Nonprofit finance, accounting, and tax news. Other tidbits of interest to the charity community.
First post in this series looked at another illustration of the complexity of doing business or ministry in China.
This blog has looked several times at the issue of how complicated life is.
This post ponders complexity in terms of how to evaluate and compare charities that have vastly different operating circumstances.
Complexity of evaluating charities
Here are a few more articles in the ongoing conversation of overhead and the “worst charities.”
“Overhead ratio”
7/11 – Chronicle of Philanthropy – Wounded Warrior CEO Rips Rating Systems as ‘Ineffective and Misinformed’ – CEO says Wounded Warrior could have modified their operations to manage the overhead ratio, but they choose instead to focus on long-term service to their community, which involved upfront costs and other efforts that affected ratios. They disagree with the attitude that overhead is bad and fundraising is either a sign of inefficiency or fraud. In the tell me how you really feel category, the CEO says this of the rating agencies:
“Essentially what these groups are doing is passing judgment on decisions that were made by charity boards and staff on how to best fulfill their missions, meet the needs of their constituencies, and sustain their organizations over the long term,” he said.
He also mentions what few others will discuss: not all charities are completely honest in their functional allocations.
7/15 – Huffington Post – Measuring Charity Effectiveness: Manage Your Mission, Not Your Rating – Steve Nardizzi, CEO of Wounded Warrior Project goes in-depth on why the overhead ratios and rating agency methodology is out of line. This is a must read if you have been following the overhead debate. Several quotes:
The two main issues with ratings agencies (sentence diagrammed by me for emphasis): (more…)
Learn All About Nonprofit Expense Accounting on May 1 is the announcement from Sift Media of another free webinar on NPO accounting. The class is Expense Accounting – Key Accounting and Reporting Issues for Nonprofits #3.
The free class is one hour long and will be offered on May 1, 2014 at 2:00 p.m. Eastern. That means 11:00 here on the west coast.
Some of the topics covered will be the functional allocation of expenses and joint cost allocation.
Previously mentioned that in 2012 California charities retained 37% of the total proceeds raised by telemarketing firms. In New York, the percentage going to the charities was 38%.
The Michigan Attorney General released their report on telemarketing campaigns in the state for 2013 –
What portion of telemarketing campaigns makes its way to charities for whom the campaigns were conducted?
Here’s the 2012 results based on two recent articles:
The articles:
Some more articles that are worth attention but I don’t have enough time to respond in a full post. Here are the headlines, with links and a brief comment below: Super Bowl t-shirts, costs to raise funds, and an art museum gets ready to close its doors.
Impact
Two great opinion pieces in the Chronicle of Philanthropy that are worth your time, both dealing with the ‘overhead’ issue. At first glance they seem to have opposing views. I think they are both correct with many good points, which illustrates the complexity of the issues.
I’m adding a new category of good stuff, which will be called “impact” for the time being.
Here are some more articles worth attention but I don’t have enough time to comment in a full post. Here are the headlines, with links and a brief comment below:
Impact
The debate around what is happening in the NPO sector is a good and healthy.
For some serious pushback against the critique of the charity sector by Mr. Dan Pallotta (which I’ve mentioned here and here), check out the article by Mr. Phil Buchanan at Huffington Post: Getting the Facts Straight About the Nonprofit Sector.
If you have been following the conversations in the NPO community, you really ought to check out Mr. Buchanan’s article.
Here are my brief thoughts on three of his four critiques of the critique:
First, Pallotta says the sector has failed because we haven’t “ended” homelessness or poverty.
Mr. Buchanan wonders that if that’s the standard, then perhaps the NPO community should get full credit for improved infant mortality.
Some more articles that are worth attention but I don’t have enough time to comment in a full post. Not a lot going on that I’ve been reading until I saw two articles in two days.
Here’s a few articles exploring the challenges of outcome measures, whether NPOs are spending enough on infrastructure, possible regulatory revisions in Florida, and is anyone criticizing the practices in the “worst charities” articles?
Previous lists of good stuff here and here.
“Overhead ratio”
The charity at the top of the America’s Worst Charities list compiled by the Tampa Bay Times, Center for Investigative Research and CNN, Kids Wish Network, is pushing back against the methodology. You can see the detail about the Times’ reporting on the charity here.
(This post will be a deep inside-baseball discussion.)
You can see the rebuttal here.
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 previous post, I said we need more examples to illustrate that charities can accelerate their revenue through a major, sustained telemarketing campaign beyond what they would have done otherwise.
I mentioned one anonymous illustration supporting the idea and three weak counter illustrations.
Three more counter-examples
I’ve looked at the American’s Worst Charities data quite a few times. Each time I get the impression that these long-running telemarketing campaigns are not doing what such efforts are supposed to be doing, specifically, generating a lot of new money over a long-term horizon.
After thinking about the previous two articles together, I decided to do a little analysis.
My small sample confirmed my previous observation – the campaigns are generating small amounts of new funds.
I picked a haphazard starting point, #10 on the list, and pulled data for the next three charities.
Here’s what I see.
One of the reasons cited for charities to make heavy use of telemarketing in spite of the high cost is that with a sustained campaign a charity will grow substantially more than it would otherwise. By incurring heavy costs up front, the charity will have far more money for mission in a few years.
As a concept, I agree.
However, it is time for more than one or five anecdotes.
One anonymous example supporting the concept
Some more articles that are worth attention. I don’t have time to discuss them in a full post.
“Overhead ratio”
StatesmanJournal – Oregon charity law is a first – (more…)