Charity evaluation update - more on the overhead myth

I noted in my September 2013 blog post that three leading charity watchdogs in the USA, which collectively advise millions of donors annually, had not only rejected overhead ratios as the prime indicator of a charity’s reliability and effectiveness, but they had also launched an active effort to bust the “overhead myth.” 

Recently, a financial publication called “Main St.” published an article called The Overhead Myth and Charitable Giving, which supports this effort to better evaluate charities on the basis of their overall business practices, their effectiveness and their transparency – rather than an over simplistic overhead or administrative ratio. Located on Wall St. in New York City’s financial district, the publication’s parent company called “The Street” offers financial insight and advice through its consumer websites and subscription investor services.

It is interesting to see that those who make critical financial evaluations regarding the personal and business investments of clients also agree that a solid business platform within a charitable foundation helps ensure an effective use of a donor’s philanthropic investment in their community.

It is also becoming increasingly evident that sound business practices represent important criteria for donors in making their giving decisions, and add to the donor’s trust and confidence levels as they develop their charitable relationships.

I hope these factors will be publically recognized by more financial experts and media - and that standards of efficiency, effectiveness, transparency, impact and return-on-investment continue to replace the simple calculation of overhead cost.

Dan Ross

Charity lotteries – a business model with a cause

A recent survey of Canadians by the Muttart Foundation (TalkingAbout Charities 2013) found that “Almost nine in 10 (86%) think running a business is a good way for a charity to raise money it can’t obtain from other sources, while eight in 10 (79%) think charities should be able to earn money through any type of business activity as long as the proceeds go to the cause.”

While we know that Canadians are supportive of charities running businesses activities in order to raise funds, why do we see continued debate about the charities being in the lottery business? Perhaps it is because some news media and charity watchdog reports unfortunately treat lottery ticket purchases as charitable donations.

Let’s be clear. Although the net revenues from lotteries are vital to supporting the charities that run them, lotteries are a business activity. While knowing that the net proceeds go to a particular cause may be a factor in which lottery a purchaser chooses to support, making a “donation” is not their primary motivator. Most ticket buyers are hoping for the big win. Canada Revenue Agency is clear that ticket purchases are not the same as donations and prohibits the issuing of charitable receipts for lottery purchases. The reasoning is simple - the buyer is receiving value (the chance at winning prizes) in exchange for the money spent. In other words, it is a business transaction.

We have received great support through lotteries and it really is a win, win, win scenario. Dream Lottery, in which we participate, has bought millions of dollars in prizes regionally thus contributing to the local economy. Prize winners tend to come from our region meaning local residents benefit directly, and those that need the services of our regional hospitals benefit since we gain millions in net profits to support great patient care, medical research, innovation and education at those institutions.

Even with tickets paying for the prizes, administration and marketing, many charity lotteries still net 20-30 per cent for their cause. Historically, Dream Lottery has been one of the best in the country for maximizing net profits. Any business that can consistently perform at these profit levels would usually gain praise for efficiency. Instead, critics say that it would be more efficient to support a charity with a direct donation rather than a “donation” through a ticket purchase.

While we agree that direct donations ultimately contribute a greater net to the cause, we don’t agree that buying a ticket is the same as a donation. And our experience shows that conducting a lottery does not diminish direct donations. In the years directly after our Foundation began participating in a fall lottery (in addition to one in the spring), our donation levels actually rose. This rise could be partly attributed to lottery advertising raising awareness of our cause. Also, there is no indication that ticket buyers convert their purchases to donations when a lottery is cancelled. They simply buy tickets in a different lottery.

Charity lotteries are generally self-supporting - and our lotteries have been completely self-supporting. Yet, in their reports, some analysts insist on blending the approximately 70 percent cost of the lottery business model with the relatively low costs required to encourage, administer and steward direct, charitable donations. This can mislead the public into thinking lottery costs impact direct donations; that charities spend large amounts of money from direct donations on lottery overhead when those costs are actually fully-covered by lottery ticket sales alone.

