Charities and Overheads

[jon]

Recently, there was a discussion here about the amount of "overhead" at charities. Since so many radio and television stations get behind specific charities, especially at this time of year, I thought an exchange of Letters to the Editor in the Edmonton Journal was quite enlightening:

Watch for charitable 'overhead'
Edmonton Journal
November 9, 2010

As the year-end draws closer and Christmas, too, we are being asked by a multitude of organizations to support them.

When I was on staff of one of the very large Christian denominations in the U.S., and later on the board of our own church's world relief and development organization here in Canada, one of my assignments was the evaluation of children's charities, and also "in country" evaluation of the effectiveness of some of the overseas assistance programs of our churches.

There is so much misinformation. Donors should be aware that every charity has an "overhead" cost that takes a varying share of each and every donation.

This can vary, according to my yearlong research, from a low of eight per cent to over 50 per cent, and depends also on what the charity counts as "overhead" and whether it includes overhead in the country where the funds are collected and/ or the country where the collected funds are disbursed.

Many charities do not include in the overhead cost the amount spent in dispersing the funds when those funds arrive in the overseas area.

Many charities, especially children's charities, provide what social welfare specialists call the "identified donor/identified recipient" practice.

This means that Mr. and Mrs. Jones, when they make a donation, they specify the name of a child to whom that money is to go.

The charity has previously provided the Joneses with the name, photo, and something about each of the possible recipients.

This practice is what many people want because it makes them feel good. However, it is extremely expensive in terms of "overhead" costs.

Costs in the country where the donor lives and the appeal is made:

- Advertising, radio, newspapers, television (this is an expensive one), magazines;

- Delivery costs -- postage, insertion in newspapers and magazines;

- Staff costs to produce materials for the appeals, printing and packaging;

- Accounting costs, banking, etc.;

- Response to the donor costs.

Costs in the country where the funds are to be expended:

- Establishment of an organization to handle the funds sent from the donor country;

- Staff for that organization (For children's charities that provide the "identified donor-identified recipient" relationship, this includes photographers, translators, typists or computer operators, interviewers, etc.

Now with the constant news that many of the funds given in the last few months for disaster relief have not been spent, or cannot be spent because the infrastructure is not available, it is little wonder that donor fatigue has set in, or people simply refuse to give.

Be aware that fraud and outright theft of funds does take place, especially in countries with weak governmental infrastructures.

Know the organization that you give to. Request their audited financial statements. An organization that refuses to give you their audited financial statements should receive no donation from you.

Check with other organizations or a government agency as to the charity's legitimacy or with people who have had good experiences with the charity, and then use your instincts.

If the charity's claim is too much, it probably isn't the best use of your gift.

Eric Pedersen, St. Albert

[jon]

Harmful to select 'worthy' charity based on overhead costs
Edmonton Journal
November 19, 2010

Re: "Watch for charitable 'overhead,' " by Eric Pedersen, Letters, Nov. 9.

As a former charitable fundraiser who continues to take a lively interest in the subject of charitable giving, I was fascinated to read Eric Pedersen's letter.

I applaud Pedersen's motives in writing this letter. In order to achieve the maximum positive impact with their giving, donors absolutely must ask questions and be selective about which organizations they support; it's both a right and a responsibility.

It's also obvious Pedersen knows what he's talking about. His advice about specific pitfalls to watch out for proves that. But I must respectfully protest his focus on "overhead."

There's a growing awareness among philanthropic experts that using overhead costs as a measuring stick to decide which charities are worthy of support is not only ineffective, it's harmful.

Picture this: a charity pours almost all of its funds into programs.

Meanwhile, it spends almost no money on its research and planning activities, executive director, administrative support, office supplies, rent, public relations, human resource personnel, or performance analysis.

Would those well-funded programs be good ones? Not likely.

Without research and planning, they probably wouldn't use best practices or the latest scholarship, and might not be properly tailored to their target communities.

Without administrative support or a robust leadership function, operations would be disorganized and confused.

