On Sept. 22 of this year, the CBC produced an investigative report examining the nature of fundraising in the Canadian charitable sector and looking specifically at where donor dollars go. The story was also filed on their website here. On the whole, the CBC presented what many in the sector viewed as a sensationalized story that made it seem fraudulent, or at the very best, grossly mismanaged fundraising by charities was rampant across the nation.

Now that some water has passed under that particular bridge, there’s been some sober reflection on the good that actually came out of the report and how third-party fundraising techniques aren’t necessarily the evil incarnate that some would make them out to be.

Keeping it all in perspective

Marcel Lauzière, president and CEO of Imagine Canada, notes that it is a very small percentage of the 85,000-plus Canadian charities that use unethical fundraising techniques. “Like in any sector, you will hear of stories that make you cringe, but we have no reason to believe there is widespread abuse out there.”

Speaking to CharityVillage® recently, Lauzière was sanguine about the topic of outsourced fundraising and its potential outcome on donor attitudes towards charities, saying that he believes charities can learn how to better communicate with their donors to foster trust.

“Using outside fundraisers isn’t necessarily a bad thing. It makes sense for many organizations to do it, and for others it doesn’t. The important thing is the transparency. Potential donors [need] to be vigilant and do their homework” before giving to a charity, he said, adding they should always log on to “CRA website and look at their data…look on the charity’s website. Ask for transparency in their fundraising. If you’re not satisfied, move on.” Lauzière also advises donors and charities to be cautious of any third-party fundraiser that works on a commission basis.

The case for outside fundraising

Scott Fortnum, CFRE with Pareto Fundraising in Toronto, says there are numerous reasons why a charity could hire on an outside fundraiser. Some of these include, cost effectiveness; for breadth of expertise and knowledge; to expand on the organization’s own internal knowledge of how best to fundraise in the future; to provide skill sets not currently available internally; to fill short term staffing voids; and to provide a greater ROI.

Fortnum acknowledges that the majority of Pareto’s clients are from mid-sized to large organizations. Still, he said that doesn’t mean his company hasn’t worked with smaller charities as well.

“During times of staff transition or very busy periods consultants can work with organizations to flesh out their teams and perform specific tasks…[and] internal knowledge should always be growing when an organization works with a consultant. The concept of capacity building is a consideration and typical value added benefit” of hiring a third-party fundraiser, he says.

Similarly, Harvey McKinnon, veteran fundraiser and president of Harvey McKinnon Associates in Vancouver, said it’s often better for some charities to contract out their fundraising needs.

“Frequently, and it depends on who they are, third-party fundraisers are the way cheaper way to go because they can lower the charity’s overhead costs. That’s not always the case, but it depends on what they’re doing,” he notes.

McKinnon said that for many major capital campaigns conducted by charities in Canada, the organizations frequently bring in outside experts to run them. “That’s generally a smart thing to do, because the numbers they’re dealing with are so great, that if they can improve by even five percent…in many cases that can mean many millions of dollars for the charity in excess of all the fees the fundraisers would earn.”

Asked if a charity should use an outside fundraiser just for exposure, even if it isn’t getting much else in return from the company, McKinnon answered “that’s an awful strategy.”

“My belief is that really good fundraising should be strategic and focused on long-term value. There are special events where you make a lot of money in a short period of time, but most of those do not require donors who are repeat givers. That’s the problem with a lot of fundraising: if you’re not acquiring donors who will give you gift-after-gift, then you’re not realizing the value of the investment.”

Ethics, morality and fundraising

Ken Wyman, renowned CFRE and coordinator of Humber College’s Postgraduate Fundraising and Volunteer Management Program in Toronto, said he has “no problem” with third-party fundraising as a rule, but said he takes issue with “companies that exploit naïve charities and take more than they give.”

He echoed Lauzière’s comments, stating he believes outside, professional fundraisers can have a place as an “essential” tool. He noted that many charities don’t have the in-house resources or volunteers for use on making phone calls or “creative work” and even for special events “sometimes.”

“But certainly of the 85,000+ charities in the country, there are very few who get involved” with bad fundraising, he said. “Still, there are enough that a handful of companies continue in business year after year, and I’d love to see them shut down.”

Though CharityVillage® asked numerous charities to speak about whether they engage third-party fundraisers, most did not respond. However, the Canadian Cancer Society‘s (CCS) Ontario division disclosed that it does sometimes outsource this function, though it supervises the activity closely.

“We have marketing expertise in-house, but do work with agencies on specific projects where it is budget effective to do so. The agencies we work with are key partners in our fight against cancer,” says Lesley Ring, vice-president of CCS’s Ontario Division.

She adds that her organization also uses an “external provider” to support its monthly giving program during face-to-face fundraisers. “They provide a cost-effective way for us to recruit monthly donors that provide critical support to our mission over the long term. Our staff is actively involved in the training of these…fundraisers to ensure that they represent the Society in a professional manner and can respond to questions in an informed way.”

The CCS Ontario Division did not disclose which outside agencies it engages.

Like Lauzière, Wyman cautions any charity looking to hire a third-party fundraiser run from any company that sells its service on a commission basis and to read contracts from any outside fundraiser carefully.

“The Association of Fundraising Professionals (AFP) code of ethics is written for a very good reason. It protects both the charity and the donors. Yes, that may mean that smaller charities may have to find some investment capital to hire somebody to work with them. But if it looks like a deal too good to be true, it probably is,” he said.

