Discussion of the Fund-Raising Ratio in Australia

Summary:

An Australian government commission examined charitable organizations; this item consists of one observer's testimony to that body about fund-raising and other issues.

Answer:

Ted Flack (t.flack@QUT.EDU.AU) wrote to ARNOVA-L (see http://www.arnova.org) on the subject of Australian fundraising costs:
In Australia the Industry Commission has been conducting an "Inquiry
into Charitable Organisations". They have been grappling with the
cost/efficiency/effectiveness issues associated with both service
delivery and admin/fundraising.

I have given evidence before the Commission about fundraising cost
effectiveness and advised them as follows:

1. Donors will only be able to make informed decisions about which
   charities are cost efficient in their fundraising activities if the data
   with which they make comparisons is in fact comparable!
   
   
2. Fundraising data will only be reasonably comparable if four
   conditions are met as follows:
   
   
   1. There is an agreed common definition of what should be included in
      fundraising income and expenditure.
      
      
   2. Financial data is presented in accordance with those accounting
      standards (eg Are membership fees fundraising income? What is public
      relations/public education and what is fundraising?).
      
      
   3. That an agreed fundraising income classification system is used to
      compare results of similar fundraising products (Can you compare the
      cost of renewing regular donors with the cost of running a charity film
      night?)
      
      
   4. That an agreed classification system is used to group similar
      charitable organisations so that comparisons are made between
      organisations with similar characteristics. (Can you compare the cost of
      raising funds for a newly established rehabilitation service for
      intravenous drug users with the cost of raising funds for a well
      established children's hospital?)
   
   
3. It may just be that the level of sophistication required to solve the
   problem, and the care with which any conclusions derived from all this
   "benchmarking" will need to be handled, together make the whole exercise
   only marginally worth the effort.
   
   Perhaps in the end donors will need to rely on the good governance of
   the charity to ensure that fundraising is cost efficient for that
   particular organisation.

The following is an extract from our submission to the Industry
Commission.

Matters Not Covered in the Draft Report

The Institute would like to comment on several matters not directly
dealt with in the Draft report as follows:

• The Definition of Fundraising
  
• A Classification of Sources of Income for CSWOs
  
• The Use of the Term "Professional Fundraisers"

1 The Definition of Fundraising

There a many definitions of fundraising in the literature but the one
the Institute uses because of its Australian origin is as follows:
"The systematic process of identifying, recruiting and development of
the human and financial resources necessary for a not-for-profit
organisation to achieve its goals."

By using this definition, fundraising includes the sourcing of
donations, grants and subsidies as well as the use of fundraising
volunteers, acquisition of sponsorships, pursuit of cause related
marketing opportunities, the conduct of art unions, special events and
charitable merchandising activities.

In practice many people associated with a not-for-profit are engaged in
fundraising. The members of the Board of the organisation, the chief
executive, the senior services staff, specialist fundraising staff, and
many other supporters and volunteers undertake tasks that have a
significant fundraising content.

The "cultivation" of potential supporters, either by personal advocacy
of "the cause", or by more formal public relations is a vital
precondition for fundraising. Most stakeholders within CSWOs will be
involved in this process in some way or other.

2 An analysis of the written submissions to the Commission reveals that
there is a wide variation in the way in which the term fundraising is
used. Several submissions include membership fees in fundraising
aggregates, others include the proceeds of art unions and clothing
recycling operations, one includes the proceeds of the sale of imported
goods from third world countries and others include only cash donations.

Submission 3611 is a good example of the mixed interpretation. It states
that "a total of 37.8% of [their] annual expenditure is financed by fund
raising. This includes:

0.4% in private donations

3.8% in membership fees

9.4% in fees for service

1.3% in sale of resources, training materials, etc

11.7% in corporate dollars

11.2% in dollars raised through Trusts and Foundations

Elsewhere in the submission it is stated that their cost of fundraising
is 22 cents in the dollar. It will be seen therefore, that depending on
what is included in fundraising the cost ratio can vary significantly.

If we were to re-organise the accounts from which the given statistics
are calculated, they would look something like this:

Fundraising	Private donations	0.4%
	Corporate donations	11.7%
	Trusts and Foundation grants	11.2%
Total Fundraising		23.3%
Sales	Membership fees	3.8%
	Fees for Service	9.4%
	Resource materials	1.3%
Total Sales		14.5%
Cost of fundraising		35.7%

The Commission has therefore relied on data on fundraising which takes
no account of the multitude of different accounting treatments afforded
to these "fundraising" activities. Another example of the problems
associated with this lack of accounting standards occurs with the
donation of staff time. There are several examples of Australian
corporations "seconding" specialist staff to charitable organisations at
no cost as a form of donation. Such secondments might involve mangers
for a period of a year or might involve a legal officer or accountant to
work on a special project for a shorter period. The employment of such
seconded staff in marketing, public relations or fundraising will very
significantly effect any calculation of the administration or fundraising costs.

No doubt the concentration on "donations" has been caused by the tax
deductibility of donations issue but this should not be allowed to
distort the fact that there is a much wider range of fundraising
products.

3 Classification of the Sources of Income for CSWOs

The Institute does not have any agreed standard for the classification
of sources of income for not-for-profits, however a commonly used
classification system developed for FIA training courses uses the
following three major classes:

Money Given
Money Transferred
and Money Earned

These major classes are then divided into sub classes as follows:

Money Given	Regular Personal donations (in viva) of cash, in kind and of effort
	- acquisition
	- renewal
	Regular Corporate donations of cash, in kind and of effort
	- acquisition
	- renewal
	Large Capital Gifts (in viva)
	Bequests
Money Transferred	Donations or grants from Trusts and Foundations, Government Grants and Subsidies to the general purposes of the organisation including grants for capital items
	Donations and grants from other Not-For Profits, Proceeds of Auxiliary fundraising
Money Earned	Government Grants and Subsidies for Specific Services
	Rent Received
	Fees Received
	Interest Received
	Surpluses from Minor Forms of Gambling
	Surpluses from Special Events
	Sponsorships, Endorsements and Cause Related Marketing
	Surpluses from Charitable Merchandising
	Proceeds of Benevolent Investment Schemes
	Annual Operating Surpluses

This analysis is also useful for fundraising planning and performance
measures including cost per dollar raised and the relative health of the
organisation's base of support in the community.

It should be noted that the first group "money given" is generally tax
deductible in the hands of the donor under Section 78 or Section 51(1)
of ITAA (except volunteer labour), whilst "money transferred" is
generally not subject to tax because the donor organisation is tax
exempt. The class "money earned" is not taxable because the recipient
organisation is exempt under Section 23 of the ITAA.

FIA believes that any consideration of modern fundraising practice must
take account of the broad range of fundraising means and the different
underlying cost structures for each.

Rich Steinberg responded -- Nice job. Since I have no comments or criticisms, I
have not recopied your letter, but didn't want you to feel neglected
because I agree.

---

This note was part of an extended discussion of fund-raising ratios on the ARNOVA-L listserv. The full discussion is indexed at http://www.nonprofits.org/npofaq/11/24.html

---

Reformatted 7/3/01 -- PB