Which charities use your money most efficiently?

We created Canada’s first charity rating system to find out

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Roberta Langtry was a generous donor, but she could be difficult. The retired teacher had a habit of calling up the staff at the Nature Conservancy of Canada, an environmental charity that purchases land to preserve it, with a laundry list of complaints.

“Why are you sending me a mailout on glossy paper?” she asked staffer Helen Kim in her no-nonsense school teacher voice during a phone call in the late 1990s. “It’s a waste of money. You should send it out on recycled stock, or better yet, don’t send it at all.” When the charity made the mistake of sending Langtry a coffee table book to thank her for donations totalling several thousand dollars a year, she phoned again. “I’m a pensioner and I live very frugally,” she said. “I spend 40% of the money that comes back to me on the charities I support and I would prefer that all the money go towards securing land.”

Kim made sure the requests were followed up on, and over time, she even developed a warm relationship with Langtry. So she was saddened when she took a call in the summer of 2005 and Langtry reported in her matter-of-fact manner that she was suffering from liver cancer, and felt her “time was coming soon.”

A few months later Kim received a call from the executor of Langtry’s estate. He told her that Langtry, who never married, drove an aging Volvo and lived in a one-storey home in East Toronto, had secretly amassed a fortune, thanks in part to some savvy stock bets. She had left the charity the largest donation in its history: $4.3 million. “I never guessed that she had that kind of money,” says Kim. “It was a shock.”

A large chunk of Langtry’s donation went to purchase land in the Happy Valley Forest, a ecologically significant site in the Oak Ridges Moraine region near Newmarket, Ont., home to the red-shouldered hawk and several species of salamander. The forest is one of 75 sites that the Nature Conservancy protects across the country, totalling two million acres of land.

Langtry’s legacy lives on, and at the Nature Conservancy’s headquarters in Toronto, staff haven’t forgotten her dogged insistence that donated money is not to be wasted. To this day, they make do with donated furniture and second-hand computers. Staff get multiple quotes on substantial purchases to make sure they’re getting the best price, and expenses are scrutinized by upper management. All in all, it spends just $11 out of every $100 in expenses on overhead, which is one of the reasons it received an ‘A’ grade on MoneySense’s 2011 Charity 100 rating of the 100 largest charities in Canada.

MoneySense created the Charity 100 rating system last year for donors like Langtry, who fear that their money isn’t always spent the way it’s supposed to be. No one likes feeling that their money is being squandered on lush offices, expensive fundraising dinners or frittered away due to poor management. When you donate money, you want it to be used directly to help the cause at hand, whether it’s conserving land for future generations, finding a cure for cancer, helping children in developing countries or providing disaster relief to the victims of an earthquake.

As Carl Harvey, a MoneySense subscriber, frequent donor, and retired accountant from Peterborough, Ont., told us: “I worry that the money does not get through to the people who need it. The money gets hung up on salaries and other administrative costs. I realize that it costs some money to run these organizations, but it shouldn’t be the majority of the funds.”

To help donors get a better idea for how efficiently charities use their money, we set up a sophisticated rating system that grades charities on how they perform in four different categories: program spending efficiency, fundraising costs, governance and reserve fund size. We scour each charity’s annual tax filings for clues as to how efficiently the charity is run, and we personally contact each and every charity on the list and ask them to fill out a detailed questionnaire designed to measure how well they are governed. Once we’ve gathered all the data, we analyze it and assign each charity a letter grade in the four categories, based purely on the numbers. Then we tally up their scores to arrive at an overall letter grade, just like you get on your report card in school.

How much goes to the cause?
The first factor we measure to arrive at our overall grade is the percentage of your donation that goes to completing the charitable work, versus the amount spent on overhead. We recognize that healthy organizations need to invest in things such as equipment and staff training, so it’s important that a certain percentage of a charity’s spending goes toward administration. But we felt that if a charity was spending far more on overhead than other charities in its category, that raises a red flag.

For instance, in the health charity category, most charities spend between 60% and 90% of their money on programs, but as you can see in our rating chart there are a few charities in that sector that spend only 40% to 50% on programs. Because their spending on programs is significantly lower than other charities, we gave them a low grade in that category.

In general, we believe that a highly efficient charity should be spending just 15% on overhead, so we give our best score to charities that spend 85% or more on programs. For organizations that don’t run programs directly, for example, hospital foundations and fundraising organizations, we measure them based on how much money they give to their recipient charities. We give top marks for fundraising organizations that flow 90% or more of their expenditures to other charities, leaving just 10% for overhead.

