How much charity goes to charity?

Recently I sat down to plan out my giving for the year. I listed all the organizations I wanted to give money to and then stack ranked them to decide who was going to get the most and who was going to get the least. A lot of different factors go into the stack ranking. For example – how important do I think the organization's activities are? Whose work is more important, the CATO Institute or the ACLU Foundation? How effective do I think the organization is? Who is achieving more, the Electronic Privacy Information Center or the Electronic Frontier Foundation? These questions don't lend themselves well to quantitative analysis so one is left with having to trust one's instincts. But one area in which one can get solid information is – how efficiently does the organization spend your money?

There are a number of websites that try to measure how well charities use your money but the best I found was Charity Navigator. It not only provides easy to understand measures of a number of financial criteria but it automatically compares charities to other charities of similar type. Unfortunately less than half the organizations I donate to are listed there.

I then went to Guidestar. They provide tons of information about just about every charity organization in America include a scanned copy of their IRS Form 990. This is the equivalent of an income tax statement for a charity. You do have to join Guidestar to get access to the 990 but membership is free. I use Form 990 to calculate several values – How much it costs the organization to raise a $1, how much of the organization's money goes to overhead and how much of the organization's money goes to paying the organization's management.

By dividing line 44D (Fund Raising Costs) by line 1D (Raised Revenue) one gets how much money the organization spends to raise $1.

By adding together lines 44C (Management Costs) and 44D (Fund Raising Costs) and dividing the result by line 12 (Total Revenue) one gets the percentage of revenue that is spent on overhead.

By dividing line 44C (Management Costs) by line 12 (Total Revenue) one gets the percentage of revenue that is spent exclusively on paying the management.

Below are the results for some of the organizations I donate to:

Organization

Cost of raising $1

% overhead

% on management

1D – Raised Revenue

12 – Total Revenue

44B – Program Services Costs

44C – Management

44D – Fund Raising Costs

ACLU Foundation

$0.05

7.00%

3.00%

$42,393,279.00

$60,193,025.00

$14,236,201.00

$1,822,848.00

$2,244,435.00

CATO Institute

$0.13

31.00%

19.00%

$16,261,582.00

$17,631,255.00

$8,593,972.00

$3,279,797.00

$2,171,537.00

Computer Professionals for Social Responsibility

$0.19

22.00%

16.00%

$56,352.00

$192,006.00

$168,691.00

$31,631.00

$10,542.00

Electronic Frontier Foundation

$0.09

17.38%

11.01%

$1,392,680.00

$1,943,941.00

$1,194,975.00

$214,100.00

$123,816.00

Electronic Privacy Information Center

$0.04

8.49%

4.26%

$1,113,417.00

$1,107,301.00

$772,578.00

$47,141.00

$46,903.00

Free Software Foundation

$0.00

3.00%

3.00%

$438,451.00

$585,256.00

$449,370.00

$16,848.00

$0.00

Southern Poverty Law Center

$0.19

22.00%

6.00%

$27,541,578.00

$31,527,142.00

$14,517,978.00

$1,757,619.00

$5,273,998.00



Unfortunately one cannot blindly compare the numbers and decide which organization is the most efficient. For example, the Southern Poverty Law Center (SPLC) spends $0.19 to raise a dollar while the ACLU only spends $0.05. But one has to keep in mind that the SPLC uses its fund raising as a mechanism for spreading its message. For example, the SPLC sends out its amazing Intelligence Report magazine in some of its solicitations. The ACLU Foundation on the other hand tends to just send out simple fund raising letters.

The SPLC spends 22% of its revenue on overhead while the EFF spends 17.38%. This would seem to grant kudos to the EFF until you realize that the EFF does almost all of its fund raising on line while the SPLC uses mail. This is when you look at management overhead. The SPLC's management overhead is 6% while the EFF's is 11.01%.

The Computer Professionals for Social Responsibility (CPSR) look absolutely horrible until one realizes that they only have around $200,000 in revenue a year so they don't get the efficiencies of size that a monster like the ACLU Foundation at $60,000,000 a year is able to produce Still, the numbers do help point in directions. For example, the CPSR numbers peaked my interest, after investigating further I found out that they are in some financial trouble.

Then comes CATO. The CATO numbers were so awful when I originally wrote this article (6/2003) that I stopped giving to them. I also sent them two e-mails, to two different people, complaining. I finally heard back from Ray R. Dorman, Vice President for Development. In his letter he explains that CATO suffers from the same problem that the SPLC suffers from, CATO sends out a lot (and I mean A LOT) of material to its members including a 20 page glossy newsletter, regular policy reports, newspaper clippings, etc. Much like the SPLC, CATO views these efforts as keeping its 15,000 sponsors (so few?) educated and up-to-date. But the costs of sending out this material is very high and for due to accounting rules it must be classified as fund raising. Looking at part II of their 990 one can see that most of their money is going to publication/shipping costs and to salaries for their researchers. So while I'm happier with CATO's numbers than I was before and have decided to renew my membership I still am not completely thrilled. I would be much happier if CATO was more aggressive about cutting their fund raising costs and reducing their management costs.

Personally I view charities as an investment and like any other investment I demand a good return. There are many ways to measure that return and the previous gives only one possible view. Still, the numbers do tell a story and that story is worth listening to.

One thought on “How much charity goes to charity?”

  1. As an active volunteer for a dog rescue organization called DDB I strongly believed in I was shocked when I rescued some dogs in a horrible situation and was refused help with vetting costs. I know they take in a lot of donations and when I found that money went to travel, to pay bills, to furnish a new vehicle, dinner out etc. for the founder and her friends and boyfriends I was shocked. Finally after begging for help from other groups regarding vetting I did receive some help from the group I volunteered for, however, after that they told all volunteers they needed to start raising money on their own. We rescue, spend all our own money to foster, and have to raise money for vetting, however the founder has everything paid for. That just was not right.

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