Charities play a critical role in providing countless services to communities across Canada, and these programs are supported by generous donors who believe their funds will be used in an effective, efficient and ethical manner.

Nonprofits and fundraisers who seek to purposefully mislead the public about fundraising costs or use of their contributions should always be prosecuted to the fullest extent of the law.

However the vast majority of the 82,000 registered charities in Canada are legitimate organizations that work hard to advance their causes. One of the reasons that charitable giving continues to increase in Canada is that charities are usually well run, effective institutions which are constantly aware of the importance of careful stewardship of donor resources.

Fundraising is the engine that drives philanthropy, but it is a practice and a profession that requires specialized training, skills and knowledge.

Association of Fundraising Professionals

The AFP exists, in part, to educate charities about appropriate fundraising costs and practices, and to help charities that may not know about such skills and standards however well-meaning they may be.

The Association of Fundraising Professionals (AFP), provides an enforced code of ethics and standards of professional practice for all fundraisers. AFP also provides professional education opportunities, specialized research on key trends and issues in fundraising and philanthropy, a certification process to denote to the public those practitioners who have the proven skills, knowledge and experience to raise funds in an ethical, effective and efficient manner, and tools to help the public make wise giving decisions. No charity can escape all of the costs of fundraising, but they can be minimized through adherence to widely accepted principles and standards.

Fundraising Costs

Charities have overhead costs, just like for-profit organizations. Fundraising and other administrative costs may reveal something about an organization’s management. Donors should look at a charity’s cost of fundraising, its overall budget, and whether or not it is running a deficit. Ideally, donors should look for signs of consistent management and stable costs over several years.

However, costs reveal nothing about an organization’s effectiveness and overall work. Different types of charities and programs have substantially varying costs (compare a charity that works to find a cure for a disease versus one that provides meals to the needy). Comparing organizations by costs and expenses won’t show anyone the relative impact they have on society. Is an organization with 17 percent costs really that much better than one with 27 percent costs?

Factors Affecting Fundraising Costs

Many factors affect fundraising costs ratios.

• The age of an organization. A well-established organization will likely have a greater return on investment than a newly established nonprofit.
• The age of the fundraising department. A mature, professionally run development program will be expected to produce a higher return on investment than a newly formed department.
• The source of funds. Nonprofits that rely heavily on small gifts from individual donors will have higher fundraising costs. In contrast, organizations that receive support from the federal government, corporations, foundations, or large gifts from wealthy donors tend to have lower costs.
• Different methods used in the fundraising process will produce different returns. For example:

1) A donor acquisition mailing will have a much lower return on investment than a donor renewal mailing.

2) A capital campaign will produce a much higher return on investment than an annual fund program.

3) A newly established planned giving program may have zero return on investment for the first few years.

4) The return on investment for a special event will be lower than that of a major gifts program.

• The size of an organization may affect the return on investment.
• The profile of the constituency. The economic and geographic profile of the constituency being solicited will have an effect on fundraising costs and return on investment.
• The location of the organization. An organization located in an affluent region of the country should expect a higher return on investment than one located in a less affluent area.
• The popularity of the cause. The cause and its level of acceptance by the community will affect the return on investment.
• The competition for funds. Within the community or constituency that the organization is appealing to for support, the competition by other organizations may lower the return on investment.

Sometimes, a fundraising campaign may lose money in the short-term but generate significant returns in the long run. The cost of direct mail acquisition (mail solicitations sent to potential new donors) may range anywhere from $1.00 to $1.25 per dollar raised. However, once new donors have been identified, a second mailing to that group may cost only 20 cents per dollar raised.

The bottom line: Charities don’t need to be defensive about their fundraising costs, but they do need to explain to donors and the public that they have costs and how they address them.

Percentage-Based Fundraising

Many of the problems reported in any story about financial irregularities at a charity involve “percentage-based” fundraising. Percentage-based compensation means that a fundraiser—whether an individual or an organization—takes a percentage of each gift, regardless of actual expenses. AFP, the largest association of fundraisers in the world representing nearly 3,000 fundraisers in Canada, prohibits its members from accepting percentage-based compensation and requires them to work for a salary or fixed fee.

AFP believes that percentage-based compensation for fundraising should be eliminated; fundraisers should be focusing on raising funds for a charity in an ethical and efficient fashion, not competing in a mad dash to raise as much money as they can in order to personally benefit.

Some charities allow their fundraisers to take their percentage compensation prior to the charity receiving any funds in order for it to appear that the charity has no fundraising costs. But this practice often leads to unjustifiably high percentages taken (75%, 80% or even higher), leaving very little for the charity and its mission. This is one of the reasons why AFP prohibits percentage-based compensation.

AFP members must abide by AFP’s Code of Ethical Principles and Standards of Professional Practice (the only enforced fundraising code in the world), which address issues and practices related to compensation, donor privacy, donor intent and efficient and proper use of funds. Violations of the Code and Standards may subject the member to disciplinary sanctions, including a public reprimand through expulsion.

To ensure that their money is being used properly, donors should only contribute to organizations that use volunteers or pay their fundraisers a fixed fee or salary and not a percentage of the charitable funds raised.

Preventing Fraud

Fraudulent organizations will be very rare, but there are several steps donors can take to ensure that they are giving to a legitimate charity that will efficiently use their funds as the donor intends.

· Take your time in making giving decisions and resist high-pressure appeals. The faster the sales pitch, the more you should just say no.

· Carefully investigate the charity you are considering supporting. Ask for the charity to send you a brochure or other information. Offer to volunteer your time to promote the goals and objectives of the charity and to learn more about the organization and how it is run.

· Ask the fundraiser if he or she is working for percentage-based compensation.

· Know your rights! AFP and other organizations created the Donor Bill of Rights to inform donors about what they should expect from an organization when they contribute to it.

AFP Donor Bill of Rights

I. To be informed of the organization’s mission, of the way the organization intends to use donated resources, and of its capacity to use donations effectively for their intended purposes.

II. To be informed of the identity of those serving on the organization’s governing board, and to expect the board to exercise prudent judgment in its stewardship responsibilities.

III. To have access to the organization’s most recent financial statements.

IV. To be assured their gifts will be used for the purposes for which they were given.

V. To receive appropriate acknowledgment and recognition.

VI. To be assured that information about their donations is handled with respect and with confidentiality to the extent provided by law.

VII. To expect that all relationships with individuals representing organizations of interest to the donor will be professional in nature.

VIII. To be informed whether those seeking donations are volunteers, employees of the organization, or hired solicitors.

IX. To have the opportunity for their names to be deleted from mailing lists that an organization may intend to share.

X. To feel free to ask questions when making a donation and to receive prompt, truthful, and forthright answers.

You must feel comfortable when you give. Remember you always have the right to say no.

Useful Links

The AFP Code of Ethical Principles and Standards of Professional Practice

The Donor Bill of Rights

The AFP Wise Giving Guide

AFP Guidelines on Fundraising Costs