Thursday, February 28, 2013

In Defense of A-Rod (Sort of)

Last week The Boston Globe wrote a piece that examined the charities of several well-known athletes.  The conclusion was that their overall financial effectiveness was less than stellar.  Among the poor performers, it seems that everyone has latched on to Alex Rodriguez' charity, The ARod Family Foundation, as the worst.  The stories pillorying A-Rod have spread across the spectrum, from Breitbart to Huffington Post.  The damning evidence is that the charity brought in revenue of over $400,000, mostly from a poker tournament, in 2006 but only paid out $5,090 in grants that year -- about 1% of its revenue.  Yes, this sounds quite bad.  As a Red Sox fan, I can't believe I am saying this, but I think the rush to judge A-Rod is a bit premature.  I'm willing to believe his charity could have been poorly run and failed to achieve its stated mission (after all, 2006 was its first year and the last in which it filed tax forms; its status was revoked in 2010 as a result).  I just don't think the evidence being provided for this is sufficient to make that conclusion.

Looking at the organization's IRS Form 990-PF in 2006, it did raise $403,862 in revenues that year.  Of that, the majority ($368,862) was from the charity poker tournament discussed widely.  Most people infer that since only $5,090 was paid out for charitable causes, the rest must have been wasted on salaries/perks for those in the foundation.  However, it paid no salaries, and its primary expenses were the cost of running the poker tournament.  The remaining funds, about $290,000, were simply retained by the organization at the end of 2006.  The poker tournament, where the bulk of the revenues originated, was in November 2006.  So, it is not entirely reasonable to expect all of its proceeds to have been collected and disbursed in the period of one month.  Again, I am not saying the funds were disbursed properly; what I am saying is that the 2006 filing does not provide sufficient information to make that judgment.  Since there is no 2007 filing, though, we are left to guess...

Wednesday, February 27, 2013

Higher Education Fundraising -- A Case of the Rich Getting Richer?

America's colleges and universities are often portrayed as bastions of liberal thought that indoctrinate their students with philosophies of wealth redistribution.  If the halls of academia are truly dominated by such philosophies, they have a strange way of showing it.  To the contrary, the nation's colleges and universities seem to be a prime case study in the rich getting richer.

Monday, February 25, 2013

Matching Gift Campaigns and Transparency

A matching gift campaign, in which a large donor pledges to match funds that are donated by others, can be a very effective means of fundraising.  For a donor with large funds to give, a matching gift offer provides the ability not only to make a donation to help fund the organization but also to kick start the organization's other fundraising efforts.  For prospective donors, a matching gift campaign offers the appeal of doubling the power of their donation.  Despite the upside, I wonder to what extent charities are fully transparent about these campaigns.

Wednesday, February 20, 2013

Cultivating Repeat Donors with Financial Transparency

Perhaps a more daunting task for nonprofits than finding new donors is convincing such donors to give again.  It is often the case that an emotional appeal and/or strong interest in an organization’s mission can kick start a donor’s initial interest.  However, in my view, follow-up donations are often more cerebral in their motivation.  With this view in mind, I offer my suggestion for how to generate more repeat donations – superior financial transparency.  Let me elaborate on what this means to me …

Monday, February 18, 2013

Fundraising and Thinking Small

Here is a link to a recent article by Wray Herbert titled "The Power of One: The Psychology of Charity".  The article describes recent research done by professors at the University of Chicago that finds people are more generous in their donations when asked to envision one individual that their donation can support prior to making a donation that can help a larger group, rather than asking them to focus on the larger group itself when making the donation.  This psychological notion of "scope insensitivity" has the potential to change the way charities think about fundraising.  It is often the case that charities stress the scale of the problem they face, hoping to convince donors how seriously funding is needed.  This research seems to suggest that by thinking small, stressing not the scale but one piece of the puzzle at a time, may actually increase the desire to give.  Of course, charities do this to some extent by highlighting individuals and their success stories.  But, such anecdotes can do more than effectively demonstrate successes.  Anecdotes can apparently also effectively demonstrate needs to donors.