How efficient is the fundraising?
The second thing we look at is the cost of fundraising. This is a sore point for donor Carl Harvey, who worries that some of the money he gives to more than 20 charities each year is spent on the mailings they keep sending him. “I have a stack of letters from the charities that’s four inches high,” he says. “They’ve barely cashed my cheque and they’re writing me for more money.”

In order to get a picture of which organizations are raising money the most efficiently, we calculate how much it costs each charity to raise every $100. For example, United Way of Greater Toronto spends just $8.98 to raise every $100 for its member social service agencies. Julia Gorman, the vice-president of resource development, says keeping fundraising costs low is engrained in the organization’s culture. For instance, rather than holding flashy galas, the United Way tends to lead corporate fundraising drives. That way, the corporations raising the money absorb much of the cost of raising it. “Everything we do is done to maximize the amount of money we can get out to our member agencies,” Gorman says.

A charity that operates programs gets top marks for spending less than $10 to raise $100, while fundraising organizations that support outside programs, like the United Way, get the most points for spending less than $5 to raise $100. Charities that spend much more than the norm to raise each $100 get a lower grade. While many charities don’t include the costs involved in running lotteries in the fundraising ratios in their annual reports, we do include them, as we feel that these are hard costs that are spent acquiring funds.

Is the charity professionally run?
The third factor we look at is governance. The majority of the points in this category are based on a survey that MoneySense sends to the charities. It’s based on the Better Business Bureau’s Standards for Charity Accountability and Imagine Canada’s Standards for Charities and Nonprofits, and it includes questions about such things as whether an organization has a multi-year plan and a formal code of ethics.

We follow up with each charity by telephone, and organizations that don’t respond at all get zero points for the survey, as we feel charities should be accountable to requests for information, especially when they are made on behalf of their donors. We also give points to organizations that post their complete audited financial statements on their websites, as we believe that charities should not be hiding their finances from public view.

For example, World Vision, which assists children living in poverty in developing countries, did well in the governance category, receiving a score of 10.6 out of 10 (we give one bonus point to organizations that disclose the CEO’s exact salary). The charity got a high score on our governance survey and received points for posting its financial statements online. “We disclose our CEO’s salary and post our financial statements because we want to send a message of accountability to our donors and constituents,” says Caroline Riseboro, World Vision’s vice-president of public affairs. “Our donors expect us to be good stewards with their donations, so we want to show them our commitment to transparency.”

Do they really need your money?
The final thing MoneySense looks at is a charity’s reserve fund, meaning how much the charity has in the bank. We believe that a healthy organization should have some money set aside for a rainy day, but if it has many years of income sitting in a slush fund, it may not be in dire need of additional donations. In some cases, there may be legal restrictions on how this banked money is used—for instance, the charity may not be able to spend the principal, but must invest it and spend only the returns on that investment. However, we still felt that if a charity has enough sitting in the vaults to fund its projected activities for years, it may be in less urgent need of new donations than a charity which only has enough to pay for a few months’ worth of costs. In this category we gave full points to charities that have between three months and three years of reserves on hand.

The response: criticism and praise
When we produced Canada’s first comprehensive charity rating system last year we expected a response, but we were surprised by the steady stream of questions, praise and criticism that came in throughout the year. Charities that received high grades called us requesting reprints to give to donors and mentioned their ratings in annual reports and career postings. Journalists from other media outlets phoned asking for assistance with their own stories, and charities that were too small to make it on our list asked for help in crunching their own program and fundraising costs. Several organizations told us they decided to post their financial statements online in response to our story.

However, we also found that many within the charitable sector had concerns. “In terms of pushing the sector towards more accountability and transparency, I think the Charity 100 is good, but I’m not sure if the focus on program costs is going to drive the right behaviour in the sector,” says Rosemary McCarney, CEO of Plan Canada, a charity that supports children in developing countries. “There’s an idea out there that a charity is good if it spends only 20% on administration and fundraising and 80% on program costs, and if you’re out of that approximate range, somehow you’re bad or inefficient. I don’t think that’s necessarily true.”

She points out that organizations in certain parts of the sector may have legitimate reasons for spending more on administration, such as higher labour costs. McCarney also says our system penalizes charities that want to invest in things such as IT systems or staff training, which may push up administrative costs.

