October 2018

Evaluating charities worthy of your hard-earned dollars

(NC) How much should a Canadian charity be spending on fundraising and overhead? How should you judge? If you’ve ever looked at a charity’s financial report and wondered whether they were spending too much or too little, you’re not alone. 

The answer, although not as simple as it sounds, is to look at the big picture. When it comes to assessing a charity’s fundraising, the Canadian Revenue Agency does not rely solely upon the fundraising ratio. Other factors can be the size of the charity, its stage of growth, and its internal fundraising evaluation processes.

These are all factors to be taken into consideration when trying to evaluate an organization as a donor. There may be very legitimate reasons for a charity to have what appears to be a high fundraising ratio; conversely, an extremely low fundraising ratio may actually indicate erroneous or even fraudulent reporting of expenses. Donors should also look at a charity’s cost of fundraising, its overall budget and whether it is running a deficit.

Ideally, donors should look for signs of consistent management and stable costs over several years. A lot of us tend to judge by the fundraising ratio alone, but that is only one part of the picture, and it is often inaccurate as the sole source of information.

For example, charities that rely heavily on small gifts from a large number of donors will have higher fundraising costs. Amnesty’s fundraising expense percentage of 32 per cent in 2016 was typical of many Canadian non-profit organizations. The organization neither seeks nor accepts government funding in order to remain independent. Most non-governmental organizations do, and they take their fundraising costs and divide them into the total pot of income — government funds included — which makes them look lower as a percentage of the private income raised.

In summary, there is no specific rule to go by when trying to make this assessment. An overall evaluation of the financial health history of the organization is a better guide. When deciding to support a charity, do your research and don’t be afraid to ask questions for more information.

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