There are many challenges associated with efficient charity management. CGAs are answering the call.
Giving to good causes is something many of us do, occasionally in response to a tragedy, often as part of a plan, all in the hope that the money or the time donated will make a difference. The motivation may be compassion or a sense of duty, even shock after earthquakes or tidal waves devastate communities. We offer money to good causes, and then leave it to others to spend wisely. Making that happen – managing the money efficiently – is the challenge. But in the absence of the goal of making a profit, charities and non-profits can wind up bleeding cash with little to show for it.
The largest problem facing charities is not public support. Indeed, according to Imagine Canada, a Toronto-based research and lobbying group that advances the cause of charities, the sector is enormous. The Canada Revenue Agency says there are 165,500 charities across the country, employing more than two million people, representing 11 per cent of “the economically active population.” Imagine Canada’s data shows that the charity sector represents $106.4 billion or seven per cent of Canada’s GDP. CGAs are helping with that massive task.
CBM and Cost Management
Steven Baal, CGA, is the CFO of the Christian Blind Mission International (CBM). Steering the finances of the organization, he has helped it earn one of the highest marks among Canadian charities for efficient operation. Last year, a survey by MoneySense magazine showed it spent 85 per cent of its revenues on programs. That’s one of the highest ratios of program spending to total revenue in the country. Its average cost to raise $100 was $9.70, which is modest in the range of fundraising expenses for Canadian charities.
CBM is a relatively lean structure with 50 employees and 55 volunteers, and works through partner organizations in countries such as Ethiopia where it has projects. “Among CBM’s principles is the idea that we work with integrity and communicate with honesty,” Baal explains. The motivation to work in the non-profit sector is personal, but with a financial cost. “Our salaries are usually below the market average because we attract people by our mission rather than by the pay,” he says.
Meanwhile, the job of raising money is getting harder, Baal admits. Statistics bear him out. The number of Canadians making charitable contributions fell from 5.8 million in 2008 to 5.6 million in 2009, the last year for which this data is available, and the amounts donated dropped to $7.75 billion in 2009, the last year for which data is available, from $8.19 billion in 2008. Meanwhile, the average age of donors has risen to 53, according to Statistics Canada, leaving charities wondering where the money will come from in future as current donors go into retirement and then, eventually die.
The decline in giving may also be due to increased auditing of contributions by the Canada Revenue Agency. Audits of individual contributors could have the effect of discouraging charitable contributions that produce official tax receipts, says Imagine Canada. Yet even when CRA’s audits of charitable tax shelters are taken into account, donations have decreased, the organization says. For now, there is not much prospect of a significant rise in donations. “In hard economic times, people have less to give,” says Lindsey Vodarek, Imagine Canada’s manager of communications.
Community Support An Asset
In Winnipeg, a combination of strong community support and demonstrably effective operation has helped the city’s United Way to increase its funding. Private donations to United Way of Winnipeg rose 40 per cent to $17.5 million for the year ended March 31, 2011 from $12.5 million for the comparable period in 2002. The increase is substantial, even if inflation at an average rate of 2.5 per cent per year is taken into account.
Other revenue, such as contributions from government and investment income, pushed total funds available in 2011 up to $29.1 million. The money was distributed mostly to partner organizations, many quite small, which deal with community issues such as troubled youth, school dropout rates, and community health. United Way funding enabled the groups to keep their own fundraising costs down, allowing the entire voluntary or charitable sector in Winnipeg to operate at a high level of financial efficiency.
Beverly Passey, FCGA, is vice-president for Donor Relations and Research Development for the organization. She notes that United Way’s fundraising costs including salaries and administration are low in a range of 16 to 17 per cent of total spending. The provincial government provides a grant toward these costs, which means that all donations can go to the organization’s mission. “That allows us to tell people that whatever they donate to our annual campaign will all be invested in the community,” she explains.
Accounting protocols are a major driver of spending decisions at United Way. “We test for effectiveness from decision making forward,” Passey explains. “We prioritize issues. We have detailed funding agreements with each organization we help and we get regular reports from them. Volunteers assist management, spending time with the organizations’ boards and executive directors. That way, we provide value to donors and to the community.”
While making money is not the core focus, the charity sector is nevertheless a very competitive and regulated industry. The lack of profit targets actually complicates management and governance, says Kathi Dodson, CGA and vice-president of Finance and Administration of Habitat Canada, an organization that builds affordable housing for lower income people. In the national office in Waterloo, Ontario, Dodson monitors financial transactions and manages risks for Habitat at a national level. “Habitat affiliates around the country partner with low income families that are willing to assume a no-interest mortgage held by the local Habitat organization with payments geared to family income,” she explains. Habitat holds its fundraising and administrative costs to 20 per cent or less of total funds raised, she adds.
Accountability in this part of the non-profit sector is not from shareholders, Dodson says. “It’s the public, which is a bigger area of responsibility. Our financial process is rigorous. We do test budgets and we compare our current budgets to our historical budgets. Our fundraising expense is always less than 20 per cent of expenditures. Moreover, our local affiliates raise 80 per cent of their own money. But the biggest challenge is to link the money we spend to the results we achieve.” The management challenge is to maximize results for money spent.
Resource Allocation by Social Effectiveness
At the YWCA of Calgary, CGA Virginia Trawick is director of Organizational Effectiveness. Her organization offers a gym and athletic programs, but it also offers social services such as family violence prevention, English as a second language, pre-employment programs, housing, and support programming. With an annual budget of $17.2 million for the 12 months ended March 31, 2012, it serves 11,000 people in Calgary and surrounding areas. Judging how the money can be spent well, she notes, requires a new agility for accounting. “We measure efficiency of our operation in terms of expectation and outcomes,” she says.
“To do that, we prepare impact reports that show what we do for the community and we judge that in terms of such things as the successful completion of our programs. For example, we shut down our swimming pool in 2010 because it cost too much and was not sustainable. Instead, we were able to extend our programming to far more people. It is harder than if we were using profit and loss statements, but we can measure our social impacts with economic indicators such as social returns on investments. That has translated to savings on police and other community services, and those are meaningful numbers.”
While the efficient administration of charities’ revenues and expenditures is essential to carrying out their mission, the problem is that there is no single standard of efficiency for how charities convert revenue to benefits. A charity that provides counselling for troubled people is likely to have a higher ratio of salaries to total spending than one that provides a commodity such as food for people in Africa.
“Most charitable work is labour-intensive, so compensation is moderated by budget constraints and by the fact that many people who work for charities are driven less by income than by the desire to do good works for others,” says Derek Evans, CGA, director of finance for the Halton Children’s Aid Society in Burlington, Ontario. “The role of management in our charity and presumably in others is to ensure that donors get value for the money they contribute. As a CGA, I apply my ethical training to ensure that we provide value for our donors and our beneficiaries, who, in our case, are children and youth at risk in the community.”
Managing the business of charities by goals and accomplishments is, if anything, tougher than managing by a bottom line. Goals like children kept off the streets, families kept from disintegrating, protecting the lives of the weak and the ill are harder to measure, Evans says.
CGAs in the non-profit environment are able to work toward these targets, using complex measures that provide a realistic view of the work and what has been accomplished, Evans adds. Ethics are an important part of management, and a substantial component of this task. Sensitivity to issues and to people is as important as counting dollars, he says. “It is the human side of administration, one in which the bottom line is lives improved, sometimes lives saved,” he emphasizes.
CGAs are extending their financial skills to build what money cannot always measure – a better society.