For our Foundation, the cost of direct donations has historically been 15 cents per dollar - with or without running a lottery. Since some analysts insist they will not stop the practice of blending costs in their reports, the only way that our Foundation will ever look good in their eyes is to eliminate the lottery altogether. While the critics would then happily report a lower cost-per-dollar ratio for our Foundation, our Hospital and its patients would simply lose the benefit of millions of net dollars from lottery sales.

We cannot ignore our Foundation’s mission to raise funds that support the great patient care and outstanding medical education, innovation and discovery at London Health Sciences Centre. Too many patients and their families rely on our hospital to save or improve their lives. So, instead cancelling a business activity that contributes significant net revenue to the benefit of those patients and families, we will continue to bring balance to the debate about lotteries.

We will leave it to our supporters to choose the way that they want to contribute and that best suits their giving style; whether through direct donations, lottery ticket purchases, participation in a community event, attendance at one of our signature events, through gifts made through their estate or insurance, or a combination of any of these methods.

Whichever way they choose to support us, they can be assured that their contributions are being put to good use by physicians, researchers and staff at our hospital, to the maximum benefit of patients and their families, and to create a healthier future for our community.

Dan Ross

Volunteers are key to a charity’s success.

Charities big and small rely on volunteers. At London Health Sciences Foundation, volunteers are the lifeblood of our organization.

For smaller charities, especially those starting out, volunteers are essential. For a small organization that needs to keep start-up costs down in order to grow successfully, volunteers can provide skill, knowledge and experience, a determined and passionate workforce, and act as a link into their community in order to raise awareness for the charity and its cause or beneficiary.

For larger or more mature charities that maintain an employee workforce to meet the daily demand and workload, volunteers remain equally as valuable. At our Foundation, they assist staff in increasing our efficiency, our effectiveness, and our overall success; and they are an indispensable link to the community as ambassadors and advocates for London Health Sciences Centre and its many programs.

According to an Imagine Canada Research Note on the 2010 Canada Survey of Giving conducted by Statistics Canada, more than 13.3 million Canadians volunteered about 2.1 billion hours of their time annually to charitable and volunteer organizations. That’s the equivalent of 1.1 million fulltime jobs. We know that LHSF and LHSC volunteers give thousands of hours of their time each and every year.

We work hard to attract, and even actively recruit, volunteers to our Foundation, but it is often our volunteers who are our most effective recruiters as they speak to their family, friends, neighbours and personal and business acquaintances about our organization and our hospital

Volunteers also tend to lead by example when it comes to giving with 91% of volunteers making charitable donations, compared to 73% of non-volunteers.

Our volunteers bring fresh ideas, insight and expertise that supplement and complement the knowledge and dedicated effort of our employees. The volunteers on our board and committees act as the community’s conscience, providing important guidance and oversight to our Foundation’s operations.

For our Foundation, volunteers bring passion and commitment to literally dozens of health care and patient care causes. They organize and hold about 100 community events each year and are key components in the Foundation’s signature events and other fundraising efforts. They help raise awareness and vital funds that keep our Hospital on the forward edge of medical research, education, innovation and patient care.

Quite simply, we couldn’t do it without them.

Dan Ross

For more on recruiting and managing volunteers who make a difference in your organization, visit Imagine Canada’s sector source pages. Imagine Canada’s Volunteer Value Calculator can assist you in measuring the economic contribution of volunteers. And be sure to check out the helpful resources available at Volunteer Canada too.

It’s rating season – busting the overhead myth

Reports on charities are made by watchdog groups and consumer magazines each year.

Some of these watchdogs are relative novices in evaluating the charity sector. They look for a simple way to judge charities and transmit that evaluation to the public. There are those that conclude that overhead cost ratio is one of, if not the single most, important factor by which charities should be judged effective.

It is not.

While the debate on how to best evaluate charities is relatively new in Canada, it has been raging in the USA for years. Experienced donor advisory groups that relied on the overhead cost ratio for years have started to abandon it in the face of methodical studies showing that too low a ratio actually points to charities being less efficient and less effective.

Unfortunately, the charity sector in Canada sends conflicting messages to the public on this issue. Some charities will not publicize their results from evaluations based on overhead cost ratios (even if they receive good ratings), some actively try to debunk the evaluations, but others actively promote their high marks as a reason to donate to their cause.