Dan Pallotta, a well-known former professional fundraiser in Boston, has a harsher view of our rating system. “It’s a deeply flawed way of rating charities, because nowhere in there is there any objective measure of the actual impact they’re having, which is the only reason they should exist in the first place,” says Pallotta, whose book Uncharitable argued that non-profits are hindered in solving important social problems by limits on salaries and fundraising expenses. “If you’re unable to enquire into the most important thing, then I don’t think people should be publishing ratings, frankly.”

Pallotta also takes issue with the idea that there’s something wrong with high fundraising costs, arguing that the main competition is consumer spending. “If a charity spends 90 cents to raise a dollar and 10 cents goes to the cause, that’s better than if that 10 cents went to popcorn and a movie.”

Improving the Charity 100
We listened carefully to all of the feedback we received, and if we thought a suggestion was worthwhile, we implemented it.

For instance, to help address Plan Canada’s concern that a large one-time outlay on a new IT system could inflate a charity’s administration costs in a given year and make it look less efficient, we switched from using one year’s worth of financial data to three. It meant many more hours of analysis, but we agreed that looking at the average annual spending over the past three years gave us a more accurate picture of how a charity usually spends its money.

To address the concern from fundraiser Dan Pallotta and others that our system doesn’t include a measure of what a charity has actually accomplished with your money, we decided to add a whole new section. This year MoneySense asked each charity to submit a short statement describing its accomplishments over the past year. Fifty-eight of the charities on our list decided to take part, and you can find the edited statements in “The bottom line”.

Finally, we beefed up our governance survey to make it more comprehensive, and we’re pleased to say that our response rate from the charities rose from 29% last year to 58% this year. We also adjusted the way we calculated our reserves to increase accuracy. Even with these changes our system isn’t perfect, but it’s definitely stronger.

How to use our ratings
You can either focus on the letter grades we hand out in each of the four main categories (program spending efficiency, fundraising costs, governance and reserve fund size), or the final grade, depending on what’s most important to you. Either way, keep in mind that we normalize the scores for each type of charity, so that we are effectively comparing each charity to its peers. That means a Health charity which received all ‘B’s for the four sub-categories could potentially score higher overall than a Social Services charity that got some ‘A’s. In other words the absolute scores matter—but how well each charity does in comparison to other similar charities matters too.

After consulting our chart, if you find that an organization you support doesn’t fare well, it doesn’t mean you should automatically cancel your cheques. Instead, investigate further by visiting the charity’s website or reading its annual report. There could be legitimate reasons why an organization spends more on administration or fundraising than its peers. If you still have questions, call the charity to discuss your concerns.

Also, be sure to check out the accomplishments listed in “The bottom line” to see if the organization is doing work that you think is important. (If there is no listing, it’s because the charity opted not to take part.)

Finally, we also advocate a more proactive approach to giving in general. Rather than just responding to random calls to give to various causes, whether it’s a friend running a marathon or a fundraiser you happen to meet in the street, consider taking the time to draw up a proper giving plan. Sit down with your family to discuss which charitable goals are most important to you and use our list to research the charities that are best accomplishing those goals. That way you can maximize the impact of your donations by giving regularly and making sure you’re paying the charity directly, instead of through intermediary fundraising companies on the street or on the telephone that keep a chunk for themselves.

We hope that by following these methods, and using the Charity 100 as a reference, more of your hard-earned dollars will go towards supporting your vision for an improved society. With more money going to the best organizations, we hope to see more projects like the Nature Conservancy’s Happy Valley reserve in the future. After all, the more effectively your donations are used, the more good gets done for every dollar you give.

32 comments on “Which charities use your money most efficiently?

  1. Thanks for the great job MoneySense, this is important information for all of us who give to do good. It is a must read for anyone who makes charitable donations.

    Apart from the great tips you gave in your article, another measure I use to ensure as much as possible of my donations go to the cause is to refuse to give through those people who harass you on the street. While they may claim to be collecting money for a charity, in reality they are commissioned salespeople who work for multi-million dollar for-profit fundraising companies. Very little of the money collected by them goes to the charity, instead, most funds raised go to enrich the bottom lines of the fundraisers.

    In my opinion, third-party “professional fundraisers” are leeches and parasites who profit from the generosity of others by siphoning off charitable donations in order to maintain luxurious lifestyles. They need to be outlawed as soon as possible.

