The ChangePath Blog

Thinking about Australian charity

Tag: Charity

Financials, charity health, and World Vision

At ChangePath, we rely heavily on financial statements to assess the financial health of a charity. Our methods are relatively simplistic, and they aim to give a very basic metric for understanding if a charity is being managed well or poorly. Given these limitations, we shouldn’t fall into the trap of thinking that financial statements give us the whole picture.

Let’s look at a case in point: World Vision Australia. Tim Costello, the CEO, has talked about how Australian giving is waning and that “this has been the worst time of my life in 12 years at World Vision” 1. Last year, World Vision laid off 89 staff out of around 500 full-time, blaming the falling Australian dollar and the fact that child sponsorship has dropped from 80 per cent of the organisation’s revenue to 43 per cent in just over a decade 2. According to Tim Costello, this is an exceptionally tough time at World Vision.

And yet, a superficial glance at the financial statements appears to tell a different story. Revenue has steadily increased over the last four years, from 343m (2012) to 370m (2013) to 380m (2014) to $424m (2015). Donations are similarly rising slowly, from 287m to 307m to 309m. The balance sheet is healthy, and they have been relatively good at keeping expenses in line with revenue. While they did lose $1m in 2013, World Vision Australia posted a $21m surplus in 2014. A brief look at the numbers appears to show a charity in great financial health.

When finances and words diverge

So what’s going on here? Is Tim Costello lying? This seems very unlikely – charity CEOs don’t lay off staff without very good reasons, especially when it represents almost a fifth of all full-time employees. People are expensive to hire and train, and layoffs are terrible for morale. Occam’s razor would suggest that World Vision Australia is telling the truth and is indeed going through tough times 3.

More likely, what this illustrates is a few key problems with using financial statements to understand charities. First and foremost, you’re only looking at a snapshot back in time, often quite far back. When Tim Costello was quoted as saying it was the ‘worst time’, the most recent financial statements available were from the end of September 2014, nearly two years earlier. This is because you can’t write the financial statements until the end of the financial year, and it generally takes a few months for the final statements to be written and approved. So there’s close to a year-and-a-half gap between what’s actually going on and the financial information we have. The Australian dollar didn’t start its latest fall until just after that report was published, in October 2014, and the effects wouldn’t have been felt until sometime in 2015 at the earliest.

Even now in March 2017, a full year since the original news article, we’re still not much wiser about what exactly was happening in early 2016. The latest annual report available (as of March 2017) only gives figures until September 2015. Even then, there were a few mentions of hard times – the Board Chair’s report refers to it as a ‘challenging year’, which speaks volumes when you consider the rarity of hearing negative news in the introduction.

Another important point is that three years and the headline figures aren’t always enough context to see long term trends. While donations have been rising slowly for the last three years, to understand the strategic direction of World Vision you need to go back five, maybe 10 years and look at the trends.
Finally, it illustrates how relying on the big picture numbers can lead you to miss important events and get a warped understanding of the health of an organisation. If you just looked at the headline revenue figure in the 2015 financial report, you’d think World Vision was a picture of health, with steady revenue growth from the previous year. Yet a bit of digging reveals worrying trends. Child sponsorship income, by far the largest single income source and an important source of recurring funding, declined from $194 million to $186 million. This was masked by a significant uptick in donations of goods and in grants. Yet as the report notes on page 28, “the future for grant income remains uncertain”, and given that grant income generally funds specific projects rather than the running of the charity itself, it can create significant issues.

Of course, as with any media story, the way it is pitched is important. Look at the way they have phrased it – ‘child sponsorship had dropped from 80 per cent of the organisation’s revenue to 43 per cent’. This says nothing about the absolute numbers, only the relative numbers. Are donations falling and other types of revenue are taking up the slack? Or are donations rising but other forms of fundraising are rising faster? Without analysing the financials for ten years, it’s difficult to say.

It will be very interesting to see what the 2016 financial statements show when they’re released. I’ll update this article once they’re available.

