Canadians think charities have a long way to go when it comes to reporting fundraising expenses. A 2008 study by the Muttart Foundation called Talking About Charities found only one in four Canadians think charities do an excellent or good job providing information about their fundraising costs. A third of Canadians said they were not sure where the money they donate to charities is really going.
Compounding the problem is the difficulty the public has obtaining accurate fundraising expense information. Research has shown that the information filed with the Canada Revenue Agency (CRA), and made public on the CRA website, is often incomplete, inaccurate and not internally consistent. This is the only mandatory information required to be released by government regulation. At the same time, many charity annual reports and audited financial statements that are voluntarily provided (in some provinces audited financial statements are required) are often short on details.
The need for improved reporting of fundraising expenses has never been clearer.
For answers about best practices on reporting, charities should look at the Voluntary Sector Reporting Awards (VSRA) – Ontario’s awards program for best charity annual reports. Now in its fifth year, the VSRAs have evaluated hundreds of annual reports from charities both large and small.
In its 2012 Best Practices in Charity Annual Reporting Guide, the VSRA judges call on charities to follow a three-step process when disclosing fundraising expenses:
- Clearly state your fundraising goals
- Explain the rationale for the fundraising activity
- Report actual fundraising results compared to the fundraising goal and comment on significant variances
Clearly state your fundraising goals. Charities should include a clear description of their fundraising goals. Whether your charity raises $100 or $1 million, it is important to give readers a benchmark to measure fundraising performance.
Explaining how donations were raised is equally important. Readers should have a basic understanding of the methods, policies and practices of the charity’s fundraising efforts. Here, charities should follow Imagine Canada’s new Standards program, which includes a variety of fundraising best practices that all charities should consider.
Explain the rationale for the fundraising activity. Fundraising expenses need to be explained in the context of the fundraising activity. Without this context, the public is unable to assess the performance of a charity in the current year or in comparison to the charity’s multi-year strategic plan.
Report actual results compared to goals. The final step is to report actual performance and explain any variances. Charities should disclose fundraising revenue, fundraising expenses and provide ratios such as fundraising expenses as a percentage of total budgeted expenses or fundraising revenue.
The financial information charities provide in their annual report needs to be accurate. The VSRA judges have found numerous examples of charity annual reports that present financial information that does not agree with the same information found in the audited financial statements. For example, some charities included total fundraising revenue raised in the annual report that could not be tied back to their audited financial statements. The most transparent disclosure is to include the full set of audited financial statements, including the auditor’s report, in the charity’s annual report. Alternatively, the organization could include summarized financial statements with a separate audit opinion on the summarized financial statements.
The annual report and financial statements should be included on the charity’s website and easily accessible. The organization should also include the public portion of their most recent Registered Charity Information Return as submitted to the Canada Revenue Agency.
There are often good reasons for a charity’s fundraising expenses to be high. Large fundraising expenses as a percent of revenues may deter some charities from disclosing information. However, if you do not provide the context for your fundraising expenses, others will interpret them in their own way and that could be more damaging for your charity. The VSRA judges believe that a negative reaction to disclosing fundraising expenses can be mitigated if other aspects of a charity’s annual report are improved, such as the provision of plans, budgets, performance targets, and a discussion and analysis of actual results to plan.
Find out more about disclosing fundraising expenses
Canadian Fundraising Annual Reporting Forum
Online webinar
September 7, 1:00 EDT
Register at www.annualreportaward.ca
Join some of Canada’s top experts for the Canadian Fundraising Annual Reporting Forum – a free two-hour, online discussion on how Canadian charities are reporting their fundraising expenses. Ask questions and get answers. Presented by the 2012 Voluntary Sector Reporting Awards (VSRA) – Ontario’s awards for best charity annual reports. Brought to you by the CA-Queen’s Centre for Governance in partnership with the Institute of Chartered Accountants of Ontario and sponsored by PwC. Spaces are limited. Register today.
Photos (from top) via iStock.com. All photos used with permission.
