Template for analyzing financial data of charities that are in the news

If you want to see an example of how to analyze the financial statements of a charity that has lots of GIK or lots of telemarketing costs or lots of publicity, check out Brian Mittendorf’s illustration at Counting on Charity: When Summary Accounting Metrics Fall Short:  The Case of Breast Cancer Charities of America.

In that post he analyzes the financial statements of that charity. Using that post as an example, here’s a few steps you can take:

Start with total revenue, total expenses, and total program costs.

Look at the GIK, especially if it is going places or has uses other than what otherwise would seem to be the core programs. Subtract that from revenue and expenses. That exact same amount also comes out of program costs.

In the 990, look up the amount raised by the telemarketers and the amount they were paid.

Look at the amount of those telemarketing costs that were allocated to program. That would be the joint cost allocation. You may have to sleuth around the functional cost page a while to figure out where the telemarketing costs were classified – it isn’t always obvious.

You can decide for yourself whether those 30-second dinner-time cold calls include a programmatic effort to educate you on whatever the educational program efforts of the charity may be.  You can evaluate whether there is anything other than a fundraising pitch made to someone likely to give with no program goal other than raise money.  (How cool is that? – I just covered SOP 98-2’s joint cost allocation rule in one sentence!) 

If you want, you can remove the amount raised by telemarketers from total revenue and remove the total costs paid to them from total expense.

If you conclude there probably wasn’t a program effort in the half-minute call, you can remove the telemarketing costs allocated to program from the program expenses.

You can calculate the ratio of the amounts you just removed, i.e. divide payments to telemarketers by the amounts they raised, to see how efficient the telemarketing programs are. You could do that calculation in total or for each telemarketing company.  It is possible you may need to pick your jaw up off the floor. If you’ve read through a lot of the data at the Tampa Bay Times, you already have a rubber cushion on the floor where your jaw usually hits.

Then you are left with the amount of revenue the charity raised on its own and their cash expenses.

You can browse the remaining amounts and ponder the implications as you wish. You could also do some ratio analysis at this point if you want.

Now that you have pulled the numbers apart, you can analyze and ponder the entire picture for the charity. 

Professor Mittendorf has walked through that analysis for you with this charity.

You can also use these tools in any order you wish. If you doubt the program content of telemarketing cold calls, you can back out the program allocation and recalculate “overhead ratios.” If you wonder about the existence of GIK, or the valuations used, or whether there was any variance authority, or whether the GIK has any relation to the programs of a charity, you could back out the GIK from total revenue, total expense, & program expense and then do some ratio calculations.

Now that you’ve seen the methodology, you can walk through the 990 of any charity you wish to analyze.

Are they any additional steps you would add for an analysis of 990s?