In response to interest surrounding fundraising practices, charities are placing financial information and accountability declarations prominently in their fundraising marketing. Indications of fundraising costs-per-dollar ratios (i.e. fundraising efficiency) or assurances that a specific percentage of donations will go towards a charity’s cause are now the norm. In doing so, charities need to be careful of putting themselves offside of Canada Revenue Agency (CRA) policy, painting other charities in a negative light, giving credibility to third party rankings and ratings, or even hindering their future fundraising efforts.
Before referring to fundraising costs, charities need to ensure they understand the context in which the fundraising ratio is calculated. Registered charities must comply with CRA's Fundraising by Registered Charities Guidance. One of the indicators CRA uses in its evaluations is the fundraising ratio. As stated in the guidance, “a charity’s fundraising ratio can serve as a self-assessment tool to see whether the CRA is likely to have questions or concerns about its fundraising activities…”
The guidance does not use the term fundraising efficiency and, accordingly, an indication of measuring efficiency is not part of the evaluation process (i.e. lower is not gauged as better). The ratio is only calculated to ensure compliance with the Income Tax Act.
Internal, not external measurement
Just as important is the description of the ratio as a self-assessment tool. It is not meant for public consumption; for donors to make giving decisions, to be referred to in media stories, or to be used to rate and rank charities. There are nuances associated with the ratio and with CRA’s evaluation process; referencing it out of context can lead to misinterpretation and misunderstanding. It also gives credibility to groups who measure and rank “fundraising efficiency”.
For accountability purposes, I suggest to charities that they evaluate their fundraising activities in the context of the fundraising guidance, and if they want to make an accountability statement for donors, state that “they evaluate their fundraising activities in the context of the fundraising guidance” or words to that effect. Charities should be prepared to welcome and answer questions regarding their fundraising practices. For transparency, accessibility to annual financial statements and a link to their T3010 Information Return should suffice.
How to present with caution
If charities want to include fundraising financial information in marketing materials and on their website, here are four things to be cautious of:
Charities also need to consider that these claims can perpetuate the unreasonable and unrealistic perception that donations should not be used to cover fundraising and administrative expenses.
Oyler Consulting works with organizations to increase their effectiveness and capacity to deliver their programs and services. Oyler Consulting specializes in helping small to medium-sized organizations build successful fundraising programs, and provides practical guidance on Canada Revenue Agency policy for registered charities, and on social enterprise development. Visit www.oylerconsulting.ca; contact David Oyler by email.