Give with confidence - MoneySense

Give with confidence

The 2012 Charity 100 is designed to help donors make smart giving decisions by providing vital information on how charities spend their money.

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See the 2013 Charity 100 for the latest rankings.
CharityBuilding_322When Kerby Zimmerman was raising money as a participant in a bike ride to fund cancer research, he had nagging doubts about where the money was going. The 44-year-old Calgary telecommunications engineer decided to take part in the ride two years ago as a tribute to his mother, who had recently died from cancer. Zimmerman solicited donations from friends and family and hosted a cupcake sale to raise more than $3,500 for cancer patients and research.

While attending an information session for the bike ride, Zimmerman asked how much of the money raised by the sponsoring organization, Alberta Cancer Foundation, went to the cause. “They didn’t have the information and said they’d have to follow up, so I really didn’t get an answer,” he says. Fellow cyclists told him a big chunk of the money went to the fundraising company contracted to put on the event, and Zimmerman started to worry about how much would be left for cancer research.

After the ride, Zimmerman visited the charity’s website. He tried to calculate some percentages based on the charity’s financial statements, but he wasn’t sure how to read the numbers. The following year, an increasingly skeptical Zimmerman decided not to participate in the ride again. “I couldn’t go back the next year and ask my dad for $500 again because I was worried about how much was going to overhead.”

Many of us find ourselves in a similar position to Kerby Zimmerman. We want to give to charities, and we hold out hope that our dollars can improve the world by eliminating disease, helping the less fortunate and protecting the environment. But we fear that funds are being gobbled up by overhead costs rather than going directly to the charity’s beneficiaries. As Zimmerman discovered, sometimes it’s not easy to find out how charities spend their money. That’s why MoneySense created the Charity 100 as a tool to help donors get some of the key information they need to make smart giving decisions.

Our influential charity rating system, now in its third year, gives letter grades to the 100 biggest charities in Canada, as measured by the amount of money raised directly from the public. Our system is designed to see if charities are meeting generally accepted standards for financial management and governance in the sector, based on information from the charities’ tax filings and a questionnaire sent out by MoneySense. The Charity 100 gives organizations a letter grade in four key categories—program spending efficiency, fundraising costs, governance and reserve fund size—as well as an overall grade.

Four things donors should consider

The first thing the Charity 100 looks at when rating a charity is how much money goes to the cause. Of course, a charity needs to spend some money on overhead—things like insurance, accounting and administration are crucial to any effective organization. But most donors want the bulk of their dollars to be used on the ground doing things like feeding children, saving habitat and researching disease. Organizations get top marks if they spend 85% or more on the cause, and we determine the grades by measuring them against other charities doing similar work. For organizations that don’t run programs directly, such as hospital foundations and the United Way, we give top marks to those that spend 90% or more of their money on transfers to other charities.

This efficiency is a constant preoccupation at Toronto’s Sunnybrook Health Sciences Centre Foundation. “When there’s a proposal to increase staff and expenditures, I want to see the business case,” says CEO Jon Dellandrea. “If it’s a good investment with a future payoff, then it goes to our audit and finance committee, and they will push back with hard questions. There’s a discipline and structure that ensures what we’re doing is cost-effective.”

As a result, more than 75% of the money the organization spends is on transfers to the hospital, an amount that is significantly higher than the average hospital foundation. The result is more dollars for projects like Sunnybrook’s Women & Babies facility, located a short walk from the foundation offices in the adjoining hospital. The gleaming new neonatal intensive care unit houses 48 impossibly small premature and sick babies, wrapped in knitted blankets and nestled inside incubators. Sunnybrook was the first obstetrical hospital in Canada to give the babies and their families individual rooms, which reduces infection as well as stress on the parents.

