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percent of income spent on missionIn my last post, I questioned the validity of using ‘percent of income spent on mission’ as a valuable measurement of an organization’s effectiveness. First and foremost, this is an easily manipulated number. If the organization is based in dishonesty (we all know they exist), they’ll have no hesitation with shifting numbers around to come in at a threshold to avoid scrutiny. 
 
 
Rather than looking at ‘percent of income spent on mission’, or ‘percent of income spent on overhead’, why don’t we encourage using a little common sense when evaluating financial activities? 
 


COMMON SENSE ANALYSIS

Here’s a real life example. I will not use the name of the organization, but all the numbers I am using are real and are taken from their most recent tax return.
 
 
This organization reported gross income of $568,132. They reported fundraising expenses of $459,667, which went almost entirely to professional fundraisers (in this case, phone solicitors). That left $108,465 cash available for grant making, operating expenses, and so on.
 
 
The organization’s Statement of Program Services Accomplishments states that they donate to other organizations and don’t actually run any programs themselves. So how much did they donate to other organizations? They donated $22,318, or about 20.5% of the available cash they had received from the professional telemarketing services. Not too impressive, so let’s dig a little further and see where the rest of the money went. Of course, they have operating expenses as any organization will. There’s also a bit of legal expense and the usual accounting fees.
 
 
SALARIES FOR WHAT, EXACTLY?
Now we arrive at the common sense section. They list five board members. The tax return reports that three of those board members work an average of 25 to 30 hours per week. Really? It takes three people 25 to 30 hours every single week to manage the $100,000 net raised from the professional fundraising activity? After all, they don’t run any programs and are not reporting any fundraising events requiring board time. Here’s where your B.S. sensor should start beeping loudly.  Let’s look a little further and see that those three board members all received salaries, and those salaries totaled $57,200 or 52.7% of the net funds raised. This does not include payroll tax expenses. 
 
 
Do you see where I’m going? It’s just common sense. Should three people get salaries for hiring professional fundraisers and then deciding where to donate $22,000? It’s organizations like this that should have their tax-exempt status reviewed. 
 
 
In this example, it took 4,420 man-hours and $57,200 to manage $108,465, as reported by the organization itself.  If it actually took this many hours to manage the foundation, they need better systems.  
 
 
We can also look at it this way: their telemarketers raised just over a half-million dollars. Can you imagine the impact that money would have if it were used effectively?  After all, this is money that the donors intended to go straight to the organizations.  I doubt they knew how much of their donation would be retained by the people making the phone calls.
 
 
Wouldn’t $500,000 make a difference for your organization? It sure as heck would make a massive difference for every organization we work with in our local community. Most of them pull off small miracles daily with about $20,000 in donations (if that much). Is the problem with the professional fundraising industry, or is it with the organizations that hire them and accept such a low return? Am I missing something?
 
 
SHOULD WE DEVELOP THE 'B.S. THRESHOLD?'
I think I’ll start working on a mathematical formula to determine a B.S. Threshold. I sure see plenty of 'interesting' things when reviewing tax returns (maybe I need a better hobby). 
 
 
Anyway, my point is that there is more to measuring the effectiveness of an organization than one simple percentage.  





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