Public issues

Giving to charity

Updated: 28 Jan 2009

Introduction

Charities often have to spend money to raise money. But many fundraising methods can take a big chunk of your donation.

Giving to charity isn't what it used to be. Commercial fundraising companies have moved in to get a slice of the action - but just how big a slice is hard to know. Despite new rules governing the sector, charities still don't have to disclose their fundraising expenses.

Fundraising methods

Charity "muggers"

Among the most controversial practices is the use of paid on-the-street fundraisers (dubbed charity muggers or "chuggers"). Clipboard-carrying chuggers are a regular sight in city centres, waylaying shoppers in the hope of signing up a new donor.

A lot of chuggers work on contract to fundraising companies. They're normally paid by the hour but can also earn extra if they have a good "success rate". If you sign up, it's possible for your first year's donation to be drained off in fees.

Several charities we spoke to said they use paid on-the-street fundraisers or have done so in the past.

Save the Children uses Support Direct, a division of The Cobra Group which promotes itself as one of the world's leading "direct sales and marketing companies".
New Zealand Red Cross works with a company called Cornucopia Fundraising. The company's website lists a range of other charities it works for both here and in Australia.
The World Society for the Protection of Animals (WSPA) contracts a company called 2evolve, active both here and across the Tasman.

New Zealand Red Cross, Save the Children and WSPA all say they've found street fundraising an effective way of building a profile and bringing in new supporters. But getting exact information on how much it costs and how much money it raises is difficult. Charities regard contracts with commercial fundraising companies as confidential.

Not everyone in the sector believes the returns are worth it. Oxfam has used paid on-the-street fundraisers in the past but Executive Director Barry Coates says it isn't good value for money and would be reluctant to do it again. He says there's often a high "drop out" rate of donors signed up this way and they tend to have less connection with the charity than those who sign up of their own accord. Another charity, World Vision, told us it decided not to use the method after recently running a trial.

In the UK, public irritation with street fundraising has led some charities to abandon the practice. UK regulations now require chuggers to disclose to potential donors how much they're paid. We'd like to see the same rule here.

Telemarketers

If you've given to a charity over the phone, the person asking for your money was probably employed by a telemarketing company. If so, it's likely a chunk of your donation has bypassed the charity and gone straight into the company's coffers.

According to pay rates we were quoted, charity telemarketers earn around $13 an hour. But it's harder to find information on how much of the money they raise is returned to the charity. Neither the companies nor the charities make this info available.

The worst case we've found involved a telemarketing company called Community Support Group. In 2002, we reported this company was taking at least 70 cents from every dollar donated. Fair Go recently reported one of the people behind the scheme, Shaune Malloch, is running another telemarketing company claiming to be raising funds for charity.

Fair Go has advised people not to donate to these three ventures Malloch is raising funds for: Auckland Volunteer Animal Rescue, Road Safety Education Campaign, and Community Crime Prevention Trust.

Razzle dazzle events

Fundraising companies have also made inroads into managing big charity events like auctions and balls. Their fees vary and, in some cases, they're paid on a percentage of the funds raised - so the more the event brings in, the bigger their cut. In 2003, the Fight for Life charity boxing event came in for flak over claims that former rugby league star Dean Lonergan's management company was paid this way.

Taking a percentage fee is controversial. It's also unethical, according to the Fundraising Institute of New Zealand's code of ethics. Lisa Wells, Chair of its Ethics Committee, says the code prohibits tagging fees to money raised. The institute's policy is that fundraisers should charge fixed fees, which are more transparent.

Lisa Wells also runs her own fundraising company and she's not a fan of glitzy events. She says it's common for 70 percent of the money raised to go in expenses. Big events may help raise the profile of a charity but as a fundraising tool their effectiveness is low, she says.

Fundraising expenses

Some of the bigger charities voluntarily publish information about their fundraising expenses. We looked at the annual accounts of six charities (see our table below) and found all provided figures on fundraising costs, although these were sometimes listed as "marketing and promotion".

But different charities use different ways of calculating costs and so you don't know whether you're comparing apples with apples. Requirements for consistent reporting of expenses could make it a whole lot easier. We have a Charities Act that regulates charities (see "Rules of the game"). But its regulations don't help here.

Most of the charities we looked at are spending much more on fundraising than they used to. When we published an article on charities 30 years ago, fundraising costs ranged between 4 and 12 percent of income received from the public. This time around they ranged between 15 and 32 percent.

