2012 Charity 100 Methodology - MoneySense

2012 Charity 100 Methodology

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2012 Charity 100
MoneySense’s 2012 Charity 100 aims to help donors pick organizations that spend their money wisely. How do we determine which charities spend their money wisely? 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 nine categories to ensure a fair comparison: Animal Services, Culture Arts & Research, Environment, Fundraising Organizations, Health/Health Services, Hospital Foundations, International Aid & Development, Religion and Social Services. 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’ 2008, 2009 and 2010 Canada Revenue Agency T3010 information returns. 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 category 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 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.

GOVERNANCE (MAX 10 POINTS + 1 BONUS)

This category has a maximum score of 25 points, which 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 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 11; one point for answering “yes” or “N/A” to question 12; and one point each for one for answering “no” to questions 13 to 14. If the organization didn’t respond to the questionnaire after several follow up attempts, they received zero.

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. Does your board/board committee formally review the performance of the most senior staff person at least once every year?
3. Is the most senior staff person’s total compensation package approved by the board of directors or a board committee?
4. Are expenses of the senior staff member reviewed by a member of the board?
5. Has the board formally adopted a written code of ethics for directors, staff, and volunteers?
6. Does the organization have an investment policy?
7. Is there a process in place for measuring the effectiveness of the organization’s programs?
8. Is there a conflict of interest policy covering board members and staff?
9. 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?
10. Does the board or board committee review the performance of board chairs, committee chairs and individual directors annually?
11. Does the board or a board committee review the actual revenues and expenses versus the budget at least quarterly?
12. If the organization rents, trades, or shares donor list, does it ensure donors’ requests to be excluded from lists are honoured?
13. Does the organization sell its donor list?
14. Does the organization directly or indirectly pay fundraisers finder’s fees, commissions or percentage compensation based on contributions?

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 three points. They get two additional points for having complete 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 25. We divided it by 2.5 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) Scores were totalled and a normalized for each type of charity, so we would be comparing each charity against similar charities in their category. A corresponding letter grade was then assigned to each.

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