The latest issue of Karma & Cents I share some thoughts around local support and international support.  At the end of the day, the questions that should be asked are the same for both local and overseas philanthropy.  In addition to these questions, below is the 2010 list of reviewed and recommended charities.  read more »

Carters Professional Corporate just released their latest charity law update.

Here is an excerpt:  read more »

A CRA news release, issued on June 14, 2010, notes that 810 charities were selected for audit last year. As a result, the CRA revoked the charitable status of 40 charities for serious infractions of the law. Many additional charities also lost their charitable status for failure to file their annual return. 

The CRA Charities Directorate newsletter was just released.  They have made a New Year's Resolution to "...decrease the [charity application] inventory on hand."  Here is an excerpt from the article.  Attached is a PDF of the entire newsletter.

Based on the first six months of this fiscal year, the CRA will recieve 4500 applications for new charitable status.  That is one application every two hours, 24 hours a day, 365 days a year.

On the other hand...

2200 charities will lose their charitable status this year for a variety of reasons from ceasing to operate to misfiling.  This represents one charity losing its status every four hours, 24 hours a day, 365 days a year.

Something that I have blogged about in the past is the need for:

a) so many charities

b) lack of regulation of duplication of services

The CRA has informed us that they will put materials on their site to help people make better decisions on whether they should be setting up a charity to begin with. 

I do not think that is enough. 

The CRA has the ability to highlight to applicants when their charity is going to be duplicating services already provided.  I feel that by leaving it in the hands of individuals whose passions are wrapped up in the decision making as whether or not they should become a charity leaves for too much room to make emotionally driven decisions.

In the meantime, the CRA has hired more staff and streamlined some of the processes to address the backlog of applications.  This however, does not address the root of the problem - too many charities, doing too many of the same things and not speaking/learning from each other.

I recently had a discussion with Mr. Colin Glassco of the Colin B. Glassco Foundation for Children.  I was interviewing him for a book I am writing on strategic philanthropy.

Our conversation meandered in and out on the topic of effective philanthropy and the reporting obligations of charities to their donors.  One of the overarching themes of our conversation was around overhead.  Colin's foundation is uniquely structured such that 100% of external donations go directly to the projects that the foundation manages (currently building water wells and schools in Zambia benefitting a tribe called the Tonga).  As Colin personally finances the overhead and administration expenses of the foundation to the tune of approximately $40,000/year (he does not draw a salary which helps keep costs low).

He added that because he looks after all the administration expenses the donors are not so concerned with this aspect however they are very interested about is HOW efficiently their money is being invested in each project.

In this regard, I asked Colin, how he reports this back to his funders:

The Glassco Foundation project donors are provided with feedback through DVD's, photos of the project, letters and updates and Colin personally visits each well site and project space at least once per year. In addition, Colin provides information on the foundation's website. (Photo curtesy of Hector Gomez). 

 

His goal he stated is to, "Have the donors feel that they have been to Zambia without quite being there."  This organization is not only managing their donor dollars effectively, they have also made a personal commitment ensuring that projects are being completed in as efficient a manner as possible.

So what can we learn from this?  As donors, whether we give $25 or $25,000 it is important to know how much it costs the recipient organization (foundation or charity) to manage our donations.  It is important, not only so that we are holding the recipient agency accountable for how they invest our money, but also so that we have a clear understanding of the business behind the philanthropy.

Let's do a case study - Would you invest in a company that you know will generate your 5% return annually, but there have been some questionable dealings as so how that business is operating?  If you are reading this blog my guess is that your answer is probably no. 

The same goes for charities.  Would you invest in a charity if you knew that it costs the charity more to secure your donation and disburse it than the actual value of the gift (even if the costs for securing and disbursing were covered by another source)?  Again, my guess is no.  Why?  Because it goes directly to our core understanding of good business - return on investment.  We will not invest our money if we think that there are ethical questions around it just as we won't give to a charity if we think that they are spending too much money administering the finances.  Extrapolating this one more level, we might even begin to question the effectiveness of our donation even if 100% of it is going directly to a project or service.  If the organization cannot manage its overhead, what is to say they are not properly managing the expenses of the project? 

Charity Intelligence uses a formula identifying the proper overhead to project expense ratio.  Published on their website, Kate Behan shared with me how they do this:

They call it program cost coverage.  This is the ratio of funding reserves to annual program costs and shows whether a charity has funds that exceed its annual needs.  In her opinion, it is best to support charities that, "have a program cost coverage ratio of between 25%-100%."  Anything over 100% means that your donated dollars will not be used in that year and will be banked for future programming.

In addition to program cost coverage, they use a similar model to that of Dexterity Consulting in determining a charity's value.  As articulated by Ci, a charity is valued with the following formula:

Total Charity Value = Donated Money + Donated Time + Donated Goods

"Charities typically use administrative staff to do all the necessary tasks of running the office, while the staff and an army of volunteers run the programs and provide the service.  Yet volunteer time was "off the books" and not recorded in the financial statements."  This means that for a small charity the administrative costs might be skewed to the higher end because the volunteer receptionists hours would not be included in the overhead costs and yet that receptionist is freeing up time so that the Executive Director to do her job of running an organization.