Our figures are based on a small number of charities and need to be interpreted with caution. But the arrival of fundraising companies on the scene suggests the trend could well be more widespread.

Guide to the table

Our data taken from charities' annual accounts for the year stated. 'Fundraising $ as % of income from public (1976)' is from a Consumer article of that year.

A = accounts cover 16-month period.
B = includes $184 million in government contracts for delivery of residential care and vocational services.
C = for 2005/06 year
D = fundraising expenses for Save the Children were not calculated.

Rules of the game

An estimated $1.6 billion in donations flows into the accounts of charities and other non-profit groups each year. Another $6.4 billion in revenue comes from government grants and contracts, sales and other income.

Despite the size of the sector, charities have operated for decades with minimal regulation and few requirements to disclose how they spend their money.

Charities Act

In 2005, the Charities Act was introduced to shed more light on the sector. The Act sets up the Charities Commission. It's responsible for maintaining the Charities Register, a public list of organisations which have a recognised charitable purpose - broadly defined as the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community.

Annual returns

The Charities Commission is also responsible for ensuring that every registered charity files an annual return disclosing its income and expenses. But the information that charities are required to provide in these annual returns falls well short of what's required in other countries.

In the US, large charities (income more than US$100,000 or assets more than US$250,000) have to report their fundraising expenses - including any fees paid to professional fundraisers - as well as provide a detailed breakdown of all other costs. Big UK charities with income over £100,000 also have requirements to disclose fundraising costs.

This separation of costs makes it possible to calculate a charity's fundraising efficiency ratio - the amount spent on fundraising as a percentage of the amount of money raised. This kind of information helps donors work out where their money is going and how much of it actually gets through to the cause.

Our regulations don't require this level of detail. The Charities Commission's Chief Executive, Trevor Garrett, says annual returns really just provide "basic statistical information". He says the Commission can strengthen the requirements, although this is not something it's yet looked at in any detail. We think it should. We'd like to see requirements similar to those in place in the US and UK.

Our online poll

Our recent charities poll also found members would like to know more about how charities spend their money. Just over 500 people completed the poll: 80 percent said they'd like charities to tell them how much is spent on fundraising and 87 percent wanted to know how much is spent on administration.

Which should you support?

With more and more worthy causes on the menu, how do you choose which to support?

Check it's the real deal:The Charities Register provides a list of all registered charities. These have been vetted by the Charities Commission to make sure they have a charitable purpose and a proper constitution. Registration isn't compulsory - and to avoid the extra administrative burden some groups may not register. Provided they're doing good works, non-registered groups can still be approved by the IRD as "donee" organisations (see "Tax breaks", below).
Check the sums: Ask what percentage of your donation is used to support the cause and how much is spent on administration and fundraising. Bear in mind some charities will have higher overheads than others because of the nature of their work. For example, a charitable trust running a museum will have insurance and security costs that a charity running a tree-planting programme won't have.
Check what it's doing: Financial information is just one indicator of what a charity is doing with your money. You also need to know what it's actually achieving. Ask to see the charity's annual report - most of the big charities provide these. Visit the group's website if it has one. Talk to family and friends and find out what they think about the charity's work. To get a first-hand insight, you could work as a volunteer. Over one million of us already do voluntary work for charities.
Choose how you give: If you want to cut out the middleman - the fundraising and event-management companies that clip the ticket - give directly to the charity. Payroll giving lets you donate to a charity via your wages. You automatically get a tax credit on your donation (see "Tax breaks") without having to file a claim form.
Making a complaint: If you think a charity is doing something wrong, make a complaint to the Charities Commission. The Commission can investigate any charity or any person engaged in activities that may breach the Charities Act or constitute serious wrongdoing. Penalties can include fines - and the charity can be struck off the register.

Tax breaks

You can claim a 33.33 percent tax credit on any donation of $5 or more made to an organisation with "donee status". Inland Revenue determines whether a group is entitled to this status.

To qualify, the group must be an entity or trust whose activities aren't carried out for the profit of any individual and whose funds are used mainly for charitable, benevolent, philanthropic or cultural purposes. Organisations don't have to be registered with the Charities Commission to get donee status.

Our view

Many charities do great work and are well-served by their committed staff and volunteers. We applaud them.
Financial-disclosure requirements need to ensure that consumers receive meaningful information about how charities raise money and how they spend it, including details of fundraising costs.
We'd also like to see tighter controls on fundraising companies. Consumers are entitled to know how much of their donation goes into paying the person who solicits it.