Unfortunately, there are people who think charities are ripping off the public. Executive compensation. Fundraising costs. Overhead. Lack of accountability and transparency. These are all issues that are alive and well online and in the press. Yes, there are some ‘bad apples’ in the charity sector, just as there are in every sector and among every demographic. But the vast majority of charities have passionate people doing very effective good work quite efficiently, and the world is a better place because of them.

The problem is that we don’t do a good job telling the public what we do. I’m on an Imagine Canada committee that will be meeting soon to discuss how to develop a sector narrative that tells the public how charities contribute to the public good. This is PR for the entire sector that I fully support.

Now, what about PR for your ministry? Anyone is free to comment or critique your ministry, but you should get your story out in the open so there is always something official from your ministry that people can check if they hear something negative about you. Equip people to speak up on your behalf by giving the public a realistic self-assessment of both your results and your anticipated future.

Your Story Is Already Being Told by Someone Else

There are numerous charity monitoring groups around the world, and although most are not active in Canada they are harbingers of what we can expect over time. Right now though, information about your charity is available through the CRA. It reports only what you disclosed on your T3010 information return, so there are no editorial comments in its report.

However, when you prepare the T3010 each year, you are likely thinking only of regulatory compliance issues, not about donors or public relations. You may not realize how easily the factual information in the T3010 can be misinterpreted. I’ll give some examples related to CCCC below, but first, here’s where you can find what is being reported about your ministry:

Canada Revenue Agency:

• Click here and search on your charity’s name
• Click on your charity’s name and then click on T3010
• Click on Quick View for the most recent fiscal year

Example of How Factual Information Can Be Misinterpreted

Here’s how the T3010 can innocently mislead the public. Our T3010 for fiscal 2011 showed we raised almost $1.3 million with a fundraising ratio of 0% and administration ratio of 6%. That looks awfully good, so that’s in our favour. However, it also shows that we had a surplus of about $358,000, leaving the impression that we are raising more than we need and are hoarding cash rather than spending it on charitable programs. The amounts reported are accurate, but the interpretations are not. Here’s the rest of the story that the T3010 doesn’t tell:

• We had no fundraising costs because we didn’t solicit any donations. However, if members are not set up to receive gifts of securities, they send their donors to our Community Trust Fund. We receive and receipt the gift, convert it to cash and send the proceeds to the member. Although it looks like we did fundraising, we didn’t. And neither do we give grants.
• Administration costs are relatively low and they should be, because we are a centralized organization working only in Canada with no special complexities. But is 6% high enough? Maybe for a charity in maintenance mode, but maybe not for an organization that wants to grow, expand services, and be on the leading edge. Strategy creation, forging partnerships, and organizational development are all administration costs, so perhaps this ratio should be 8%. I wouldn’t want 6% to become the norm for us if it means we are short-changing our future for a low ratio.
• Our surplus of $358,000 is not what it seems. The operating surplus was only $107,000 and the remainder of the surplus came from the Community Trust Fund, which received donations that we have not yet been told how to disburse. That’s not our money. Furthermore, of the $107,000 surplus, $44,000 was unrealized gains on investments, so it’s only a paper surplus until the investments are sold. And then of course, the financial statements and the T3010 make no mention of what the remaining $63,000 is intended for. Are we saving for a rainy day or a specific project? The answer is that we are using accumulated surpluses for major projects (such as the development of a completely new website that is now underway).
• Finally, the T3010 makes it look like we had over $3.9 million in cash and investments. We look rich indeed!! But that isn’t true (sigh). $2.4 million belongs to the Community Trust Fund, not us, and we can’t use it. $745,000 is unearned revenue that we will live off of for the next nine months. $234,000 belongs to the Legal Defense Fund, which we can’t use for operations either. We have a reserve of several months of operating expenses that we must keep ($295,000) and a major project in fiscal 2013/14 that will use up most of the remainder. Our fiscal year end of March 31 always shows lots of cash because we’ve just received our membership dues, but if our year end were October 31, you’d see a vastly different financial position!

While the particulars of our financial statements may be different from yours, can you see how people could get wrong ideas from the financial statements and T3010? We need to make sure that doesn’t happen. We can do that by writing a management commentary on our results and prospects. In other words, we tell our story.

