An encouraging theme emerged this year while poring through financial statements, scrutinizing annual reports and analyzing tens of thousands of data lines about Canada’s charities: they are doing a noticeably better job of explaining their work to donors. They’re doing so well that the criteria for being named one of our charities of the year are more strict, with the minimum donor accountability grade changing to a B+ from a B-.
Greg Thomson, director of research at watchdog Charity Intelligence Canada, has also noticed this trend. He says the organization has seen donor accountability grades — a metric designed by Charity Intelligence to assess the quality of the information charities provide about the results they’ve achieved — increase by 15% over the past five years. Thomson says more charities are also posting their audited financial statements online, making it possible for donors to double-check the frequently error-ridden figures charities report to the Canada Revenue Agency. “Charities are reacting in the right way. They’re putting out better information so donors have better information to act upon,” Thomson says. “Increasing grades is a wonderful thing.”
Unfortunately, in our fourth annual quest to highlight the sector’s best examples of financial prudence, transparency and accountability, many charities still fail to meet basic benchmarks. For example, about one-third of the 2,500 charities that received more than $1 million in donations from individual Canadians in 2015 failed to report spending any money on fundraising on their tax returns. That’s either an incredible feat of efficiency or, more likely, an accounting error that makes it impossible for donors to break down how their dollars are being spent.
Financial Post Magazine’s annual charities report card is all about accountability. Donors have a right to know what’s happening with their money, and we publish the donor accountability scores of each year’s winning charities because we believe the impact they have is the most important thing for donors to know about. But the 23 charities that made the grade also had to do more.
Each of these charities submitted a 2015 tax return free of obvious errors. They spent less than 35 cents of each donated dollar on fundraising, ensuring as much as possible goes to helping the needy rather than glossy brochures and splashy galas. They keep overhead costs reasonable, with at least 65% of their total annual budgets going to charitable programs and gifts. And they publish recent annual statements going back at least three years, so donors can double-check their math and get detailed information about where their money goes.
To be eligible for consideration, charities had to attract at least $1 million in tax-receipted donations and fundraising revenue in the 2015 tax year. They had to be national in scope, appealing to Canadians living in all parts of the country. To be inclusive of readers of all and no religious backgrounds, the winning charities must also be secular.
Whether you’re interested in conservation, cancer research or higher education, there’s a charity for you among this year’s winners. About half the charities of the year have also been honoured in previous years. Charities with an asterisk next to their donor accountability grade were marked by Financial Post Magazine, with the rest of the grades assigned by Charity Intelligence.
A Canadian Blood Services: Manages Canada’s supply of blood, blood products and stem cells and runs an interprovincial system for organ donation and transplantation.
A- ALS Society of Canada: Supports Canadians living with ALS and funds research in the hopes of making it a treatable disease.
A- Prostate Cancer Canada: Funds research and promotes early detection in the fight against prostate cancer.
B+ Brain Tumour Foundation of Canada: Serves the needs of Canadians affected by brain tumours.
B+ Doctors Without Borders Canada: Provides international medical relief.
B+ Movember Canada: Tackles men’s health issues, including prostate cancer, testicular cancer and mental health.
A Indspire: Provides educational support to Canadian First Nations people.
A Mothers Against Drunk Driving (MADD) Canada: Works to support people affected by impaired driving and to put an end to the crime.
A- Loran Scholars Foundation: Provides undergraduate scholarships to exceptional young Canadians who demonstrate character, service and leadership.
A* International Conservation Fund of Canada: Works to conserve nature in the tropics and other priority areas worldwide.
A- The Nature Conservancy of Canada: Protects areas of natural diversity.
B+ Canadian Parks and Wilderness Society: Protects Canada’s public land and water.
A- Canadian Feed the Children: Fights child poverty in developing countries.
A- Centre for Affordable Water and Sanitation Technology: Teaches people in the developing world how to get safe drinking water, sanitation and hygiene in their own homes using simple, affordable technologies.
A- Operation Eyesight Canada: Works to prevent and cure blindness in the developing world.
A- Opportunity International Canada: Provides access to savings, small business loans, insurance and training to people living in poverty in the developing world.
A- Plan International Canada: Provides children in developing countries with health care, education, clean water and disaster relief.
A-* Save a Child’s Heart Foundation: Provides heart surgery to children in developing countries.
A- Seva Canada Society: Works to restore sight and prevent blindness in the developing world.
B+ War Child Canada: Provides children in communities affected by war with access to education, opportunity and justice.
A Food Banks Canada: Acts as an umbrella organization for food banks across Canada.
A Kids Help Phone: Provides 24-hour anonymous phone and web counselling to children and youth.
B+ March of Dimes Canada: Advocates for and provides rehabilitation to people with disabilities.