No PR would mean that even if the programs were good, the people who need them would have no idea they exist. Without a decent HR team, the staff would be poorly managed and high turnover would result.

Without performance analysis, the programs could go on burning money for years without any evidence of creating real impact.

The public focus on administration cost is making this unhappy story of mine into a reality all over the charitable sector.

Public perception will not allow charities to spend what they need to to become high-functioning, results-driven organizations. Instead, many of them are barely hanging on, operating hand-to-mouth with barely enough money to pay the rent.

How can we expect charities to show us their results if we don't allow them the budget necessary to find out what those results actually are?

How can we expect them to create positive change when we don't allow them to build the infrastructure to operate efficiently and effectively?

And how can we expect to change the world under these conditions?

Every issue is different and there are more charities out there than you can count. We can't expect to apply the same measuring stick to them all and come up with reliable answers. It's not a question of a magic "overhead" cost percentage, but of a reasonable justification for each expense on the books.

Please, stop asking about administrative costs. It's doing so much more harm than good.

It's a classic case of the road to hell being paved with good intentions.

Do ask about fiscal responsibility. Do ask to see the financial statements. Do ask for the explanations behind the numbers. But please, let's put an end the tyranny of the "overhead cost" obsession.

Look into to the work of Dan Pallotta, author of Uncharitable, or the recent CharityNavigator.orgwork to move away from its traditional focus on overhead cost ratios.

Nadine Riopel, Edmonton

[jon]

Charitable overhead tough to ignore
Edmonton Journal
December 5, 2010

Re: "Harmful to select 'worthy' charity based on overhead costs," by Nadine Riopel, Letters, Nov. 19.

Maybe we shouldn't look at overhead costs when choosing charities.

But when some well-known charities pay their CEOs over a million dollars with unlimited expenses and use only 14 cents of my dollar for charity, I have to question their motives.

Compare this with the Salvation Army, which pays the top person $14,000 a year and give 93 cents of my dollar to others in need.

Perhaps some research is needed.

I will give my money to charities with low administration costs that treat others as equals and with dignity.

Wendy Ferguson, Edmonton

[Buckley]

"Without performance analysis, the programs could go on burning money for years without any evidence of creating real impact."

Who cares?! If I give a homeless man $10, I don't need an agent for him skimming $2 off the top to tell me how he spent it, I'm sure it was either on booze, drugs or food. I'd rather he spends the whole $10 (preferably on food, but can't win 'em all right?).

Sure, an argument could be made with this analogy that those admin costs would make sure the money gets spent on food, but you know what, I'd rather the entire $10 goes to the homeless man to spend however he wants, rather than pay $9 to a committee of people that have it just fine.

[jon]

"Without performance analysis, the programs could go on burning money for years without any evidence of creating real impact."

Who cares?! If I give a homeless man $10, I don't need an agent for him skimming $2 off the top to tell me how he spent it, I'm sure it was either on booze, drugs or food. I'd rather he spends the whole $10 (preferably on food, but can't win 'em all right?).

Sure, an argument could be made with this analogy that those admin costs would make sure the money gets spent on food, but you know what, I'd rather the entire $10 goes to the homeless man to spend however he wants, rather than pay $9 to a committee of people that have it just fine.

Interesting argument, but wouldn't it make more sense to pay $10 per homeless person, knowing that $8 would feed him food, and $2 would go to ensure it didn't get spent on drugs or alcohol?

Here in Edmonton, there has been a lot of recent interest in San Diego's long standing approach of trying to stop people from giving money to people who approach them on the streets, based on their experience that the money spent on drugs and alcohol causes more problems than it solves. The other piece of the puzzle is having the city deploys social workers on to the streets to ensure everyone knows where the local food bank and other services are located.

[Mike Cleaver]

I call many of these "bum industries."
They claim to be helping whomever but really, they are helping themselves to the money you donate.
The executives make huge coin and spend lavishly on television programs and commercials designed to bring in even more cash.
Many of them should be prosecuted for fraud.