How to Tell Your Own Story

As part of your annual report you should prepare a management discussion and analysis (MD&A) of the past year’s results. At the CCCC conference coming up in a couple of weeks, I’ll be delivering a double workshop on how to write an MD&A. I’ll take participants through each of the following points with detailed suggestions and they’ll complete a workbook and walk out with a preliminary draft of their own MD&A.

The Canadian Institute of Chartered Accountants says the principles behind the MD&A are that it should:

• enable readers to view the organization through management’s eyes
• supplement and complement the information in the financial statements
• be complete, fair and balanced, and provide information that is material to the decision-making needs of users
• have a forward-looking orientation
• focus on management’s strategy for generating value over time (or in our case, our strategy for generating mission-related results over time)
• be understandable, relevant, and comparable

The general framework for the management discussion and analysis has five parts:

1. Core businesses and strategy — for charities that means what you do and how you are structured (major divisions and so forth). Assess significant factors and trends that shape your key strategies.
2. Key performance drivers — the few external and internal performance drivers that are critical to successfully implementing your strategies and achieving your goals, along with the key performance indicators
3. Capability to deliver results — address the resources needed to deliver the strategy and achieve results. This includes financial, human, tangible, and intangible resources such as systems, leadership, and work processes.
4. Results and outlook — an insightful explanation of the last year’s performance against your strategy and goals. Review trends in the key performance indicators and explain them. You would also talk about the likely future in this section.
5. Risk — what are the major risks for the organization as a whole and what is your strategy to deal with them.

Of course, not everything should be made public, so some wisdom is needed to determine what the public report should include. In general, you want to be as open as possible without disadvantaging yourself. Show how your strategy, results and financial statements fit together.

A Great Example

World Vision International produces a very complete accountability report. It is far more comprehensive than what I’m describing here, but I think it is worth reviewing to see how well such a report can be done and it will certainly give you some ideas for your own report.

 Key Takeaway

Once you have written the MD&A, you have an informative document to post on your website, and I’m sure a lot of the material will find its way into your fundraising literature. It will also help you set your plans for the next year. As I prepare for the workshop, I’m writing an MD&A for CCCC and will post it on our website and Charity Focus when it is ready.

If you have one that you think would be helpful as an example, why not use the comment form to link us to it?

The post Who’s Telling Your Story? appeared first on CCCC Blogs.

When people who otherwise support your cause say “What can I do? I don’t have lots of money to give”, this story is an encouragement for them not to look at what they lack, but at what they have. Even the cash poor in Canada are wealthy compared to the poor in India, and if they are rich in generosity with what they have, then we in Canada should be rich in generosity as well. When prospective donors don’t have cash, ask them what else they have that they can give. If it is useful to your ministry, then gifts-in-kind and gifts of service can be very helpful. (The latter gift is not receiptable unless they charge for the service, you pay it, and then they donate the income back.)

Everyone can be a giver!

The post “If you eat, you can give” appeared first on CCCC Blogs.

Why You Should Give Donors More Information

I’ll make my case with these observations:

