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July 07, 2008

Report Rates Charities' Fund-Raising Performance

The Los Angeles Times has unveiled a controversial new database that rates charities registered to raise money in California on their fund-raising performance.

The database accompanied an article that highlights the poor returns some charities earn when they hire outside companies to conduct telephone and direct-mail fund-raising campaigns. Many of the organizations in the database are based outside California and raise money across the country.

The newspaper’s database compares the revenue earned by each charity against the amount of money they paid in fees to outside companies. It relies on data from the California Attorney General’s office on commercial fund-raising activities from 1997 to 2006.

The database also includes a feature in which charities are rated red, yellow, or green depending on the percentage of their income that is paid to commercial fund raisers.

Those that post a return of less than 33 percent are rated “red”. Those with a return of greater than 67 percent get a “green” rating.

The rating system is the latest high-profile attempt to analyze charities based on their fund-raising effectiveness — a trend that has been criticized by many in the nonprofit world.

Groups such as Charity Navigator have their own rating systems, which have been criticized for not providing an accurate picture of how groups operate.

In addition, the Internal Revenue Service scrapped plans to include a calculation of fund-raising expenses as a percentage of total contributions on the new Form 990 because fund raisers complained that the ratio was biased against some charities.

Others, however, say the public deserves to have access to more information about how much of their donations will actually be used to benefit the causes they support.

What do you think? Are measures such as the one used by the Los Angeles Times useful for prospective donors? Or do they paint some charities in an unfair light?

Click on the comment link below this post to share your thoughts.

— Peter Panepento

Monday July 7, 2008 | Permalink

Comments

1. As a legal executive with a direct marketing agency, every time I see state regulators report that fundraisers “keep” 94 cents of every dollar, or as LA Times reports, 54 cents in California, I ask, “how can I get a job at one of those fundraisers?”

   Obviously, those data are not merely wrong, but are indicative of the failure by, if not inability of, states to present accurate information to the general public about charitable fundraising.

   Too often, state charitable solicitation offices misrepresent facts or omit material facts about fundraising data. And by forcing reporting charities to place square pegs in round holes in their annual fundraising reports to the states — with no opportunity for charities to explain their data — state regulators in fact create misinformation.

   Does the state data reported by the LA Times:

   (1) show what is paid toward postage, lists, printing, backend and other costs of fundraising, which are costs that nonprofits pay even if they do the fundraising in-house, and are very different from the “fees” or paid to (“kept” is the term used in the story) the fundraisers? (And even with those fees, are the fundraisers “profiting” or losing money?)

   (2) accurately show the “fees” paid to fundraisers actually is far less than the percentages represented as “kept” by the fundraiser under the California AG database (an industry standard fee in direct mail is 17.65% of the costs of the mailing)?

   (3) distinguish direct mail from telemarketing, etc., and prospecting from housefile fundraising?

   (3) distinguish public policy groups (such as Citizens Against Government Waste), whose fundraising communications are also a primary means by which they inform the public about issues, which IS their tax-exempt mission?

   (4) identify nonprofits that rely entirely on low-dollar citizen contributions (and thus fundraising costs are higher as a proportion) compared to those that receive vast amounts of financing from unrelated business income, dividends from stock holdings, the government (i.e, taxpayers who may not know they are financing certain nonprofits), foundations, corporations or other wealthy benefactors and sources (thus reducing their ratios for costs of fundraising)?

   States too often misrepresent data about fundraising, or provide insufficient data, which contributes to the public’s perception. If that taints the public’s perception of the entire nonprofit community, then nonprofits should point the finger at the source of that misinformation.

   But because state charitable solicitation offices control the licenses of who can fundraise and who can’t, nonprofits are often intimidated about speaking out when the states are in the wrong.

   — Mark Fitzgibbons, American Target Advertising    Jul 7, 05:27 PM    #

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