    Another tip: never donate through an unsolicited phone call. Over the phone, anyone can claim to represent any charity, with the goal of getting your credit card number so they can rack up fraudulent charges.

    Give often and give lots, but at the same time always give smart.

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  2. The rating chart link appears to not be working – does anyone know the url?

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    • Hi Peter, the link has been fixed. Thanks for pointing it out.

      MoneySense Staff

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    • Hi Peter, the link has been fixed. Thanks for pointing it out.

      MoneySense Staff

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  3. We would welcome the chance to be rated by MoneySense magazine. arrive alive DRIVE SOBER … http://www.arrivealive.org…we might be agood example of what a charity with a smaller/lean budget can do. With help from volunteers and committees, and donated space from media/donated time from celebrities, our efforts have cuminated in making Ontario's roads the safest in North America.

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  4. The charities inefficiency at providing the research and programs we all assume, rather than being in the business of raising money, is an eye-opener. Just because most similar type charities spend about 40 – 50% of the funds they raise on fund garnering activities is not acceptable behaviour. Rather than promoting the good works of these charities, they are tarnished by it. It is shameful that some major charities adopt this lemming-like behaviour in raising funds.

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  5. Wow, I never saw last year's list but am very excited and impressed by your work now! Congratulations you are to be commended on this very valuable and useful work.
    I have been doing similar analysis for the organizations that I support for more than a decade following efficiency guidelines I garnered from the Canadian Centre for Philanthropy.
    Charities need to get their financial houses together, not only in these tight financial ties, but always to serve their client and donor bases better.
    (I know of what I speak after having worked in not for profit organizations that could not and did not publish or publicly disclose separate annual financial reports. And trust me they were nowhere near the CCP's 80/20 guidelines.)

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  6. I gave a $10,000.00 cheque to the Salvation Army for their Christmas Shield Appeal once. They sent me a form to sign my Will over to them as well as sold my name to other charities. My mailbox was suddenly filled to overflowing from other charities looking for handouts. I phoned Sally Ann and chewed strip off them and told them that was the last time they'd EVER get a cent out of me. I don't even put money into their Christmas bells in malls anymore.

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  7. I gave up donating to a well known charity when the $10 one year brought a phone call asking for $20 the next year….

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  8. You can check out indicators for all registered Canadian charities on donate2charities.ca – this site contains a similar approach than the one used here.

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  9. How can I donate to a charity or poliical cause and be sure I will not receive future solicitaions and that my idenity will not be given or sold?

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    • You can request this from the charity. Most say they will respect their donor's wishes.

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  10. Thank you very much for the Charities List for 2011. I have been following the list…. and am very interested in learning more about different charities that, so far, have not been on `the list`, such as the Arthritis Society. I am becoming more involved in this charity due to my recent diagnosis and hope this charity will appear on your upcoming 2012 list. Please?! There is a new president/CEO of the Arthritis Society and I have emailed her to ask if she would please participate in the MoneySense Charities list or even voluntarily release this information to the Arthritis Website. I guess we will see how that goes!
    Thank you for all you have done, and keep up the good work – the truth always tells the tale, doesn`t it?
    Carla

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  11. So, where is the list?

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    • Hi Mike and thanks for your comment. Way at the top of this page, the list is broken up by category: Animal Services | Culture & Research | Environment | Fundraising Organizations | Health/Health Services | Hospital Foundations | International Aid | Religion | Social Services
      The 2012 list will be available on newsstands and online later this month. Stay tuned!

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  12. Just a comment on the street fundraisers, as I am one of them, based in Calgary. We are not commission based but earn $13 an hour. We are fully trained, and agree to invest our own time into researching the charities we work for to ensure we have accurate information to give to donors.

    The company makes a profit of about 3% each year, but actually guarantees a 3:1 return on any donations made within 5 years. So if a charity invests $30 000, then we guarantee $90 000 within 5 years, or the business will give a refund or work for free until it matches this quota. Then the charity will make upwards of this ratio, as longer term donors continue to donate, we just guarantee that response in 5 years, so that charities are able to budget accordingly. The company was set up by 3 people who had a passion to change the world, but once they were tired of chaining themselves to trees they found a different way of helping, so it isn't a big bad company set up just to fleece people and charities of money, it is ran as efficiently as possible by people who care.

