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July 01, 2009

Are Charities Telling the Truth About How Much They Spend on Fund Raising?

It is a widely held belief among donors that “good” charities are those that direct a high percentage of donations directly to their cause. Nonprofit groups that commit more money to their missions and less to fund-raising and operating expenses are seen as efficient and more trustworthy.

“But what if the accounting some nonprofits are employing to give us a number that will earn our trust is not to be trusted?” writes Dan Pallotta on Free the Nonprofits, a blog on Harvard Business Publishing’s Web site. “What if the ultimate measure of trustworthiness is highly vulnerable to deceit?”

Mr. Pallotta notes that some charities “game” that system and appear “holier” than others by labeling all or some fund-raising expenses as part of the cause. While he favors a “broad definition of the cause,” charities should tell the public “loud and clear” what that definition is.

“I have a problem with shortcutting critical donor education (i.e. about the importance of adequate administrative and fund-raising expense) in the interest of false piety and high revenues,” Mr. Pallotta writes. “That actually undermines donor education — it teaches the public that fund raising and social progress can be gotten for free, which is exactly why it rebels against sector spending on organizational strength and capacity.”

What do you think?

— Brennen Jensen

Wednesday July 1, 2009 | Permalink

Comments

1. I agree. As a development professional I am always troubled by some organizations who insist on playing with the numbers in reporting the cost of fundraising. There are so many misconceptions around fundraising this only makes it more difficult to keep good people in fundraising positions. Successful fundraising is relationship building it is not cheap and takes time and money to adequately nurture and develop.

   — p. mcgrath    Jul 1, 02:42 PM    #

2. Agree wholeheartedly and see it too often.

   — Visitor    Jul 1, 04:18 PM    #

3. The American Institute of Philanthropy has been saying for over 16 years that nonprofit financial reporting is inconsistent, unclear and often incorrect. This is why we conduct an indepth analysis of a group’s audit, tax forms, etc… to create our ratings and not simply repeat the nonprofit’s self-reported finances as is commonly done by other sources of charity information. We encourage the public to more closely scrutinize a charities’ finances so more of their donations can go to bonafide programs rather than to inefficient fundraising. Nonprofits need to strive for better financial reporting that is more helpful to the readers or users of this information. Pallota’s view that donors not utilize financial efficiency measurements makes about as much sense as advocating that Wall Street get rid of its profit measurements because some have been manipulated.

   — Daniel Borochoff, American Institute of Philanthropy    Jul 1, 05:09 PM    #

4. The comments above are on the mark. I have seen expensive direct mail campaigns recorded in 990’s as program expenses because the solicitations contain a token amount of education content. That makes it difficult for organizations who are not pushing the envelope as our performance is compared to these organizations on third party online sites by donors.

   — D. Fortin    Jul 2, 06:15 PM    #

Commenting is closed for this article.

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