Apples to Apples - A Response to the Financial Post's Charities of the Year Report Card

Dear Editor of the Financial Post and Claire Brownell;

What does it cost to end poverty in a specific city?  How much should we be investing in early childhood literacy? Do we know the economic impact that domestic violence is having in a specific locale and are we spending the right amount with the right charities to address this issue?

When we talk about charity effectiveness and impact we need to look at things in the context of the problem that the charity is mandated to address.  The Financial Post just released their 2015 list of effective charities - of the 86,000+ organizations they identified 25 large, national organizations that meet their grades.  

After over 15 years evaluating charities and matching donors to organizations I can state, unequivocally, when you start with the financials provided by the CRA you are already starting with an incorrect premise.  And here’s why:

1. The CRA T3010 form that charities file annually do not ask charities to state how they are positioned within their mandated market (i.e. homelessness, international development, etc.) so the reader doesn’t know if the cost on the programs offered is actually in balance with the complexity of the problem that is being solved;

2. According to Statistics Canada 80% of charities are volunteer run with less than three employees and operating budgets under $500,000.  This means that the need for audited financial statements is not only not necessary, but creates an undue burden on organizations, especially when donors are saying that they want agencies to be cost conscious and lean.  Why would an agency spend a few thousand dollars on audited statements when a Notice to Reader would suffice?  Just because a charity has audited financial statements does not mean that they are financially effective or efficient… it just means they had their books reviewed by a third party auditor.  This audit does not trigger a review by the CRA.

3. Is an organization that has high overhead but low recidivism (a tendency to relapse into a previous condition or mode of behavior) better than an organization with low overhead but less effectiveness?  CRA data does not paint the market picture, it just tells you what was spent retroactively.

4. Is it better to address short term problems so that people are taken care of, even if it might lead to a cycle of dependency? (Food Banks and homeless shelters fit this model)  The two poorest postal codes in Canada are Vancouver’s East Side and each year the BC government spends $8-9Billion on poverty related projects, yet poverty in BC hasn’t decreased.  The same can be said for Alberta where poverty has been around 8% for the past several years.

5. How long should organizations hold on to funds before disbursing them out to their intended targets? For example Red Cross and domestic crisis (Southern Alberta Floods as an example) after two years funds are still being held by the Red Cross that were earmarked for this natural disaster.

6. Leadership compensation ratios does not an effective charity make.  If shareholders were to say to a multi-million dollar company we don’t want you to spend on your leadership but we still want you to generate the economic and social returns that your company has set out to do we would be lambasted for not representing the interests of the shareholders.  The same can be said for charities. If we tell charities we want you to run multi-million dollar organizations, addressing some of our society’s most complex problems, but we don’t want you spend on hiring the right leadership to manage these corporations; leaders who have the skills and training and expertise for systems thinking, design and management, how effective are we going to be as donors?  

I commend Ms. Brownell and the Financial Post for their efforts in creating a list based on transparency and accountability.  As the FP iterates on this list, I would suggest the next year’s list focuses on comparing apples to apples and oranges to oranges.  CAWST is an entirely different type of organization than Food Banks of Canada.  A different target market, a different type of donor base, and ultimately a different business and service delivery model.  I am not saying that they aren’t deserving of being on this list, I am saying that to take 86,000 charities and whittle them down to 25 based on whether they have a national reach and operating size does not allow for a donor to really understand if their donation is making an impact, all it is doing is saying that these are 25 charities that within their own operations seem to be doing good.  What would be more beneficial to a donor is to show how CAWST compares to other NGO’s that deliver water sanitation and hygiene services in the developing world.  Or how Red Cross compares to Samaritan’s Purse in delivery of services during natural disasters.

Philanthropy is big business.  The business of philanthropy is not as simple as just writing cheques to problems.  But if we keep going to the CRA financials as our starting point then we won’t get the analysis that is needed.  If media and organizations are going to be evaluating and valuing charities then we need to start looking at the charitable landscape as a marketplace.  This means putting these organizations into the context in which they are operating.