Help for help

How do you feel about giving to charities?

Most of you value whatever money you have but also know that some of that could help those who have none or very little. As a result, you give generously your hard-earned to charity.

Generosity is not solely based on one's economic status, but includes the individual's pure intentions of looking out for society's common good and giving from the heart. It reflects the individual's passion to help others

So how do you feel when you find out that for every dollar you give to charity, only 15-20% ever gets to the needy?

If you’re like me, damm furious!

Furious that a multi-million industry rides on community compassion. Furious that the bulk of what you give is providing jobs, income, and benefits for charity employees; that you are supporting an industry liable to expend funds on non-charitable items.

There are many ways of defining business costs, some honest but others bordering on legitimate. How often do we see reports of large amounts of money being diverted from rightful purposes to fund the personal desires of unscrupulous functionaries?

I’m not suggesting that all charities are dodgy but there must be better ways of raising money to help the needy, and that’s why I am writing this article.

I hope that it becomes a discussion trigger amongst our broad reader base for discovering better ways to get the maximum bang for our charity buck.

I belong to an organisation whose primary role encompasses moral development; as a sideline it donates to a large range of worthy needs. It does so most efficiently because fund raising and distribution is secondary to its costed main function; thus the primary key staff can rally many volunteers to assist when needed at no extra overall cost, and certainly at no potential loss to ultimate beneficiaries.

Charitable overheads-offsetting is undertaken regularly by banks and other corporate citizens during times of disaster and natural emergencies; it is not unreasonable that such businesses claim a tax deduction for the donation of that part of their costs resulting from additional charity-management.

This method of benevolent fund-raising might be one of the ways of getting more efficient donations.

I think that the key fact is that charities work most effectively when they function with volunteer staffing, which is fine for those who are not time-poor. However for busy benefactors who want to perform generous actions, givedonations to aid the poor, ill, or helpless; todevotetheirlifetocharity, then having an organisation with an ultra low-cost structure is desirable.

There can be no denying that supporting charity benefits not only the recipients, but also the donors; that donor value is happiness.

A number of years ago Arthur Brooks, American social scientist, musician, and president of a conservative think tank, and who is best known for his work on the junctions between culture, economics, and politics, wrote the following in the New York Sun newspaper:

A number of studies have researched exactly why charity leads to happiness. The surprising conclusion is that giving affects our brain chemistry.

For example, people who give often report feelings of euphoria, which psychologists have referred to as the "Helper's High." They believe that charitable activity induces endorphins that produce a very mild version of the sensations people get from drugs like morphine and heroin.

Charity also lowers the stress hormones that cause unhappiness. In one 1998 experiment at Duke University, adults were asked to give massages to babies — the idea being that giving a baby pleasure is a compassionate act with no expectation of a reward, even a "thank you" — in return. After they performed the massages, the seniors were found to have dramatically lower levels of the stress hormones cortisol, epinephrine, and norepinephrine in their brains. The bottom line from all the research on giving is that it is not just good for your favorite cause; it's good for you, too.

For relief from stress and depression, it's probably more cost-effective than whatever your doctor might prescribe. For getting a little high, it's not illegal, and a lot less fattening than booze.

That’s what a lot of us feel when we donate, but unfortunately our donations are not as effective as we would wish or believe. The way charities operate and are regulated in Australia finds them as businesses with high overheads and low profits.

The function of any business is to make a profit; it’s the nature of that business which shapes the cost of obtaining profit.

For many years, I operated a film and television production company in which we used to apply a mark-up of around 30%, appropriate for what was essentially the creation and supply of bespoke product with a low turnover. We would negotiate lower mark-ups for those clients who gave us regular business, and for whom developmental costs could be amortised over a number of productions.

This is in sharp comparison to high turnover mass-market retail businesses which often factor in a 1.5 – 5% mark-up, allowing them to cover overheads yet return a satisfactory profit.

But the simple fact remains “you have to spend it to make it”.

What is different about charities is that there is no end product. They exist purely to distributemoney, time, or labor for others without being rewarded in return.

Cricketer, Shane Warne, recently admitted to Mal Faircloth of AAP that he was “disappointed” with the recent performance of his charity, The Shane Warne Foundation.

This was after it was reported it had donated an average of only 16 cents of every dollar of $1.8 million raised from 2011-2013 to institutions that care for sick and underprivileged children.

Only sixteen cents in the dollar – where did the rest of it go?