• In sales training, you learn to make two sales. The first sale is to convince the prospect they need what you are selling. Once convinced, then you sell them on why they should buy your specific offering. A lot of fundraising appeals only deal with the first ‘sale’. We say “People are starving, people are lost without Christ, and we’re there to make a difference! There is a great NEED and you can HELP!” We might even show pictures of those poor, suffering people. That might be enough to induce some ‘guilt’ donations, but this strategy alone will not get you where you want to go. It only raises awareness of the issue. Yes, you must build awareness, and yes, pictures help to tell a story, but don’t be content with just that for your fundraising strategy.
• A basic attempt at the second sale is to impress people in some way about your ministry, such as how many meals you served or how many people made decisions for Christ (“One hundred and forty-two billion people converted”). This is the McDonald’s or statistical approach, and it at least shows that your ministry is busy. A reputational approach distinguishes yourself based on longevity (“Since 1285 we’ve been…”) or size (“The solar system’s largest…”). These approaches can work well enough because many people are too lazy to make their own decisions, and so rely on the crowd to make a decision for them. Their assumption is, if you are that old or that big or did that much, then obviously others must think you are worthy of support and that’s good enough for them. But is this the best we can do?  I don’t think so. It’s fine to have some pride in the size and history of your ministry, and I throw around statistics too, but I think the case for support needs to go beyond all that.
• A more sophisticated approach is the business approach (which is all the current rage). Fundraising appeals talk about cost effectiveness (“130% of your donation goes to good works because we found a way to make money on our overhead!”), leverage (“For every dollar you give, the government will add another one hundred and thirty-three…”), efficiency (“We can innoculate 8,531 people per hour at our one doctor clinic”), and return on investment (“For every dollar you invest, 300 people will…”). Measurements such as these are fine, and they are useful to a degree, but I question how applicable they are as the final selection criteria between ministries, especially those that are focused on evangelism and individual change. I know you can measure pretty well anything, but how do you account for seeds that are planted in a student one year by a Christian worker at a university, and the marketplace ministry that ultimately leads the graduate to the Lord ten years later on?  Is one more worthy of support because they get to count the decision? A business approach requires results, and the results sometimes are quite separate from the intervention. This approach also devalues the effort that goes into getting results. Who would attempt the impossible if only the result counts? Would you turn a project or a person away because they might bring your numbers down? Or we can be highly efficient in dealing with people, and to keep the efficiency levels high we give up the capacity to spend time and really love a person by caring for them, listening to them and simply being there for them. The essence of Christianity is relationship, and a business approach doesn’t account for that. Again, there is great value in this approach, but it’s not the best way to choose between ministries.

A New Mindset for Fundraisers

There is a better way to ‘compete.’ A donation is not a guilt offering or a business transaction. It is an act of worship. Every donation represents a donor who is voluntarily participating in the mission of God. We must not reduce fundraising to ‘selling’ our ministries to donors. The corporate model of revenue generation and all that goes with it is simply not the appropriate model for Christian ministry. We are not selling. We are not begging. We are actively working on God’s mission and inviting others to help us as we do. So with so many ministries sharing similar missions, what is an appropriate way to ask for support?

When I receive an appeal for a donation my first question is, “I understand the need, but what do you think the problem really is?” and my second is, “What is your methodology?” I then look for the answers. I’m tired of giving money to fund methods of questionable value that address only the superficial aspects of the problem. I want real change. Lasting change.

How to Distinguish Your Ministry to Donors

I think the invitation to support should be pretty straight-forward. Explain your logic model. That’s it. That is the best way to ‘compete’ with other Christian ministries. It doesn’t say you are better than everyone else. It simply says, “Here’s how we see the problem or opportunity, these are the values and assumptions we base our strategy on, and this is the theory of change we use to design our programs and services.” Donors are now free to compare your logic model with another, and see which one is most compelling for them. The logic model gets down to the real, substantive differences between ministries. Is this a healthy way to differentiate yourself from others? I think so, because all you are doing is describing how you will change things, and inviting those who agree with that strategy to support you.

I think God allows for legitimate diversity of opinion as to methodology and priority. For example, Christians can be found in virtually all political camps, so they may have very different proposals for solving the world’s problems. Trickle down economic policies are one way to address poverty, while income redistribution through the tax system is a very different way. Christians may legitimately disagree on these points. If opinion is divided, the local church or denomination may not be able to address the issue directly because their open membership covers a wide range of opinions. However, its members could consider the competing solutions offered by Christian agencies and each member choose the solution that seems best to them. One person may be big on mass evangelism events while another supports one-on-one approaches. The same goal, but different methods.

If giving is an act of worship, then it should be done intelligently. That is simply good stewardship. Providing information about your logic model shows respect for your donors and their stewardship of God’s resources. Rather than simplifying your giving opportunity, make it more complex by explaining the logic behind your ministry. Your donors will have greater confidence in your ministry, they will be better educated about the real issues, and well-equipped to tell others about your ministry.

Some people will decide your model is not their cup of tea, and some may not be interested in your logic model but will continue as transactional or habitual donors. But others will now be far more engaged with your ministry because of their deep understanding of it. They will become your missionary fundraisers as they share their enthusiasm for your ministry.