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  13. (Continued) We also invest a lot into research, monitoring the trends of people who get involved, such as age groups, so we can aim for the best quality donors for the charities and so charities can use this information for the other types of fundraising.

    On average the people we sign up donate for 9 years, and usually for around $40. We generally sign up 1 or 2 people a day. Please do the math. A one minute advertisement on television will cost upwards of $30 000, does not guarantee a response, and in this day and age many people are unlikely to watch it or pick up the phone and make the call. During the recession many charities nearly went under because corporate funding was pulled, and no one was voluntarily calling up the charities to get involved, as they were waiting to lose their jobs instead. So charities had to turn to third party companies, who agreed to halve their costs and use new methods and training to double their output to get donors involved with charities as quick as possible. We are constantly working to improve quality and quantity so that even more money gets to charities, but comments such as the one above really do not help, especially when they are not based on facts.

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  14. (Continued) Unfortunately, many people just do not think about charities, and take the time to do their research and donate, which then forces fundraising costs up.So yes, you can hate us, but street fundraisers are effective and are becoming more and more essential everyday.

    And guess what, staff that work directly for the charities don't like us either. They know we bring in money and are good at it, but even they dislike the way we work. Yet all of us have a passion to make a difference and work in a job which helps to change lives every day, regardless of the weather, the rudeness and ignorance of a small percentage of people, and the rumours and misconceptions involved every day.

    Maybe stop and ask us about it. We are actually really nice and will tell you what we know, and if we can't answer your question, then we will try and find out for you. We don't bite, we won't force you to get involved, or push you into anything you don't want to do, and we will only talk for 2 or 3 minutes, we won't take up too much of your time unless you want us to.

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  15. While I fully agree that donors and volunteers need to be educated about the charities they support, I don't think that relying on an organization's financial ratios is the best way.

    I intern at GreatNonprofits.org (www.greatnonprofits.org), which is a site that has a different perspective of nonprofit evaluation. It's the largest online database of user-generated reviews of nonprofits. On the site, donors can see a new dimension of the impact of the nonprofit – through the eyes of a parent whose child received tutoring, the ex-felon who got job training, or the volunteer who helped write advocacy newsletters. These first-hand experiences do far more than a Form 990 to help donors see the on-the-ground work of the nonprofit.

    Don't hesistate to contact me — elizabeth@greatnonprofits.org — if you have any questions about the site or our methodology.

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  16. This is a great list but how can you not factor the salaries of CEO's in the rating and in the admin costs? That does matter. And when you're saying a charity like UW is spending $5 to raise $100 is that factoring in the $300,000 that is going to the CEO? And who knows how much is going to the VPs and then Management?
    I don't see how philanthropy equates to extravagance and how that is justified? This is why I donate to charities with zero admin costs and who are doing a great deal of work in the 3rd world.

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    • Yes. You're right. Philanthropy will always equal extravagance though, sadly. We can make our best efforts and always improve, but it just comes down to the simple truth that power corrupts. When given power and a chance for money, people will take it. It's the way we are. It is sad but true. And the few people out there that are truly selfless do not seem to make it, because they appeal to the HUMANITY of others instead of the SELFISHNESS of others. We always want what's in it for us. We make think otherwise, but when given the chance the majority of people will eventually take it. That is why CEOs will always be paid something like $300 000. (Disgusting.)

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  17. According to Revenue Canada, in 2011 Plan Canada spent $10 Million on salaries incl. about $325,000 for one, $275,000 for another, $225,000 on one, 5 each got $180,000 and 2 got $140,000 each.
    This is charity work??

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    • Oh no. That's not good.

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  18. Why don't charities who receive donations use the money more efficiently?

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    • I think you would have to do some research on that, I would suggest looking up at various charites and looking for background information

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  19. Pingback: The Double Standard and the Nonprofit Dilemma | Philanthropy Nerd

  20. Charities are waste of money, I’d rather spend on something useful. If I wanted to help someone I’d rather help them directly, not buying someone else items.

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  21. I appreciate you trying to provide some visibility to which organizations get a higher grade at using money more efficiently but I wonder if it would be more relevant if you segmented charities into groups based on other factors like size of organization (# of employees/volunteers) and total money raised, I would think that the larger the organization, the more money is raised, yet the operational costs are then proportionately higher than a small organization. Have you considered this?

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  22. For the life of me I can’t find a rating link anywhere on this page. Can anyone help me please? I have seen a great comparison somewhere in the past and was hoping to find it here.!

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