[Buckley]

"Without performance analysis, the programs could go on burning money for years without any evidence of creating real impact."

Who cares?! If I give a homeless man $10, I don't need an agent for him skimming $2 off the top to tell me how he spent it, I'm sure it was either on booze, drugs or food. I'd rather he spends the whole $10 (preferably on food, but can't win 'em all right?).

Sure, an argument could be made with this analogy that those admin costs would make sure the money gets spent on food, but you know what, I'd rather the entire $10 goes to the homeless man to spend however he wants, rather than pay $9 to a committee of people that have it just fine.

Interesting argument, but wouldn't it make more sense to pay $10 per homeless person, knowing that $8 would feed him food, and $2 would go to ensure it didn't get spent on drugs or alcohol?

Here in Edmonton, there has been a lot of recent interest in San Diego's long standing approach of trying to stop people from giving money to people who approach them on the streets, based on their experience that the money spent on drugs and alcohol causes more problems than it solves. The other piece of the puzzle is having the city deploys social workers on to the streets to ensure everyone knows where the local food bank and other services are located.

It's more just an analogy about how I could really care less about metrics and administration and all the "good" it does as explained by "Nadine Riopel" in her letter. but maybe I'd be alright with that, if we're talking 20% for admin fees. Any more and that's ridiculous, if a "non-profit" is pulling in say $5 million a year, and $500,000 is actually physically going to help someone, that charity isn't working for the right reasons. Sure they've got all the HR duties taken care of, there's PR in place, everyone knows about the charity, and what little money they do spend is going to the right people for the right reasons and they can chart and graph it all... but what's the point? Even worse when it's a charity for something like the homeless, so everyone is making a salary and paying for the roof over their own heads while the people they're supposed to be helping still live on the streets. Something seems fundamentally wrong with that. I'm all for corporations making massive amounts of money but they're out to make money in the first place, that's their mandate: make money. A charity's mission statement would include something like "provide shelter and food for the homeless", but in some cases should read "...provide a living wage and salary for 20 people and if there's anything left, shelter and feed a couple homeless folks"

I think that's a good idea, not giving people money on the streets anyway (again, my analogy is just that, I'm not walking around handing out $10 to beggars), there are also a lot of scammers out there, people who panhandle and make quite a bit of money doing it (you figure if 15 people passing by a busy street give someone a dollar every hour for 8 hours a day, they'd be doing quite alright considering they're not even working, and they'd be able to make rent in an apartment). Encouraging people not to give money to panhandlers, and sending out social workers would ensure these scam artists would quickly leave the area, because there wouldn't be any money in it anymore. Seems like it would help that problem at least.

[jon]

7-8 years ago, several locally-based charities found an innovative way to solve the Overhead issue. They found sponsors who either handled the admin functions for them or paid for all admin functions. That allowed the charity to fulfill a promise that every dollar given by the general public and other corporate sponsors would actually go to the cause, with no overhead. I like that approach a lot, but I haven't heard if it has continued now that the local boom has left us.

Other ways that more charities could and should reduce overhead is by making more use of volunteers -- some pay no wages, using volunteers exclusively -- and by making it a policy to pay for nothing, as CKUA does. Concept is to get individuals and organizations to donate what you need and/or barter for something you have (advertising or sponsorship naming, in CKUA's case) or received from someone else.

To assist with the volunteering side, the City of Edmonton offers a matchmaking service for volunteers looking for the best place to volunteer their time and skills.

Funny note: one of the above articles mentions the Salvation Army. Not sure about now, but when my parents lived in Ontario in the 1990s, they would never donate to the Salvation Army because the workers in their stores made a higher salary and had better benefits than most of the people working in the large grocery stores in town. Although I cannot say if they were paying to have their radio ads aired in that big blitz about 10 years ago, I do know that they paid a pretty penny to an Advertising Agency to get their ads produced and placed -- no one volunteered anything on that job.