Here are statements that might be used when explaining your logic model:

• Our mission is…
• Our values include … which means that our programs are designed…
• The root issues underlying our mission are… so we…
• We assume that… and therefore we…
• We believe that if we can…then the lasting impact will be…
• We realize we are only part of the solution, so we…
• Once our work with an individual or community is done, we believe they will…
• To ensure sustainability, we…
• We define success as…
• The indicators of success are…
• Change will occur because we…

Most ministries probably do not have an explicit logic model, but every ministry has an assumed one that can be uncovered by asking yourself “Why do we do it this way?” “Why do we believe this will work and not that?”

I’m putting this ‘out there’ as food for thought. It’s not an all-or-nothing proposition, but it is a suggestion for how to communicate with a segment of the Christian public who want this sort of information. Jump in with your thoughts!

For more suggestions on this topic, I’ve written about the unhealthy aspects of competition between ministries, about performance measurement, theory of change, and about logic models. I still intend to write about reporting to donors.

The post A Healthy Approach to Competition appeared first on CCCC Blogs.

Someone (I’ll call him Paul) showed me a graph on Canadian Food for the Hungry International’s (FH) website that showed the percentage of donations that go into poverty-relief programs, not only for FH but also for ministries that donors might see as its ‘competitors.’ Given that FH had the ‘best’ ratio, Paul interpreted this graph as a bid to attract donors away from the other charities, and he had already said in in a post (that no longer exists) that this was bad behaviour between Christian ministries.

I wanted to blog about this, so I called Ben Hoogendoorn, president of FH, to find out what was going on. We had a very productive conversation, but I don’t want to speak for Ben and FH.  That’s not my place. What I can say for me is that I was impressed that Ben was in the midst of talking to the leaders of all the charities that were named.

When a real or potential conflict arises, a Christian should confront the issue and deal with it humbly, in love and with grace, in order to bring about reconciliation and peace. This is what he and the other leaders are doing. I think this is a marvelous demonstration of selflessness: giving relationships priority over any possible personal advantage.

And I think it speaks volumes that FH quickly changed its website so that it now shows the percentage for just FH alone. Also, FH realizes that the real issue is trustworthiness and integrity, so it mentions that FH is a Certified member of CCCC (it is a member in good standing that has earned our Seal of Accountability). FH also lists four commitments the ministry has made to its donors. Bravo! Integrity is not about just a single number, but about a way of being, and these four commitments are worthy of support.

But this whole episode has a redeeming aspect to it. Getting away from FH in particular, I want to move to the general topic and build on comments Paul wrote in his post:

Competition and Performance Measurement

“I’m sure it will create some good conversations and competition (which I think is a good thing) around how much of a charity’s funds should be directed towards programming…If FH Canada really want to get us talking, why don’t they take the lead with the other charities they mention and create a dashboard for international development charities so that each can evaluate themselves on the same basis, and communicate to the public in a transparent way? “

The underlying issues are: 1) competition between Christian ministries; and 2) performance measurement. I’ve thought about both of these issues quite a lot, so I’ll jump in with a contribution to keep the discussion started by Paul going.  In this post I’ll deal with competition. In the next post, I’ll cover performance measurement and what I think CCCC can do to help ministries benchmark their performance.

Competition Between Christian Ministries

Back about 2005, I recognized that although CCCC has no single competitor doing everything that we do, everything we do has someone else doing it to some degree. Even though CCCC makes an important contribution to the church due to its uniquely comprehensive and affordable package of services, competition is just as much a threat for us as it is for any of the inner city missions, relief agencies, seminaries, evangelism ministries and, dare I say it, churches that exist in proximity to each other. My natural response to competition is to do a competitive analysis and then strategize how to ensure a triumph over the competition, but in 2005 I gave the issue sober second thought from a biblical-theological perspective and came up with a position paper on competition that still guides me today.

I suspect that a strong factor contributing to a competitive stance is a belief that God’s provision is limited. It is a theology of scarcity in which God has provided a set amount of resources (one pie to share) so that if another agency gets a donation, it makes one less donation for you.

The alternate stance, which I believe is the biblically-correct stance, is that God will provide as much as is needed and will expand his provision (he’ll bake another pie) to support the full range of activity undertaken by his people in response to his call. This is what it means when the Bible says that we were created in Jesus Christ to do good works, which God has already prepared for us to do (Eph 2:10), and that God will provide us with an abundance, beyond what we can ask or think, for every good deed (2 Cor 9:8 and Eph 3:20). When God calls, God provides.