Public criticism of the Shane Warne Foundation appears well-founded when you consider the organisation’s 2014 financial statements.

Its reporting to Commonwealth charities regulator, the Australian Charities and Not-for-profits Commission, reveals it received revenue of $452,711, of which $279,198 was attributed to fundraising, yet spent $281,434 on raising those funds.

Why? That puts a ludicrous twist on the idea of spending it to make it.

It resulted in a “cost ratio” of more than 62% – the ratio of the cost of raising funds against the proceeds of fundraising. That ratio is more than 100% if you only use the actual fundraising income in the calculation.

The other major expenses were employee benefits of $150,507, and rent of $47,572. The charitable purpose does come into question when these figures are juxtaposed against the distribution to beneficiaries of just $50,000.

Similar criticisms have been levelled at larger well-known charities.

In 2011 the Surf Life Saving Foundation, Care Flight (NSW), and Make-A-Wish Foundation were all reported to have a greater than 50% cost ratio. Their historical distributions, spending on their charitable purposes, have been much higher than the Shane Warne Foundations’s 11% of revenue.

So why on earth would you want to donate your own money to pay for things like employee salaries and rental? Aren’t there ways that your generosity can be directed 100% to those in need?

Confirmation of the current high-cost activities of the “charity industry” appears in the following part of a report by Susan Pascoe, Commissioner of the Australian Charities and Not-For-Profits Commission.

While most Australians appreciate the social impact of Australia’s charitable sector, they may be surprised to find that it also has huge economic significance. Australian Charities Report 2014 shows us that Australian charities had a combined income of $103 billion and employed more than 1 million people in 2014 – this is a large section of the economy and Australia’s workforce.

When you consider this alongside the estimated two million volunteers working for charities, you get a picture of the size and significance of the sector.

Understandably, the public want to see that their money is making a significant and direct impact. However, immediately associating high administration costs with low effectiveness or seeking to place fixed percentage figures on administration costs could be misleading.

Many of the very small charities have low administration costs, due to size and reliance on volunteers. However, for the charities employing staff, renting premises, advocating for their causes and so on, there will be administration costs. This is legitimate and can be a mark of effectiveness – for example the charity that trains its staff and evaluates its programs may be more efficient and effective than the charity which does not.

Similarly, a charity that provides medical services in remote or rural areas would likely have higher costs in delivering its services than a charity that provides food for the homeless in the city.

Having said that legitimate administration costs underpin the operations of many charities, it is also important to note that the ACNC Governance Standards clearly expect that charities are prudent with donations and use money as effectively as possible.

Whilst we all want to ensure that as much of our donations are making as great an impact as possible, it is important to remember that running professional, sustainable and effective charities costs money. The effectiveness of a charity’s impact is the key factor by which you should decide whether a charity receives your donation or approval.

The Commissioner’s report is a summation of what is taking place at the moment, stating the obvious, but I disagree with an adjective in the last statement that “running professional, sustainable and effective charities costs money”.

Why should a charity have to be “professional”? To me, it would be more cost-effective if a charity was amateur in the original meaning of being an activity done for no monetary reward, just out of sheer love.

There can always be the belief that ‘a little is better than nothing’ to justify high administrative costs, but this undermines the very purpose of giving; to direct as much money as possible to those who need it.

The charity business makes me wonder what the outcome would be if we, the donors, decided to take just sixteen cents of each of our available dollars, but place that directly in the hands of the disadvantaged. It would go bust, and its members would then have to find employment other than that funded by our generosity.

I hope that someone among you can suggest a more effective way of converting our big-heartedness into benefit. I think that we all would like to see our entire donations end up achieving their purpose. How?

Could it be by a small number of large, expensive organisations dealing in millions of dollars; by a large number of entirely voluntary organisations distributing lesser amounts; by even larger numbers of small ‘community chest’ style groups operating at grass roots levels within poor populations; by a strong one-on-one culture which gives directly yet preserves the anonymity of the donor if that is desired; by strongly-bonded volunteer organisations such as rural fire services, lifesaving clubs, sporting clubs and the like rallying around people in their communities as they usually do: by strengthening social expectations of philanthropy on the part of the wealthy (Dick Smith is a fine example of this practice); or by giving up entirely and asking whether it is really better to give than to receive?

Could it be a blend of any or all of the above? I don’t know – that’s why I’m asking for your On Line Opinions.