BC’s charitable sector is yet another segment of the province’s economy that’s recovering from the effects of the global downturn.
According to a survey of the 100 largest registered charities in B.C., their combined revenue rose nearly 3% to more than $1.1 billion compared with 2009.
Of the charities on this year’s list with completed fiscal 2010 financial statements, more than half reported revenue increases.
Some of the non-profits with the most significant increases included the:
- Variety Club (up 57% due to funding for a new program);
- Vancouver Community Foundation (up 46.5%);
- Union Gospel Mission (up 23.7%); and
- BC Cancer Foundation (up 14.6%).
The combined boost in grants and donations also increased charitable output and expenditures by 2.8% to $954.5 million. It’s a significant turnaround from the average 5.3% drop in donations in Canada in 2008.
While the largest foundations accounted for nearly a third of all charitable revenue in B.C. this year, health-related and social service charities racked up the most charitable income in B.C.
But this year’s recovery remains bittersweet for the sector because of a significant rise in what some insiders consider undue scrutiny over how charities are run.
Earlier this year, Albina Guarnieri, a Toronto-area Liberal MP tabled a private member’s bill in Ottawa that would set a salary cap of $250,000 for senior executives of registered charities. It would also require all charities to publicly disclose the names and salaries of a charity’s five highest-paid employees.
The bill is a response to outrage over a $2.7 million severance package given to the president of Toronto’s SickKids Foundation, who left the organization before the end of his contract last fall.
The bill, which is now in second reading, is raising concerns in the charitable sector.
According to Malcolm Burrows, head of philanthropic advisory services at Scotia Private Client Group, “There’s a lot of concern in the sector around over-regulation and a new punitive set of rules that are very inhibiting and unnecessary.”
He noted that more than two-thirds of the 85,000 registered charities in Canada have annual revenue under $100,000 and most charity staff are “massively underpaid.” The bill, if passed, would likely force most charities to expend more resources on disclosing salaries of part-time staff, something no other industry has to do.
Faye Wightman, president and CEO of the Vancouver Foundation, B.C.’s largest foundation, disagreed with the notion that people who run or work for a charity should face a salary cap and be paid less than their counterparts in the private sector. She said for charitable organizations to remain effective, they need to be able to attract talent just like any other organization.
She noted the bill incorrectly suggests there’s weak transparency and disclosure in the charitable sector. Wightman added that government should not be imposing a salary cap on any sector in the economy.
“It’s not their responsibility to do that; it’s the responsibility of an organization’s board of directors.”
Wightman noted that much of the information people need to evaluate the solvency and output of a charitable organization is already publicly available, either directly from a charity or from the Canada Revenue Agency’s website, which provides a charity’s T3010 return.
Nevertheless, it’s important for charities to maintain as transparent an organization as possible to attract and retain donors. Burrows suggested charities should be providing information directly to the public and not rely on CRA filings to be accountable.
“I put high stock in charities that will fully disclose. I trust those entities. But if they’re defensive [or] evasive, I don’t feel any trust and would recommend people should feel suspicious. They’re public entities; they get public support, so there should be no reluctance to share information.”
Charities also benefit from being transparent and accountable. They can explain program costs and expenses associated with administration and fundraising, the latter of which has come under increasing scrutiny in recent years.
Last year, the CRA implemented new fundraising guidelines suggesting that it will increase scrutiny of charities that have a fundraising cost ratio of greater than 35% of total their fundraising income. Organizations with a fundraising cost ratio of more than 70% will likely face CRA audits and questioning.
However, Burrows noted it was important for donors to understand the rationale for some fundraising costs because each organization will have different fundraising models, some of which are more expensive than others. Those with a lot of individual donors might have higher costs because of the amount of mail or phone time needed to connect with donors each year.
Wightman noted that organizations relying on major gifts will generally have very low fundraising costs, usually around 4%, but fundraising events will likely have costs of 50%.
“That doesn’t mean it isn’t good to do an event. But it’s important to know that it does cost money to raise money.”
Burrows and Wightman also noted it’s important for donors to realize the value behind an organization’s administration.
“You often hear people say they don’t want their money going to overhead, but if there’s no way for the doors to be open and the lights to stay on, you can’t run effective programs,” Wightman said. “An organization with the lowest overhead doesn’t mean it’s the best organization.”
Burrows said organizations that rely heavily on volunteers can be extremely ineffective, primarily because turnover can be high and their level of expertise in constant flux.
Financial information can provide a starting point to evaluating a charity’s effectiveness. Burrows said it’s important to look at an organization’s revenue, administration and fundraising costs and salary levels when comparing them with similar-sized organizations.
“If you have one or two very highly paid people, it’s not typical of the sector if it doesn’t have a large revenue base,” said Burrows. “One of my biggest complaints is if you ever find a charity that you know to do a fair bit of fundraising, but doesn’t record any fundraising costs, be suspicious, be very suspicious. To me, that’s a credibility issue.”
But Wightman noted a charity’s benefits often go beyond a basic cost analysis. For charities that are service oriented or provide preventive programs, it can be difficult to put a value on the program’s impact, especially annually. However, she said it’s important for donors to ask the question and for charities to at least try to follow up with program participants to provide continued accountability of a program’s success even after it has ended or funding has ceased.
A few years ago, Leanne McConnachie, director of farm animal programs for the Vancouver Humane Society, devised a four-part framework to assess the performance of charities, specifically animal welfare organizations, as part of her UBC master’s thesis.
Her PREP framework broke down the areas people can consider when evaluating charities to four criteria:
- philosophy – an organization’s beliefs, values and policy statements;
- red flags – excessive turnover, disproportionate management salaries, high administration or fundraising costs, lack of peer collaboration, lack of transparency and other organizational issues that might arouse concern;
- efficiency – proof that a charity is meeting a community need, has a multi-year strategic plan, has a diversity of funding sources and credible financials; and
- people – evidence that a charity has experienced management, paid staff, moderate turnover, competitive wages, satisfied donors and effective board members.
From this framework, donors can more effectively see if a charity is providing value for money and effective outcomes.
A strategic plan is a key element. McConnachie noted that it helps ensure an organization stays on track and has an annual goal to accomplish with its funding.
“If you do things that are half-effort all the time, without a full-scale plan, you’re never going to maximize your donor’s investment in what you’re doing. You have to have a plan, know the steps needed to achieve it. It’s a wise use of funds and a better way to achieve a vision.”