We also need to recognize that our ministries are part of Christ’s one church, all serving the same God to accomplish the same mission in a myriad of ways. To compete against another Christian ministry is to harm the unity of the one body of Christ.

A Christian Way Forward

So my suggestion/challenge for ministry leaders is to come up with your own position paper on competition. You probably think you already know what you will write, so why bother? Well, unintended things happen when we assume we know what we think and don’t crystallize it. Vague or fuzzy intentions leave lots of room for unwittingly wandering into territory you otherwise would avoid. Writing out your position on competition makes it explicit, ensuring you will more likely abide by it.

Where I end up on competition is that I will focus on my ministry’s mission and pursue it as best I can. To the extent that I feel competition at all, I choose to use it to stimulate ever more excellence and creativity at CCCC to better accomplish our mission. I figure God has called my fellow believers to their ministries just as he has called me and my teammates to ours. Christ will look after his own ministries, so what have I to worry about? As long as I’m preoccupied with our mission, and not our so-called competition, God will continue to support CCCC. I consider competition to be a means that we use to spur one another on toward love and good deeds (Heb 10:24). That sort of competition is good and healthy. Competition to win at the expense of another ministry is not.

As iron sharpens iron, so one man sharpens another.
Proverbs 27:17

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Problems with the Ratings

However, in spite of numerous cautions expressed in the ratings article, which I think are fully warranted, the rating system gives a final grade as an overall assessment. The existence of a final grade undermines an otherwise fine attempt at rating charities. Few people will have the inclination to do any of the more nuanced follow-up work that MoneySense suggests, because (human nature being what it is) they will take the path of least effort and simply rely on the final grade. (How’s that for a pessimistic assessment of humanity!  Sorry, but I think it’s true.)

How to Improve Charity Ratings

Here are some ideas for improving the rating system:

• When examining fundraising costs, use a multi-year period instead of a year at a time. While direct mail fundraising, for example, should raise immediate dollars, major gifts and deferred gifts can take a year or sometimes decades (in the case  of bequests) to materialize. Capital campaigns usually take three years to convert pledges into cash receipts. So while the revenue comes in over an extended time, the costs to get that revenue tend to be incurred upfront. This makes older charities look better than younger charities because they are now receiving donations from work that was paid for years before. Using a three-year rolling average would be a more realistic way of determining fundraising costs as a percentage of money raised. It’s still not perfect, but it’s better than using only one year.
• For both overhead costs and fundraising costs, any rating system assumes that all charities allocate their expenses the same way. While I think charities are getting better at this due to changes in accounting rules and CRA guidelines, I suspect there is still a wide variation in how costs are allocated and therefore the percentages that raters are so eager to calculate are not likely as solid as they believe. Even if everyone reported based on the same allocation criteria, a number is just a number until it is compared to something useful. When assessing charities, the focus should not be on inputs such as administration and fundraising, but on the outcomes that those expenditures generate. A higher administration expense could lead to better oversight or even better quality staff, potentially achieving much greater social good. The real evaluation of a charity should be based on its ability to use its inputs for the greatest possible social good. So shift the focus from inputs to outcomes as the primary focus (effectiveness), and leave the cost of achieving those outcomes as an important but secondary consideration (efficiency). I’m not taking the time to hit the books while writing this post, but there is a good literature available on measuring the effectiveness and efficiency of intangible missions such as many charities have.
• Sarah Efron, the originator of this particular rating system, acknowledges quite correctly that there are complicating factors that make it impossible to do a pure number-crunching exercise alone:
  • Some causes are more popular than others, so it is easier to raise money,
  • Some charities are household names while others are brand new and have to do a lot more promotion to get noticed,
  • Some charities make greater use of volunteers and thus have lower overhead costs,
  • Some charities work only locally and others nationally or internationally, adding to their oversight costs,
  • Some fundraise nationally, incurring greater costs, while others are closer to their donors because they only fundraise locally, and
  • Some charities operating in the same ‘business’ receive government funding and some do not.
  • Therefore it makes sense to highlight these differences in the report.
• It would be more helpful if, in the governance rating section, the report mentioned whether or not a charity responded to the survey. They may have poor governance or they may not respond to inquiries like this. Both reflect negatively, but they are very different from each other. Poor governance is much more of a concern to me than not disclosing information. (I can think of no good reason, but the way, why the information should not have been provided.)
• To be fair, charities should be sent a draft report and given a chance to add their comments to explain any results that they feel do not fairly reflect their operations.
• The underlying assumption of a rating system for charities is that donors are interested in the “return on investment.” But when investment analysts assess corporate investments (stocks and bonds), they do not rely only on financial reports and checklists, they also visit the companies, interview their CEO’s and dig into their strategies. Without this sort of analysis (suitably adapted for the charitable sector), any charity rating system is deficient. But who would pay for such a system? Foundations normally do their own due diligence that includes these extra assessments, but they only work with so many charities. Is it practical to think that 85,000 charities can be rated? If you only rate the largest ones, are you penalizing the smaller charities?

