Building Trust Through Transparency
With accountability remaining a hot topic in the sector, many nonprofits are choosing transparency instead of blind trust. Gone are the days where a feel good PSA and direct response television spot were enough to secure donor confidence. Form 990s are now posted on Web sites and many nonprofits are opting to disclose just how much money is being spent on fundraising endeavors.
The Maryland Association of Nonprofits recommends in its Standards for Excellence that organizations work for a 3-to-1 fundraising efficiency ratio. Over a period of time, for every dollar an organization spends on fundraising, it should raise at least $3.
Those figures don't necessarily have to be an exact 3 to 1 ratio when dealing on the individual campaign level, but an organization should be making more than it's spending on each individual event, explained Peter Berns, executive director at the Baltimore-based association.
"Those numbers should be averaged over a five-year period," Berns added, "depending on what stage they are in the development of their fundraising program. In the early stages of a program they may be less efficient, or if they're a new organization. But, that average should eventually be 3 to 1."
Direct public support doesn't necessarily encompass all fundraising revenue. When reviewing the Form 990, you also have to look at gross special event revenue, Berns said. Taking the two combined and comparing that number to the fundraising expenses relating to those fundraising activities provides a more accurate fundraising ratio, he added.
The NonProfit Times used numbers from the Form 990s for this story because that is the financial document most people have access and would use to calculate these figures.
The American Heart Association (AHA), headquartered in Dallas, reported $435.8 million in combined direct public support and special events gross revenue for fiscal 2003 on its Form 990. Its fundraising expenses totaled $85.5 million, or approximately 20 percent of its fundraising revenue.
"A 25 percent goal has always been there, but we had always set a standard where we would individually look at all aspects of fundraising," said Suzy Upton, vice president of development at AHA. "We stick by the 25 percent in all of our activities together but we have some individual activities that come in at a lower percentage."
The nonprofit realized growth in two of its most significant events during fiscal 2003. The American Heart Walk grew more than 6 percent and its gala event surged by 10 percent. Upton attributed the growth to a consistent fundraising model and the commitment of its volunteers. Volunteers led the 617 Heart Walks held throughout the country and the event has averaged that 6 percent increase, or more, for the past five years.
"We keep a close eye on things by conducting a formal return on investment (ROI) every two years," Upton explained. "We'll do an ROI for each of those nine core fundraising activities where we sit down and say, 'OK, all the bills are paid and everyone has done their job. Here's how much money we get to offer toward our mission.' That's really more of a corporate approach. It helps us to make better decisions and to focus on improving our ROI. It also makes us question why one activity may be returning more money than another activity."
On its Form 990, Girls and Boys Town included the note, "No donor funds were used to pay fundraising expenses." Indirect public support is the amount that the organization receives from Father Flanagan's Trust Fund and those funds have always been used to pay fundraising expenses, explained Judy Rasmussen, chief financial officer and treasurer at Girls and Boys Town, in Boys Town, Neb.
The trust fund was built on wills and bequests during the 1950s and 1960s and its earnings are what is used to pay for fundraising expenses. No new contributions are made to the trust fund.
"We're very cognizant of donors' wishes and they want to pay for the program," Rasmussen said. "We will never come close to exceeding the amount provided by the trust for fundraising expenses. We make a resolution at the time the budget is passed for 'x' amount of dollars that is going to be paid for by the trust fund. We have a clear idea going into every year of how much money we're getting from the trust fund and how it's going to pay for our fundraising expenses."
The organization's Form 990 totaled $32.7 million in direct public support and special events gross revenue for fiscal year 2003. The $10.1 million in fundraising expenses was approximately 30 percent of its fundraising revenue.
Girls and Boys Town also earned approximately $69.6 million in program service revenue. State agencies and insurance companies that pay the organization to provide services supplied that revenue. Fundraising expenses were not utilized to get those dollars, Rasmussen added.
Existing as one centralized organization has allowed the American Diabetes Association (ADA) to centralize all of its data processing and fulfillment. When its local markets around the country hold fundraising events they don't have to stop to process donations associated with that event, thereby saving time and money.
The organization recorded $147.7 million in direct public support and special events gross revenue on its Form 990 for fiscal 2003. Its $36.5 million in fundraising expenses was approximately 25 percent of its fundraising revenue.
"Fundraising expenses are going to vary, that's the way it is," said Vaneeda Bennett, chief development officer at the Alexandria, Va.-based ADA. "We invest in donor acquisition, which is more expensive, and we have a strong major gifts and planned giving program, which has little expense. We try to keep the fundraising and management costs combined under 25 percent, and we've done that."
Bennett also cited a "very good year" in direct mail donor acquisition. ADA expected a 3 percent response in acquisition and hit 4.5 percent response with no additional outlay of expenses.
"Some sources of income require more money to make money," Bennett said. ADA is very targeted in its direct mail and special events and that's one of the main factors in keeping costs in check, she added.
Source: Nonprofit Times,
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