We started with a data set of 2015 tax return information for Canada’s 85,000 registered charities, and narrowed that down to 2,500 charities making more than $1 million in donation revenue. We then eliminated charities that had religious or regional mandates as well as charities that give most of their revenue away to other charities, as opposed to operating their own programs. The remaining charities were evaluated based on the following: Do donors have access to charities’ accurate, error-free tax returns (the primary means by which the public has access to their financial information)? Do the charities spend less than 35 cents to fundraise every donated dollar? Do the charities spend more than 65% of their annual budgets on programs and giving, as opposed to administration, salaries, political lobbying and other overhead? Have the charities posted their three most recent years of full, audited financial statements and do those statements support the numbers they reported to the CRA? Have the charities published information online that demonstrates the charitable work they do and the impact it makes on their cause, using plain language and quantifiable performance metrics?
In the process of analyzing thousands of charity tax returns, we found many that need improvement. Here are some examples of the charities that didn’t make the cut.
Including financial efficiency metrics among our benchmarks is controversial. Some advocates for the charitable sector argue there’s too much focus on what charities spend on salaries and fundraising, and not enough focus on the good deeds that they do. We agree, but only to a point: a charity that underpays its staff and cuts corners to save money is not a good charity, even though its efficiency metrics might look great. But there are certain standards donors should be able to expect. That’s why a charity that just squeaks in under the 35% benchmark for reasonable spending on overhead is graded exactly the same as a much leaner one — as long as it meets the standard, there’s less likelihood to be concerned.
But if a charity is spending more than 35% of its budget on fundraising and administrative costs, donors are right to question whether their money is being responsibly spent. Muscular Dystrophy Canada is an example of such a charity. For the past three years, about two-thirds of its total annual budget has gone to overhead costs, with just one-third directed towards research, patient assistance and awareness for muscular dystrophy.
Barbara Stead-Coyle, Muscular Dystrophy Canada CEO, says she is well aware of the problem and is working to fix it. She said she was hired a year and a half ago with a mandate to restructure the organization to make it more efficient. Stead-Coyle said Muscular Dystrophy Canada has cut its workforce, moved employees into home offices and cut down on travel by using video conferencing. She expects the measures will bring overhead down to 40% of total expenses in next fiscal year’s financial statements.
“We started to look very carefully at each and every revenue line,” she says. “Is this particular activity providing enough of a return on investment for the effort going into it?”
Our thoughts on fundraising costs are similar to those on overhead: There’s no need to penny-pinch, but costs should be kept to a reasonable level. However, a charity that spends more than 35 cents of every donated dollar on raising that money should look for a more efficient fundraising method. To calculate that ratio, we use the same formula as the Canada Revenue Agency, dividing fundraising costs by the sum of tax-receipted donations and fundraising revenue.
By that standard definition, the Rick Hansen Foundation’s fundraising costs are high. According to its financial statements, the charity, which supports and raises awareness of Canadians with disabilities, spent 56 cents of every donated dollar on fundraising in the 2017 fiscal year, 76 cents in 2016 and 66 cents in 2015.
In an emailed statement, chief operating officer Doramy Ehling quibbles with the way Financial Post Magazine and the CRA calculate the fundraising ratio. She says she believes government funding should be included, as well as the cost of writing grant proposals and other efforts to secure that funding. “Like many organizations, we would like to have information regarding government funding and expenses to be included,” Ehling says. “When we include these, our cost per dollar raised in 2016-17 becomes 13 cents.”
Greg Thomson, the Charity Intelligence researcher, says he’s sympathetic to the argument. He says the best way to provide full transparency to donors would be to report both ratios — the cost of raising money from individuals as well as the cost of raising money from the government. But donors still learn important information about how efficiently the charity raises money from individuals through the CRA’s standard benchmark. “Since right now the CRA guideline is to exclude the costs [of raising money from the government], we exclude the revenues,” Thomson says.
TOO COMPLICATED TO FOLLOW THE MONEY
The Victorian Order of Nurses for Canada looks like it’s running a shockingly inefficient organization based on the numbers it reports to the CRA. In 2016, the charity — which provides home nursing services and community programs — reported that it spent 93% of its budget on fundraising and overhead. As it turns out, those numbers don’t tell the whole story.
Beth Green, vice-president of marketing, communications and philanthropy at VON Canada, points out that the organization is just one part of a nationwide network of charities, all of which have their own charitable registration numbers and file their own tax returns. VON Canada is the corporate office and distributes funds to local entities that provide patient care, which is why its expenses appear to be almost entirely overhead.
Green says VON’s cost of fundraising is 25 cents on the dollar when the entire charitable structure is taken into account. The organization only recently started insisting that each of its branches track money the same way, making it possible to provide an overall picture of the charity’s finances.
VON is far from the only Canadian charity with such a complex structure. But donors shouldn’t need to be forensic accountants to figure out how their money is being spent. Asked whether she would consider providing the organization’s complete financial information in the form of tables and charts on the charity’s website, Green says she thinks it is a great idea. “We’re working to ensure we can be more efficient, do more with the donor dollars and be able to report back better to donors about the outcome of their investments in programs,” she says. “We know we’re not perfect on this, for sure.” FPM