get top marks if they spend $5 or less. We should point out that 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, effectiveness and transparency are just as important. So we also look at 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 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 that if charities want the public to support them, they have an obligation to inform us about how they’re run, including salaries they pay to attract top talent. In 2011, only 58 charities responded to our questionnaire. This year 80 out of 100 charities responded. Charities with three years of audited financial statements avail- able online earn additional points in this category, as do organizations that reveal the salary of their highest-paid employee. We feel that a charity with nothing to hide should be open about its finances.
Finally, to assess whether or not a charity is using your donation wisely, we examine its rainy day fund. Prudent planning is an essential component of a well-run organization and this translates into a reserve fund—where bills could be paid from should donations dry up. That said, a reserve fund requires careful planning: too little and they’ll have to shut their doors too quickly; too much and the charity is sitting on cash that could be better spent. In short, if a charity has enough money in its vaults to run its programs for years to come, perhaps it’s not in urgent need of your donation.
Keep in mind: there are good reasons why some charities have larger reserves than others. Some may be saving up for a big project, while others have “donor-directed” dollars that can only be spent on a specific program chosen by the donor. We give top marks to charities that hold three months to three years of reserves.
How to use the Charity 100
While there was a time when donating to a charity felt like an obligation, more and more people view contributing as a chance to give and, hopefully, make a difference. To start, consider the causes you are most passionate about. Then find ways that you can give. For more effective donations, avoid the middle- men, such as street canvassers or telemarketers, as these efforts always translate into more administrative costs. Also, consider a giving plan. This could include 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.
If you find that your chosen charity ranks below par, don’t consider it an indictment of the organization; instead, turn it into an opportunity to proactively ask questions.Remember, it’s your dollars they’re spending, you have a right to ask what they’ll be used for. Just as your mission is to donate to a cause that will have significant, tangible results, our aim with the Charity 100 is to enable you to determine if your dollar is being spent wisely. Our hope is that you will be inspired to give more freely, knowing your money is well spent.