Before engaging with any fundraiser, he said, charities need to make sure they know which side has access to the names and phone numbers or all donors who contribute, and if this information doesn’t belong to the charity after all is said and done, that’s unethical.

Mind your fundraising P’s and Q’s

The CRA recommends that no charity spend more than 35 percent of revenue on fundraising and can revoke the registered status of any organization whose expenses seem disproportionately high.

Mark Blumberg, on his informative blog Canadian Charity Law, points out that third party fundraising events, if they’re being run by volunteers, can be a “very effective and efficient” way to fundraise. But he notes that according to CRA regulations, charities are not allowed to just outsource receipting functions.

Blumberg urged CharityVillage® to alert readers to his comments on the subject and gave permission to reprint them here. The gist of his message is that nonprofits should be very careful about their fundraising endeavours lest they endanger their status.

“Under the Income Tax Act, registered charities can issue official donation receipts to donors for gifts. This tax-receipting privilege is not to be casually farmed out to third parties, even if some of the resulting funds will be flowing back to the charity. A charity that substantially relinquishes to a third party its receipt-issuing function or the control over the funds that are donated to it, can jeopardize its registered status,” Blumberg writes.

He adds that a registered charity can enlist a third-party organization or “retain a fundraiser or other contractor as an agent” to organize their fundraising event, but cautions that the organization maintain strict control over all funds earned from the event, and particularly over the receipts that are issued for those funds.

Blumberg also lays out the following checklist for charities to use to gauge whether they should consider third-party fundraising techniques. “If the charity does not run the event substantially by itself, through its own employees or volunteers, it should:

a. put in place a written agreement setting out the modalities of the fundraising arrangement;

b. ensure that official donation receipts are only issued to donors for the eligible amount of the gift;

c. ensure that official donation receipts are signed by an authorized individual in conformity with ss. 3501(1)(i), 3501(2), 3501(3) and 3502 of the Income Tax Regulations;

d. be able to provide to the Canada Revenue Agency a full accounting of the monies or that portion of the monies donated to it, and the receipts that were issued in return;

e. be able to account to the Canada Revenue Agency for the amount of the advantage received by the participants as a result of their participation in the fundraising event.”

Up to code

With respect to ensuring fairness, transparency and restoring trust in donors, Lauzière wants charitable Canadians to know there are safeguards in place for charities willing to put their ethics where their dollars are.

He points out that Imagine Canada provides a set of standards for charitable organizations to manage and report their fundraising and financial affairs responsibly through its Ethical Code Program.

“The Ethical Code permits use of third-party fundraisers. However, what it does not permit is commissioned-based fundraising. It also requires costs to be reasonable and practices transparent, as this is crucial to allow donors to decide for themselves whether they wish to give to a particular charity.”

As this is the season for giving (and asking for giving), many charities make use of the pre-Christmas run-up to fundraise. McKinnon estimates that the average Canadian is bombarded with around 5,000 advertisements a day; many of which are “asks” for donations of some sort. And it’s likely even more, he said, when one factors in new advertising venues such as Facebook, Twitter, even ads above urinals.

“The areas that would add a lot of [fundraising] contacts would be special events where people use e-mail and online coordinates to contact their friends to get sponsorship. Frequently, these are super soft asks that don’t work very well, at least on a percentage basis. But it seems to me there is less mail, phone calls, and fewer TV spots,” he notes.

Andrew Burditt, the Salvation Army Canada‘s public relations manager, said his organization has nothing against third-party fundraising in principle, but it chooses not to go that route, preferring instead to be a part of Imagine’s ethics program.

“We fundraise on a lot of levels. But we don’t do very much [third-party fundraising] at all. The main reason for that, and it’s not a judgmental thing, is when someone donates to the Salvation Army, we don’t see it as they’ve donated to us,” Burditt says. “Our philosophy is that we are simply stewards of that money. We then strive to use it as efficiently as possible, and in order to do this, we don’t then subscribe to third-party fundraising.”

Burditt offers the following general advice to other charities looking for fundraising guidelines: to make sure you have their own internal systems in place and understand what you’re fundraising for; ensure you have the logistics of your fundraising systems in order, whether online, a call-centre or mobile giving; and most importantly, communicate these to the public and the people who can potentially turn into donors and keep that process open and transparent.

“We strive to all this and make sure our donors have full access to all information and are able, should they need to, to get hold of someone if they have questions,” he said.

Getting the nonprofit fundraising message out

According to Imagine Canada’s website, currently more than 300 charities that “collectively represent more than $1 billion in fundraising revenue” have joined the Ethical Code Program since its launch in January 2008. But Lauzière admits there’s more work to do to educate donors and charities alike on the issue.

“We have not done a good job, at all, in explaining to Canadians the cost involved in fundraising, the cost of doing good, making the case about what an organization needs in order to support a particular cause. We need to be out there and tell our stories about how we use those dollars…and about how fundraising is not a bad thing, but a good thing; because it leads to all kinds of great outcomes…this will be a priority for Imagine in the years to come.”

Imagine Canada said it plans to launch what it terms a “one-stop portal” that will help Canadian donors gain easy access to the “information they need to make their decisions about the charities they want to support.” This is slated to happen sometime in 2011, according to Lauzière with more details on this project to be released in the New Year.

Andy Levy-Ajzenkopf is president of WordLaunch professional writing services in Toronto. He can be reached at andy@wordlaunch.com.

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