2015 Charity 100: Methodology

How we assign letter grades to organizations

  1

by

Online only.

  1

We’ve developed a rating system that gives letter grades to the 100 biggest charities in Canada. Charities are scored in four key areas (program spending efficiency, fundraising costs, governance and reserve fund size) before being assigned an overall letter grade relative to their peers.

Charities were divided into eight categories to ensure a fair comparison: Environment, Fundraising Organizations, Health/Health Services, Hospital Foundations, International Aid & Development, Religion, Social Services and Other. Fundraising organizations were defined as organizations that spent more than 60% of their expenses on donations to other charities or that spent less than 10% on programs.

The financial data comes from the charities’ 2010, 2011 and 2012 Canada Revenue Agency T3010 information returns—the most recent years where a complete dataset is available. Charities with fewer than three years of tax filings were excluded. The charities on our list are the biggest charities in Canada in terms of tax-receipted donations and non-tax receipted money received through fundraising. Revenue refers to donations and fundraising dollars. We excluded gifts in kind when sorting the list. We also excluded some organizations not generally thought of as charities, such as churches and universities.

Here’s the point breakdown for each of the four areas assessed:

  • Maximum of 10 points for overall charity efficiency
  • Maximum of 10 points for fundraising efficiency
  • Maximum of 10 points for governance plus 1 bonus point for salary disclosure
  • Maximum of 5 points for reserves for all charities other than community foundations

Each charity’s total out of a maximum of 35 + the bonus point (30 + bonus point for community foundations) was converted to a percentage out of 100. These percentages were then normalized by type of charity to the total charity population, meaning charities’ final letter grades were dependent on the performance of charities in their category.

Charity Efficiency (max 10 points)

1) Money spent on charitable programs and money donated to other charities was added up and divided by the total expenses.

2) Then points were awarded based on these ranges:

Regular charities

10 points for 85%-100%, 7.5 points for 75%-85%, 5 points for 65%-75%, 2.5 points for 60%-65%, 0 points for less than 60%

Fundraising organizations and hospital foundations

10 points for 90%-100%, 7.5 points for 80%-90%, 5 points for 75-80%, 2.5 points for 70%-75%, 0 points for less than 70%

3) Scores were totalled and a normalized for each type of charity, so we would be comparing each charity against other charities in this category. A corresponding letter grade was then assigned to each.

Fundraising efficiency (max 10 points)

1) Fundraising costs were divided by the total of money raised through tax-receipted and non-tax receipted donations and money raised through fundraising.

2) Then points were awarded based on these ranges:

Regular charities

10 points for $0 to $10; 7.5 points for $10-$20, 5 points for $20-$30, 2.5 points for $30-$35, zero points for more than $35

Fundraising organizations and hospital foundations

10 points for $0-$5, 7.5 points for $5-$10, 5 points for $10-$20, 2.5 points for $20-$30, 0 points for more than $30

3) Scores were totalled and corresponding letter grade was then assigned to each.

Governance (Max 10 points + 1 bonus)

This category relied on a detailed questionnaire that is sent out to each organization on our list. The total governance score is marked out of 27. This score is reduced to an overall weighting of 10 points. At that point, one bonus point is possible for disclosing the highest paid salary.

1) Twenty-two of the points in this category are awarded based on a governance questionnaire that we sent out to all 100 charities. A charity got one point for answering “yes” to questions 1 to 3, 5 to 8, 13 to 14, 18 and 21; one point for answering “no” to questions 9, 15, 19 and 22. One point was also deducted from the score if an organization answered “no” to question 20. If an organization did respond to our questionnaire, but has in the past, then organization was graded using the previous year’s survey (although points were deducted from their transparency score. Charities new to the list this year don’t provide audited financial statements online and failed to respond to the questionnaire after several follow up attempts received a score of zero. Organizations that failed to fill in a survey, but provided audited financial statements were awarded a grade of C.

