2017 Charity 100: Methodology

How we assign letter grades to top organizations

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by

From the December 2016 issue of the magazine.

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The MoneySense Charity 100 is a simple to use system that will help you see the strengths and weaknesses within each charity. We assign letter grades from A to D in four key areas: program spending efficiency, fundraising costs, governance and reserve fund size. We also assign an overall grade to each charity based on how each charity did across those categories. Although the vast majority of the largest charities in Canada understand the importance of transparency and take the time to respond to our governance survey, some opted not to. As a result, charities that failed to respond to our survey were not given a governance score or an overall grade.

It’s important to note that a low grade in either charity efficiency and fundraising efficiency doesn’t necessarily mean a charity lags in those areas. We encourage you to compare similar charities to each other. If they get similar grades for charity efficiency and fundraising efficiency, then there is a good chance that’s indicative of what it costs to run and fundraise that type of organization. If you want to do a more detailed comparison of charities, our table includes a breakdown of the operating ratio and fundraising costs. If a charity is scores below its peers, that could be a red flag.

For grading purposes, the grading process for fundraising organizations was slightly different from other organization. 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’ 2012, 2013 and 2014 Canada Revenue Agency T3010 information returns, which are 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 charities in Canada that have collected at least $1 million 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 that are generally not thought of as charities, such as churches and universities.

Here’s a more detailed look at how we award grades in each category:

Charity Efficiency

Charity efficiency measures how much money is spent on charitable programs. Put simply: it’s the percentage of funds that go towards the cause. Money spent on charitable programs and money donated to other charities was added up and divided by the total expenses.

Grades were awarded based on these ranges:

Regular charities

• A grades (A+ to A-) were assigned to charities that where 80% or more of their funds went towards the cause.
• B grades (B+ to B-) were assigned to charities that where between 70% and 80% of the funds went towards the cause.
• C grades (C+ to C-) were assigned to charities that where between 60% and 70% of the funds went towards the cause.
• D grades (C+ to C-) were assigned to any charity where less than 60% of the funds went towards the cause.

Fundraising organizations and hospital foundations

• A grades (A+ to A-) were assigned to charities that where 90% or more of their funds went towards the cause.
• B grades (B+ to B-) were assigned to charities that where between 80% and 90% of the funds went towards the cause.
• C grades (C+ to C-) were assigned to charities that where between 70% and 80% of the funds went towards the cause.
• D grades (C+ to C-) were assigned to any charity where less than 70% of the funds went towards the cause.

Fundraising efficiency

Fundraising efficiency tracks how much charities have to spend to raise $100. Fundraising costs are divided by the total of money raised through tax-receipted and non-tax receipted donations and money raised through fundraising. To ensure we’re being fair to organizations that attract considerable funds from outside of Canada we also include the total non tax-receipted revenue from all sources outside Canada. Just bear in mind, some charities have to work harder to attract funds, which drives up their costs; comparing a charity’s scores with other similar organizations should help you determine wither that’s the case.

Regular charities

• A grades (A+ to A-) were assigned to charities that spend $20 or less to raise $100.
• B grades (B+ to B-) were assigned to charities that spend between $20 and $30 to raise $100.
• C grades (C+ to C-) were assigned to charities that spend between $30 and $35 to raise $100.
• D grades (C+ to C-) were assigned to any charity that spend more than $35 to raise $100.

Fundraising organizations and hospital foundations

• A grades (A+ to A-) were assigned to charities that spend $10 or less to raise $100.
• B grades (B+ to B-) were assigned to charities that spend between $10 and $20 to raise $100.
• C grades (C+ to C-) were assigned to charities that spend between $20 and $30 to raise $100.
• D grades (C+ to C-) were assigned to any charity that spend more than $30 to raise $100.

Governance

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 24. Charities were also able to earn one bonus point disclosing the highest paid salary—as a result it is possible for some charities to score more than 100%. In the past we’ve penalized in the questionnaire portion of this category. Since we started this report we’ve been pleased to see a steady improvement in governance, so much so we feel we can raise the bar slightly to hold these organizations to a higher standard. We achieve this by taking away a point for every negative answer. For instance, if a charity reports it shares or trades donor lists, but answered the rest of the questions as expected, it would get a score of 22 out of 24 or 92%, before factoring in any potential bonus mark the organization may be eligible for.

 

Survey score (%) Grade
+90% A+
>85% A
>80% A-
>77% B+
>73% B
>70% B-
>67% C+
>63% C
>60% C-
<60% D

Think how much it costs a charity to produce and mail out fliers and magazines. Lotteries are another common fundraising tool, but most participants don’t realize the charity buys all of the prizes and has to pay to market the draw which takes a considerable amount of work and makes them particularly expensive—all for what in some cases is a very small payoff.

Reserves

We examine each organization to see at how much cash and investable assets the charity has on hand. The result was then expressed in months. Community foundations were not scored for this category, as they hold investments for other charities.

Grades were awarded for the amount of reserves as follows: A for 3 months to 3 years, B points for 1 to 3 months or 3 years to 5 years and D if the charity had less than 1 month or than 5 years of reserves.

Overall Grade

Only charities that responded to our charity survey received an overall grade. To calculate the overall grade we assigned a point for each letter grade they earn. An A+ is worth 10 points, an A is worth 9 points and so on, down to D, which is worth one point. As there are only three possible grades for reserves an A in this category is worth 5 points, a B is worth 3 points and a D is worth 1. This adds up to a total possible points total of 35. This total was converted to a total out of 10 and then assigned a final grade as follows:

 

Point total Grade
10 A+
9 A
8 A-
7 B+
6 B
5 B-
4 C+
3 C
2 C-
1 D

 

2 comments on “2017 Charity 100: Methodology

  1. Your reserves rankings are rather skewed. Giving the exemption only to community foundations is rather odd, as they are not the only public foundation that holds funds for other charities. Your rankings would be more valid if you used apples to apples comparisons and treated like organizations on the same basis

    Reply

  2. There are some pretty big charitable organizations missing from this list. In particular the education sector does not appear to be represented at all. Is this because non of then made the top 100 or these organizations were simply excluded?

    Reply

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