By aiming for more knowledge and clarity, we can make our charitable giving easier.
By aiming for more knowledge and clarity, we can make our charitable giving easier.
As we enter that time of year described so vividly by John Keats as the “season of mists and mellow fruitfulness”, many of us turn our thoughts to the financial year-end.
Whether as individuals or companies, if we have enjoyed a fruitful year, this is the time we consider what to do with our harvest.
Do we re-invest it? Buy a new car? Make a charitable donation? Or, perhaps, find a balance between these different priorities?
Many people need little persuading that, along with the useful tax deduction, giving to a worthy cause makes us feel more connected to our community. Our problem is one of choice.
Even within a single health category, like cancer or heart disease, donors face a bewildering variety of options.
Instead of making charitable giving easier, we can end up feeling uncertain or anxious about making the right decision. This is far from the philanthropic and purposeful sense of well being that giving to charity should inspire.
Hopefully, this article will help make your decision-making process easier.
Having moved from financial services into the not-for-profit sector, I have been astonished by the lack of transparency and accountability I have encountered among some quite well-known organisations.
By comparison, many wealth advisers and insurance brokers around town are models of probity.
So, what questions should you be asking when trying to decide where to donate your hard-earned cash?
What has the charity achieved with money raised to date?
If you wanted to pick the star performers from a pile of job applications on your desk, the first thing you would do is look through their resumes.
What have the applicants done with their careers? Who has shown the greatest ability to add value?
The fact one candidate may need a job more desperately than another is not the point. You need to be sure that whoever you choose will deliver the goods.
It is exactly the same with charitable donations: you should give to a charity because it meets needs, not because it has needs.
All charities have needs. They all need money and many of them devote a majority of their organisational will and energy to fundraising.
But fundraising is not an enterprise in itself.
The objective of the Church Spire Restoration Fund thermometers we’ve all seen at some time or another, is not to get the red ink up to the top of the thermometer. It is to restore the spire.
Achieving maximum bang for our buck is the assumed basis on which most of us make spending decisions every day.
Interestingly, we sometimes lose sight of this basic principle when giving to charity. But, if anything, we should be even more sensitive about financial performance when money is scarce and needs are so great.
Some not for profits recognise the importance of this point, and promote the fact that a certain number of cents in every dollar goes directly to meet needs, for example, because of low administration costs.
This is an important figure, but it does not tell the whole story.
If, for example, the not-for-profit organisation relies entirely on well-meaning but inexperienced and unsupervised volunteers to deliver the program, it may deliver less beneficial outcomes than a group, which has some paid professionals to ensure certain delivery standards are met.
How transparent is the charity about where your money goes?
I saw a lot of investors lose money during the GFC because they invested based on a brand rather than actually knowing where their money was being invested and at what risk. Sadly, a parallel can be drawn with the fundraising industry.
If a fundraiser can’t answer the question “where is my money going?” then you should walk away. Don’t accept an answer that simply defines the problem (such as climate change). Ask what solution is being funded.
And avoid charities that give omnibus answers (like children’s health charities).
If the main reason you are donating is because of one of those charities, yet little of the monies go to it, you would be better off donating directly to your chosen charity.
This may seem an obvious point. But you would be surprised how few people ever consider it.
A transparent not-for-profit organisation is one that provides full financial disclosures every year, detailing important figures such as: total funds raised; the direct costs of raising those funds (for example, the costs of paying for celebrities, venue hire, catering); the overhead costs of the charity (staff and office costs usually being the main ones); how much is available for distribution after all these costs have been met; and, if fundraising on behalf of a number of charities, how much is paid to each one.
Larger and more established not for profits will typically have reserves, which need to be held for committed expenditures in future years.
If that is the case, the size of these reserves, their investment return and the costs of managing them also need to be identified.
Are you comparing apples with apples?
In seeking to answer these basic questions, it’s important to ensure you compare like with like. Some not for profits provide figures in ways which seek to present them in the best light possible but can be very misleading.
Are “net funds raised” by an event those after all the costs of the event have been stripped out, or also net of the salary of the events manager, who spent a lot of the past three months organising the event, and the in-house accountant, who has to deal with donor dollars?
It does not matter whether these overheads are allocated across a number of events, which would be a cumbersome and probably hypothetical exercise, or presented as a separate line entry.
What matters is that like can be compared with like.
Nobody expects every donor to audit the accounts of every potential charity they’re thinking of supporting – although a little more rigorous auditing would not be a bad thing.
The simple point is that we should not be seduced by top-line figures, which suggest one thing, when the reality could be quite another.
In summary, in trying to decide which charity to support, asking questions may help bring greater clarity.
In particular, how well does the charity meet needs, how transparent is it about its finances and how do these figures stack up against other not for profits?
These are areas where we are all better off without any mistiness … but it takes a lot to beat the mellow contentment that comes from supporting a deserving cause.
• Denys Pearce is chief executive officer of Princess Margaret Hospital Foundation.