Here are the questions:

1. Does your board of directors or a board committee approve the following:

A the annual operating budget

B audited financial statements

C fundraising policies

D governance policies

E a formal process to identify the organization’s major strategic and operational risks

F a formal, multi-year strategic plan

G Canada Revenue Agency filings

2. Is the most senior staff person’s total compensation package approved by the board of directors or a board committee?

3.  Are the expenses of the senior staff member reviewed by a member of the board?

4. What was the total compensation (salary, bonuses and benefits) of the highest paid person at the organization during 2013? $_____________

5. Does the board or board committee review the performance of board chairs, committee chairs and individual directors annually?

6. Has the board formally adopted a written code of ethics for directors, staff, and volunteers?

7. Is there a conflict of interest policy covering board members and staff?

8. Is there a formal process to orient new board members to ensure they understand their legal and fiduciary responsibilities and are fully informed on the organization’s finances?

9. Are board members paid (directly or indirectly) for their services to the organization in their capacity as directors?

10. Does your organization set term limits for its independent board members:

11. If the answer to question 10 (above) was YES, please tell us what the term limit is for independent board members: _______________

12. How long has the longest serving independent board member been part of the board: _______________

13 .Does your organization have an investment policy?

14. Does the board regularly review the cost-effectiveness of the organization’s fundraising programs to ensure no more money will be spent on administration or fundraising than required?

15. Does your organization use third party fundraising groups, like street canvassers?

16. Does your charity run a lottery?

17. If the answer to question 16 (above) was YES, how much did they get in fundraising revenue from the activity (most recent year): _______________

18. Does the board or a board committee review the actual revenues and expenses versus

the budget at least quarterly?

19. Does the organization rent, trade, share or sell donor lists?

20. If the answer to question 19 (above) was YES, does the charity ensure donors’ requests to be excluded from lists are honoured?

21. Does your organization have a system in place to inform donors if you are unable to spend their money on what the donor originally intended?

22. Does the organization directly or indirectly pay fundraisers finder’s fees, commissions or percentage compensation based on contributions?

23. Does the organization have a significant amount of money in reserve that you could access for operational purposes that is not included in line 4100, 4130 or 4140 of your  2012 CRA T3010 Return? If so please list the amount in the space provided. We may include this amount in your organization’s reserve calculations upon verification of your financial statements.

$______________

24. In  2012, did you accumulate a significant amount of money through fundraising that is earmarked for a future capital project?

25. If the answer to question 24 (above) was YES, please give the name of the project and the amount of money raised for it in 2012: _____________________$______________

26. Has the organization changed its fiscal year in the past four years?

27. Are all of the filings with the Canada Revenue Agency up-to-date and accurate for fiscal years 2010, 2011 and 2012?

28. Does your organization make at least three years of audited financial statements available online?

29. If the answer to question 28 (above) was YES then please provide us with a link where we can access this information:

2) The other five points in this category were given for transparency. Charities that had complete audited financial statements on their website for their most recent financial year were given two points.  They get three additional points for having audited financial statements for the two previous years available online. If they had no financial statements on their site, they got zero.

This resulted in a score out of 27. We divided it by 2.7 to get a score out of 10. At that point, charities received a bonus point (one full point on top of the possible score of 10 out of 10) for disclosing the exact salary of the highest paid staff member.

Reserves (max 5 points)

1) We looked at how much cash and investable assets the charity had for this category. The result was then expressed in years and months. Community foundations were not scored for this category, as they hold investments for other charities.

2) Points were awarded for the amount of reserves as follows:

0 points for less than one month in reserve, 2.5 points for 1-3 months, 5 points for 3 months to 3 years, 2.5 points for 3 years to 5 years, 0 points for more than 5 years

3) A corresponding letter grade was then assigned to each.

One comment on “2015 Charity 100: Methodology

  1. Thank you for doing this. Particularly for presenting the methodology clearly.

    Reply

Leave a comment

Your email address will not be published. Required fields are marked *