 

Sources:
http://probonoaustralia.com.au/news/2016/03/political-leaders-to-blame-for-loss-of-charity-costello/
http://probonoaustralia.com.au/news/2014/07/fewer-aussies-giving-more-to-charity/
http://www.philanthropy.org.au/tools-resources/fast-facts-and-stats/
https://www.qut.edu.au/research/research-projects/giving-australia-2015-2016
http://www.roymorgan.com/findings/5657-fewer-aussies-donating-to-charity-201406300152
http://australiancharities.acnc.gov.au/wp-content/uploads/2015/11/Australian-Charities-Report-Summary-FinalWeb.pdf

 

Face to face fundraisers and why charities hire them

We all see the charity fundraisers in the streets, trying to attract your attention as you desperately stare at your phone in a vain attempt not to be noticed.

Opinion polls suggest high levels of public hostility towards street fundraisers, also known as “chuggers” (a portmanteau of “charity mugger”), with as many as 80 per cent of those interviewed being against them. Even I’ll confess to not liking them, and I’ve worked in charities for years.

Recent articles, like this one, have come out swinging against these fundraising tactics. Not only that, but these services are famously costly for the charities. This is a reputational risk for the charity as well as a monetary loss.

So if they annoy donors, are hugely expensive, and give the charity a bad name, why on earth do they keep being hired?

The chugger balancing act

For charities, street fundraisers represent a tradeoff. They know that face-to-face fundraising isn’t well liked, and it does put a bit of a dent in their reputation. But it’s very effective, especially at finding people willing to give a recurring donation.

It’s long-term sustainable revenue like that (people giving a few dollars a month) that allows charities to plan for the future slightly better. Most charity revenue is one-time – an event, a fundraiser, a day, or a bequest. This means that one rained out event, or one cancelled fundraiser, has the potential to seriously dent the numbers. Recurring donors, by contrast, give charities a fairly stable stream of money which they can then allocate to research, advocacy, or whatever they choose.

People with recurrent donations also give more – one study found average recurring donor will give 42% more in one year than those who give one-time gifts. Cynics would argue that donors forget about the recurrent funding and thus spend more on the charity than they would if you asked them for a lump sum, but it’s also intimately tied in with the psychology of how humans value money now vs money in the future.

Donors with recurrent funding are rarely donors for life, but they last much longer than ‘one-time-only’ donors. The average length of time they maintain their donation is 4 years. “Over 70% of people that we recruit into organizations never come back and make another gift,” says Dr. Adrian Sargeant, Professor of Fundraising at the Lilly Family School of Philanthropy at Indiana University. Whereas 80% of monthly giving donors are still there a year later.

And donations aren’t the only factor. Street fundraisers also help to raise awareness of a charity, though this is somewhat counterbalanced by the slightly negative associations with chuggers.

Effectively, the simple fact is that charities wouldn’t employ these fundraisers if they didn’t believe the tradeoff was worth it. Indeed, I know a number of charities held off on doing face-to-face because they were worried about the reputation damage. But then they, like a lot of other charities, realised that they were simply ceding donors to other charities who were willing to do it.

 

The numbers don’t lie

To look at just how influential face to face and recurrent donors are, you need to look deep in the bowels of charity financial reports. Most charities won’t pull out their face-to-face numbers but thanks to the Charitable Fundraising Act (1991), NSW charities have to provide some details on where their fundraising comes from. After a quick trawl through some annual reports I’ve found two that actually give broken down numbers: Cancer Council NSW and Amnesty International. They tell different but related stories.

Amnesty International is, thanks to its ‘sponsor a child’ program, one of the most heavily weighted towards recurring donations. Looking at the Amnesty International financial breakdown (Note 19, page 31), you can see just how heavily they rely on regular giving. Of their $25m in fundraising revenue, a full $21m is regular giving.

Looking at the Cancer Council figures (note 22, page 39), you can see that face to face revenue is not as significant ($15m in revenue out of $83m) but it’s still the second-largest source of funds after bequests. By comparison, Daffodil Day raises less than $3m.

Of course, we’re confusing two very different issues here – recurrent donations are not only raised from face-to-face fundraising. Most charity websites now offer a ‘regular donor’ option, and often irregular donors will be contacted to try and get them to upgrade to being more recurrent. Yet face-to-face remains a key part of the fundraising mix and the one of the most successful at getting regular donors.

I do feel for the poor fundraisers. I’ve worked with several face-to-face fundraising organisations during my time at charities, and they’re generally full of young, friendly people. It’s a thankless, soul-sucking job, and they’re actually doing a better job for charities than most people realise. Of course, you’d be far better to donate directly to a charity on a regular basis, thus cutting out the middleman, but in the absence of everyone doing that they will continue to walk the streets.

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