The second category in the Charity 100 is fundraising costs. Most people don’t want more than a small portion of their money to be used chasing prospective donors through advertising, mail-outs and fancy events. In order to see which organizations raise money efficiently, we calculate how much it costs to raise every $100. Charities get top marks if they spend less than $10 to raise $100, while fundraising organizations that support other charities get the highest scores for spending less than $5. In their own annual reports, charities often exclude expenses involved in running special events and lotteries, but we include them, as we feel these are hard costs that should be accounted for.

Expensive fundraising events are one of the reasons the Alberta Cancer Foundation, the organization that put on the bike ride Kerby Zimmerman participated in, spends a hefty $35.73 to raise $100. Chief development officer Nicholas Locke says the charity’s numbers were affected by a series of high-profile events, such as a Reba McEntire concert, that brought in money but were expensive to put on. He says the charity has since stopped organizing these concerts because of the cost and the financial risk involved. As for the bike ride, Locke says approximately 70% of the money raised by the participants goes to cancer research.

Some charities, such as the Calgary Inter-Faith Food Bank, choose not to host fundraising galas or lotteries. Instead, the food bank encourages individuals and community groups to run their own fundraisers. “The cost to us is negligible, other than providing bags to collect the food, and if the event loses money, we don’t incur the loss,” explains CEO James McAra. As a result of this low-cost model, the food bank’s cost to raise $100 is just $0.49.

Chalice, a Catholic charity that supports children in developing countries, uses a different model to keep fundraising costs to just $3.92 for every $100 raised. The charity sends staff and supporters to speak to congregations, and asks donors to sign up for child sponsorships that require a monthly donation. “We try to avoid one-off fundraising events because they’re very, very expensive,” says chief finance manager Jerome Pauig.

The next thing we look at in the Charity 100 is governance and transparency. We believe that in order for a charity to be a wise steward of your money, it needs to have good governance policies and practices. MoneySense sends a questionnaire to each charity on our list to ask, for example, if the organization measures its programs’ effectiveness, and whether it has a multi-year strategic plan. We follow up with each charity by telephone, and organizations that don’t reply get zero points for the questionnaire portion of this category. This is because we believe charities should share information with the public about how they are run. We’re pleased to say 86 of the 100 charities filled out the survey this year, up from 58 last year.

“Governance is the number one thing for a charity, and it starts with our bylaws and our foundational documents,” says McAra. “We fill out the MoneySense survey because we want to be transparent and accountable, so people can evaluate for themselves if we’re doing what we say we do.”

Charities earn additional points in this category if they have three years of audited financial statements online. We give a bonus point for charities that reveal the salary of their highest-paid employee, information we think donors should have access to.

The final category we look at is reserves, or how much money the charity has in the bank. We believe a charity that can run for years and years without receiving any new money is probably not in dire need of your donation. However, we also feel a prudent organization should have some money on hand for emergencies, so we award top marks for organizations that hold three months to three years of reserves. You can read a complete breakdown of our methodology here.

How to use the Charity 100

Your charitable giving should reflect the causes you feel are most important. Don’t rely on telemarketers or street solicitors to determine what’s truly important to you.

Once you know what area you want to focus on, scan the Charity 100 to see which organizations in that area are meeting charitable sector standards. If an organization is below par, that doesn’t mean that you should tear up your cheque. Look on its website or pick up the phone to ask if there’s more to the story than the numbers reveal.

Give directly to the charity or its foundation, rather than through telemarketers and street canvassers, so less of your money is sucked up by external fundraising companies. And while many big-hearted donors love to support dozens of charities, your dollar will go farther if you write bigger cheques to one or two, as this reduces administrative costs. Once you’ve committed to the charities you feel are worthy, don’t be embarrassed to turn down solicitations from friends and family raising money for causes—tell them you have your own charities that you support regularly.

Remember that effective charities have clear missions as well as tangible proof their work is having results. That’s why we asked each charity to submit a write-up telling you what they achieved last year. You can read the statements by clicking on the individual charity names found on our rankings list.

We hope the Charity 100 gives you more confidence in the charities you support. As a result, you’ll be inspired to give more freely, knowing your money will be well spent to achieve goals that you truly believe in.

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