In the USA, three of the leading and most experienced independent charity watchdogs recently signed an open letter to the public, launched a website called The Overhead Myth and started a pledge petition on the site to get people to stop judging charities based solely or largely on overhead costs. These groups collectively advise millions of donors each year and they are now urging all donors to see the whole picture when evaluating charities.

Two Canadian organizations already evaluate charities based on good governance, transparency and other factors that, when part of a formalized structure and plan, help ensure that a charity can be effective. Imagine Canada and the Better Business Bureau have an accreditation process that evaluates charities on multiple points and they have review and complaint reporting procedures, so charities must take care to live up to those standards at all times.

To ensure public confidence and sector effectiveness, Canadian charities need to endorse these accreditation groups and should work to meet the standards that they have set. They also have to be open and accessible. Donors should be encouraged to contact their charity of choice, without hesitation, if they have any questions. As charities we must welcome their engagement and respond quickly and definitively.

Charities need to be effective and transparent. Those who rely on us deserve no less than our best.

Dan Ross

Charity standards make a difference

In any industry or sector, establishing, meeting and maintaining standards is key to building public and investor confidence. Nowhere is that more important than the charity sector where wise donor investment can make an incredible difference to the communities in which we live and to society in general.

As a sector, we must voluntarily seek to meet standards that are over and above those set by government if we are to earn and keep public and donor confidence. We owe this to our beneficiaries if we are to meet their needs.

Imagine Canada’s Standards Program is a Canada-wide set of 72 externally established standards for charities and non-profits designed to demonstrate their compliance in five fundamental areas: board governance; financial accountability and transparency; fundraising; staff management; and volunteer involvement.

London Health Sciences Foundation is proud to be an early adopter of this national program, which is one of the first of its kind in the world. When Imagine Canada announced on June 19, the first group to meet all 72 standards since the program’s initial pilot, we were one of only 45 charities nationwide (and one of just four hospital foundations) to earn the right to display the Imagine Canada Trustmark.

The formal accreditation process truly helped us become better. We were already doing most or all of the things that were set as standards. However, formalizing those standards reinforced our Foundation’s already positive and effective fundraising and reporting procedures, ensuring that we continue to be accountable to our donors in a transparent manner.

Like the Better Business Bureau Accredited Charity seal, which we also proudly display, the Imagine Canada Trustmark is an easy way to visually identify a trusted charity. The numerous standards, reviews and complaints reporting procedures established by these organizations far outweigh the overhead cost ratio that is so popular with less comprehensive charity evaluators who use it as a single or main evaluation point.

Evaluations are important, but they must be detailed, accurate - and most importantly - a true reflection of the performance of a charitable organization.

We recommend that donors take advantage of Imagine Canada’s Charity Focus reports as a source of information when making their donation decisions. This service is endorsed by the Canada Revenue Agency’s Charities Directorate (the government agency responsible for registering and monitoring charities). Finally, the CRA itself maintains a public file on its website of the annual financial reports filed by charities.

Donors strengthen our communities and make the world a better place. Informed donors do that most effectively.

Dan Ross

Welcome to my Blog

Donations are no longer a "nice to have" addition to government funding of health care. If we are to push beyond the current, government-funded, standard of care – to continually deliver extraordinary care – it is donor support that will provide the "extras" that drive the process of research and innovation forward.

To do this, we need you as partners in the process.

The purpose of my blogging is to truly start a conversation. All too often, charities seek to attract donors, but miss the opportunity to engage them in shaping philanthropy today.

I want to remove some of the mysteries and misconceptions about how charity operates in health care and what it is that donors like you help achieve.

I want to share with you the "value equation"; the sweet spot where dedicated fundraisers, applying sound business principles while working with committed donors and skilled and compassionate health care professionals maximize return on investment and provide the best results for patients and their families.

I will weigh in on the charitable sector debate on how we measure effectiveness and efficiency in our profession, and I’ll share the measures we are taking to ensure we function with transparency and accountability to you, our donors.

I look forward to writing about and discussing these topics in the coming year. I also look forward to hearing your feedback.

Together, we will continue to support those doctors, nurses, researchers and front-line staff who truly change and improve lives and make care at London Health Sciences Centre extraordinary.

Dan Ross