Wednesday, February 13, 2013

Matching Mission and Financials: The Case of the Michael J. Fox Foundation

Perhaps too often, this blog has highlighted circumstances where an organization's financial statements paint a different picture from that of the prevailing public perception.  However, it is worth noting that there are many success stories when it comes to matching an organization's mission and its financial performance.  Today, I highlight one such match between mission and financial performance, the Michael J. Fox Foundation.

Monday, February 11, 2013

Not All Pink Ribbons are Created Equal

A couple of years ago, Susan G. Komen for the Cure faced substantial criticism for its efforts to prevent other organizations from using pink ribbons and/or including "for the cure" in their names and/or fundraising event names.  While many viewed this as a mean spirited attempt to squash small charities with good intentions, it turns out there is something to their concern.  Many organizations rely on the pink ribbon to tout their support of breast cancer research and breast cancer survivors, and not all have the same credibility as Komen.  Below, I will discuss a few breast cancer charities that use the pink ribbon extensively to raise funds, but use those funds much differently than donors may think.

Thursday, February 7, 2013

Why are IRS audits of Charities up since 2009?

A Fox News opinion piece is reporting on the increase in audits of nonprofits that has occurred since President Obama took office.  In particular, the Fox News piece noted that starting in 2009, IRS audits (examinations) of tax exempt organizations increased materially relative to the Bush years.  The conjecture is that this is part of a strategy of undermining charities by the Obama administration.  Naturally, many others have piled on.  Here is the data on IRS examinations that is causing the stir ...

Sure enough, examinations are up, and the largest jump was in 2009, the year Obama first took office.

I hate to ruin a good conspiracy theory, but there is a more simple explanation for the jump.  Starting with tax filings made in 2009, the IRS adopted a new form 990 (the annual filing of tax exempt organizations).  The new form required more entities to file their financial information and also required additional disclosures about compensation, fundraising, and governance.  The new form 990 itself came from a long review of oversight for tax exempt entities.  The intent was to gather better information about, and place more scrutiny on, nonprofits' practices.  In fact, perhaps the loudest voice in Washington pushing for this additional scrutiny was Chuck Grassley, hardly a guy simpatico with President Obama.  So, it is correct that IRS scrutiny of nonprofits has increased in recent years.  However, it is hardly fair to consider this to be an effort led by the current president.

Wednesday, February 6, 2013

Do Thank You Gifts Increase Giving?

The conventional wisdom of charity fundraising is that if donors are offered or given "thank you gifts" for their donations, they are more willing to give and are more generous when doing so.  Some recent research by George Newman and Jeremy Shen of Yale University provides a stark contrast to this conventional wisdom.  Their paper, "The counterintuitive effects of thank-you gifts on charitable giving", was published in the October 2012 issue of the Journal of Economic Psychology (full text available here).  They find that regardless of the gift quality or the quality of the charity itself, offering a thank you gift actually decreases donations.  My rough interpretation of this finding is that when a thank you gift is offered it creates in the donor a mindset that the donation is more of an exchange transaction than a pure donation.  As a result, the donor (perhaps subconsciously) thinks of making a donation that ensures a more fair exchange.  In contrast, without a thank you gift, the donor's mindset is entirely on charity (altruism) and the donor is thus focused on generosity when making a gift.  The implications for charities are clear -- think twice before showering your donors with gifts.  Even if they think it is nice, they are likely to be less charitable in the process.

Monday, February 4, 2013

Cost Allocation and the American Heart Association

With National Heart Month now well underway, I thought it would be useful to take a look at the financial picture of the country’s largest heart health charity, the American Heart Association (AHA).  As discussed here before, the most widely used measure of financial effectiveness for charities is the program expense ratio, which measures the percentage of expenditures geared toward the organization’s primary mission (as opposed to fundraising or administrative efforts).  For the American Heart Association, the program expense ratio stands at a healthy 79% (based on its FY 2012 audited financial statements).  This financial effectiveness played a key role in the organization’s accreditation by the BBB and its 3-star rating on Charity Navigator.  However, it may not mean quite as much as people may think it does.  To see what is driving this ratio requires a diversion into cost allocation…