In July 2012, Sally Patterson then Interim President & CEO of the Standards for Excellence Institute and Maryland Nonprofits was interviewed by Joce Sterman of ABC2 News about nonprofit organizations that claim zero fundraising expenses. But in this Chronicle of Philanthropy article entitled, “Nonprofit Inquiry Thrusts Fundraising Costs into the Spotlight,” Suzanne Perry discusses that the current issue isn’t low cost fundraising but expenses that are too high when compared to the return to the charitable organization.
The article highlights two charities that have been examined in a recent CNN investigative report and have received Fs from a charity-rating group. Both organizations claimed on their 990s that only 10% of money raised went to mission-related operations. Additionally, both are deeply indebted to marketing firms that helped with their fundraising efforts. The nonprofits’ public relations departments cite the same defense against the reports and ratings: (1) High expenses and the low amount spent on operations are showing great growth, not problems, and (2) An organization must spend money to make money.
A nonprofit’s fundraising costs should be reasonable over time. On average, over a five (5) year period, a nonprofit should realize revenue from fundraising and other development activities that are at least three times the amount spent on conducting them. Organizations whose fundraising ratio is less than 3:1 should demonstrate that they are making steady progress toward achieving this goal, or should be able to justify why a 3:1 ratio is not appropriate for the individual organization.
As part of the annual budget process, the board should review the percentages of the organization’s resources spent on program, administration, and fundraising.
Richard Steinberg, a professor of economics, philanthropic studies, and public affairs at Indiana University-Purdue University, was hired to write testimony on behalf of both organizations in 2010, and he is quoted in the Chronicle article as saying: “One cannot spend a ratio on the mission…One can only spend the money left over after the costs of the campaign have been met.”
It is important to note that there are other considerations that factor into a nonprofit’s worth—considerations that go beyond its fundraising ratios (age of organization, its budget, the popularity of its mission, and its accounting procedures to name a few). Still, if the organizations in question here were applying for Standards for Excellence certification, it would be unlikely that they would earn the Seal. Spending only 10% of the money raised on mission related efforts is a far cry from recommendations promulgated by the Standards for Excellence code.