Show me the Money!
In July 2008 I wrote a piece for the Calgary Herald on charities and overhead. Then in June 2013 as a result of the Alberta Flood this issue came up again in response to the Canadian Red Cross and the lack of transparency. Fast forward a few more years and once again a natural disaster, this time the Fort McMurray Fire has brought this issue to the forefront of donors’ minds. So I thought I should break down the cost of doing “The Business of Philanthropy.”
Every time you make a donation to a charity there is a cost. Who pays this cost depends on how the transaction is made, what organization it is going to, how that agency is structured and what the internal capacity of the organization is to handle the transaction.
In the case of Place2Give, an online Donor Advised Fund, because we aggregate the donations from donors, automate the tax receipting process and push the money to charities via EFT whenever possible, we are able to spread the cost per transaction across hundreds of donations in order to maximize the amount that gets to a charity. What we have learned over the years, is by donating through a fund like Place2Give or any Donor Advised Fund (Community Foundations are similar) you can be saving a charity upwards of 18% per transaction!
This 18% is usually consumed by:
- Admin staff opening envelopes and depositing cheques
- Data entering donations and issuing tax receipts
- Purchasing stamps and mailing donation receipts and thank you letters
- Sending follow-up reports and thank you letters
- Sending duplicate tax receipts because donors have lost them
- Reconciling bank statements and donation records
- Paying bank fees and merchant fees
- Other miscellaneous expenses for managing the transaction
And that is just to process a SINGLE transaction to a SINGLE charity.
What about to a Donor Advised Fund; how does the admin fee get broken down? Because we have automated the process we have removed the need for an admin staff to do data entry and tax receipting. By aggregating the disbursement process we are able to send donations out in batches thereby saving on bank transfer fees from individual transactions. And by having everything digitized when a donor calls to ask for a copy of their lost receipt, we can email one in seconds.
But even before the transaction happens there are costs to doing philanthropy. So the 5% fee also covers the pre-transaction expenses which include:
- Researching and validating the work of the charity that is being supported
- Setting up the ability to streamline the giving process
- Paying the lawyers and the accountants to make sure that we are incompliance AND that the organizations that we are supporting are in compliance
- Educating you, the donor, on effective smart philanthropy
- Marketing the opportunity to give smartly and effectively to an aggregated fund like #YMMFireFund
At this point, you as a donor can decide is the value that is being offered – that of a trusted resource that has vetted the charities, ensured compliance, streamlined the giving process and marketed the opportunity is of value.
The philanthropic landscape is a consumer-driven space today. You have choice. You can take the information provided by Place2Give or any other fund and go straight the charity on the list and donate directly knowing that likely about 18% of what you have given will now be used in their own admin costs of processing the donation, or you can use a platform like Place2Give and save the charity admin money so that more ends up on the ground.
There is this perception that doing philanthropy should be free. Which seems strange to me. We are okay with paying our bank $1.50 to do an e-transfer for no other service than to push money from your bank account to another’s bank account. But we are not okay with a foundation that has de-risked your donation, in taking less than what your bank charges to push money from one account to the next (average donation on Place2Give is $29 at 5% this is a cost of $1.45). Why is that?!
If you really want to know where the money is going, stop donating to charities that don’t disclose and start supporting organizations that openly share their financials and use of proceeds.