On a related note - I was recently in a blog conversation on Tactical Philanthropy with Sean Stannard-Stockton and fellow bloggers - Brendan and Chris on salary compensation in the non-profit sector.  In a focus group I held in Calgary there was a comment made by one of the participants that in her research she had learned that a salary for a top-level non-profit sector employee should not exceed $60k in the mindsets of those she interviewed.  So here's the question - what is it about compensation of staff that donors find so abhorrent?  What value standards are we using to measure fair compensation?  Is my master's degree worth less because I am using it in the charitable sector than in the corporate sector?  What if I were to use it in the government sphere (okay I hear the jokes already)?  Knowing that my salary would be capped at $60K would I be as inclined to keep moving up the charitable sector ladder?  How could we attract and retain other individuals if they knew from the beginning that in their lifetime in the charitable sector they would never exceed the $60K threshold?

 

Just some food for thought for when you think about how you value a charity.

 

Looking forward to your feedback and comments.

I thought you would be interested in this link to a newsletter published by CharityLaw.ca -

http://www.carters.ca/pub/update/charity/08/may08.pdf

Enjoy the read!

I was recently asked by Lyndon Ward, a member of Dexterity Consulting's advisory committee, why there was so much duplication in the charitable sector.  Here are my thoughts around this...

The province issues non-profit numbers to organizations that "...promote art, science, religion, charity or other similar endeavors, or they may be formed solely for the purpose of promoting recreation for their members."  The Federal Government issues a charitable number that allows organizations to issue tax-receipts.  Just to complicate things, here is what the Canadian Government says about regulating charities.

"... the Income Tax Act does not define what is charitable, the Canada Revenue Agency (CRA) determines whether or not an organization qualifies as a charity at law by applying the common law: that is court decisions.

To be charitable at common law, an organization must have exclusively charitable purposes and carry on exclusively charitable activities that further these purposes. In this document, the words purposes and objects are used interchangeably. Both refer to the way that an organization describes and identifies the reason(s) for which it was created i.e., what it intends to achieve. Activites are the organization's programs - or how it will accomplish its purposes.

A charity's objects are set out in its governing document. If the objects allow the organization to do something that the law does not recognize as charitable, the organization is not considered to be a charity and is not eligible for registration."

All charities are non-profits, but not all non-profits are charities.  So what is with the duplication???

The provincial government issues the non-profit registration without looking at what other organizations are currently offering similar services.  The same thing happens at the Federal level.  It then becomes up to the communities to self-regulate.  This is done in a number areas, most noticably through donor investment.  If people are going to make financial contributions to organizations that are duplicating services, then they are feeding the problem. 

The United Way has begun encouraging its recipient organizations to collaborate.  In fact, there has been talk about limiting funds to organizations that are blatantly duplicating services.  I am not sure if this is policy.  What do wonder, if this is the case, what is United Way, Imagine Canada and others doing about mitigating the turf issues around duplicating services.  In Calgary for example, there are 6 organizations (that I know of) that support families who have a child or family member with Autism.  These six organizations could easily merge into half that, share resources, reallocate program dollars, conduct medical research and lower costs.  They don't (and they aren't). 

United Way only supports social service organizations (approximately 1/3 of Calgary social service sector receives United Way support).  What would happen if they were to get like-minded organizations that are distinctly overlapping services to begin a dialogue (not contingent on funding) about sharing resources.  What would it look like for these agencies if their overhead was cut because they managed the duplication better?  How would donors feel if they knew that their dollar was going to go further since a program or a service was better managed under a different operating umbrella?

I think that the government bodies who issue the registration numbers ought to do their due diligence before issuing the number.  They should find out if the applicant has considered the other agencies that are doing similar work.  With 161,000 non-profits and registered charities in Canada, and the number growing, it is in the best interest of Canadians overall and philanthropic investors to encourage government and the organizations already existing to stop duplicating services and to start merging. 

The economy is slowing.  People and granting bodies are becoming more strategic in how they give.  Questions are being raised as to what makes one organization different from the other organization with the same objectives.  Social mediums like QuantumShift.tv and the Causes on Facebook are adding fuel to the fire of what organizations are doing the best work and pushing those that aren't out of the arena. As all these combined are making the perfect storm for seeing an end to duplicated services in the charitable sector.  

As smart philanthropic investors you also have a responsibility to make donations to organizations that are not only addressing a need, but are doing so in the most effective way possible... that includes not offering a service because someone else is doing it, and doing it well.

I was recently asked what the best philanthropic tool is for distributing funds to chosen charities.  My response to the individual was that it depends on what your needs are and how much you want to donate in a year.  Below is a chart that might help with the decision making process.  Please note, these categories apply to Canada ONLY.  There are different benefits and tools available to Americans and I am unsure of what is available overseas.  If you are living outside of North America, please share with everyone your information.

Photo Credit: NewfieBullet

Sources for this posting come from:

The Calgary Foundation

The Toronto Community Foundation

PlanGiv

Canada Gives

and the Scotia Private Client Group - Aqueduct Foundation