Standards Are the Better Way

Maybe we wouldn’t need a charity rating service if we combined the external validation that comes from having standards such as CCCC provides for Christian ministries with greater transparency by charities who would make information freely and easily available on their websites. Our Accreditation assures donors that a third party has validated a charity’s compliance with a set of standards, and by posting information on a website, donors can find out for themselves if what the charity is doing is effective, efficient, and what they want to support.  Christian charities should speak for themselves rather than depend on rating services and post the sort of information that the public wants on their website, including:

• complete financial statements,
• annual reports,
• policies such as privacy, fundraising, executive compensation, etc.,
• governance issues such as requested by MoneySense,
• a logic model that supports their mission statement,
• a definition of success, and
• a discussion of outcomes, effectiveness and efficiency (if not covered in the annual report).

It seems to me that providing this information is something a charity would want to do because if they are performing well, the information will be a persuasive communication to current and potential supporters. Doing the work to produce the information would also be very beneficial for the charity. For example, I am thinking a lot about effectiveness and efficiency at CCCC and by getting stuff written down, I am forcing myself to rigorously think the issues through.

A lot of the information that MoneySense wants to see is posted on our website (financial and governance info here, and some sample program evaluations here), but I haven’t posted a logic model or definition of success yet. We’re in the process of rethinking our mission statement, which will determine our logic model, definition of success, and our outcomes measurement criteria, so those will be posted once we have done that work.

So, those are my thoughts. I’m especially interested in hearing from charity staff what they think of charity rating systems and how they think they can best be transparent with the public. If you don’t like the rating systems, what do you suggest instead?

The post Performance Ratings for Charities appeared first on CCCC Blogs.

Three Circles of Giving

His research shows that people who give to charity usually give 40-60% of their donations to one to three charities working in their areas of core interest. They give another 20-30% to another four charities or so that are working in areas that are priorities for them. The remainder of their donations are what he calls “chequebook gifts” (oops—I’m in the States today, so that’s checkbook gifts). These are gifts that may be sizable to you but to them they are amounts they don’t even have to think about. They don’t care too much about what you do, but they’ll give you something so you’ll go away.

The point for fundraisers is you need to realize what kind of a gift you are receiving—core, priority or chequebook? If you do not know you are receiving a core gift, then you probably aren’t. Most likely you are getting a chequebook gift.

A Strategy for Asking for Money

Your goal is not to become a core interest of theirs since it will be very difficult to displace an organization or cause that is already in the core. A good goal would be to be at or near the top of their second-level priority gifts. You’d like to be 4th or 5th on their list.

An approach this professor finds effective is to thank the person for all the good work they are already doing in the world. After thanking them, say that your ministry is doing work that they care about and that you’d like to suggest doing something together that will be important and special to the donor. You should know the prospective donor well enough that you have a project or program that you believe will excite them.

Three questions you should answer if you want major gifts are:

1. Are we doing important work? Show them how what you do relates to what they think is important.
2. Are we well-managed? You should have an accountability plan that includes availability of your financial statements and anything else that shows you are good stewards of the money that flows through your ministry.
3. Will my gift make a difference? If you’ve done a logic model for your programs, you should be able to show what the impact will be and how you will know that you have been effective.

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