Why Ethical Fundraising Matters

Karen Alebon

October 23, 2008

Overview

• Public Opinion on Charities & Fundraising• Government Regulation• Overview of the Ethical Code• Question & Answer

Public Opinion on Charities & Fundraising

Public Trust in Charities Remains High

Source: Talking About Charities 2008, The Muttart Foundation

Thinking about charities in general, would you say you trust them...

28

27

27

51

52

50

18

17

18

3

4

4

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2004

2006

2008

A lot Some A little Not at all

Trust Varies by Type of Charity

Source: Talking About Charities 2008,

The Muttart Foundation

11

14

18

24

25

31

27

30

41

43

50

34

45

45

41

47

42

50

50

44

43

38

0 10 20 30 40 50 60 70 80 90 100

Other religious orgs

International Development

Arts

Churches/other worship

Environment

Animal protection

Social services

Education

Health promo/res

Children

Hospitals

A lot Some

Donations & Donors: 1984 - 2005

Source: Research Bulletin: Trends in Individual Donations: 1984 – 2005

Opinions on Raising Money

Source: Talking About Charities 2008, The Muttart Foundation

18

35

15

15

58

37

43

26

0 20 40 60 80

Charities are generallyhonest about the w ay

they use donations

Too many charities aretrying to get donations for

the same cause

Charities spend too muchmoney on fundraising

Charities only ask formoney w hen they really

need it

Strongly agree Somewhat agree

The Public Wants Information

Source: Talking About Charities 2008, The Muttart Foundation

Importance (very & somewhat) of having information vs. charities' performance (excellent & good) in providing it

98 98 97 96

51

29 26

38

0

20

40

60

80

100

Programs & services Use of donations Fundraising costs Impact of work

Importance Performance 08

…And More Scrutiny

Source: Talking About Charities 2008, The Muttart Foundation

More attention should be paid to...

6242 47

56

32

45 43 32

0

20

40

60

80

100

Way charities spendtheir money

Way charities raisemoney

Amount chariteisspend on programs

Amount charitiesspend on fundraising

professionals

Strongly agree Somewhat agree

High Expectations around Use of Donations

Source: Talking About Charities 2008, The Muttart Foundation

39%

60%

I expect all of the money Igive to charity to go to thecharity's cause, forexample, tow ards cancerresearch

It is appropriate to have aproportion of the money Igive go tow ards theoperating costs of thecharity as long as theamount is reasonable.

High Expectations around Disclosure

Source: Talking About Charities 2008, The Muttart Foundation

On each fundraising request, charities should be required to disclose how donors' contributions are spent.

4% 2%

26%

68%

Strongly Agree

Somewhat Agree

Somewhat Disagree

Strongly Disagree

More People Believe There Should be a Legal Limit on the Amount of Money Spent on Fundraising

Source: Talking About Charities 2008, The Muttart Foundation

Which of the following two statements do you most agree with...

47%

52%

Charities should decide forthemselves how muchmoney is reasonable tospend on fundraising

There should be a limit seton the amount of moneycharities can spend onfundraising

Charities Sixth Most Trusted British Institution

75%

55%51% 50%

46%42%

0%

10%

20%

30%

40%

50%

60%

70%

80%

ArmedForces

Police NationalHealthService

Scouts &Guides

Schools Charities

Source: Charity Awareness Monitor, 2007

Trust and Performance of Charities, UK

How much, on a scale of 0-10, do you trust charities to do the following?

6.96.7

6.3

6.6

6

6.6

5

6

7

Make a positivedifference to

cause

Ensurefundaisers are

ethical & honest

Spend wisely &effectively

Well managed Ensurereasonableportion of

donations getsto end cause

Overall trust

Source: Charity Commission survey of public trust and confidence in charities, 2008

16% of Americans have a Great Deal of Trust in Charities

Confidence in Charitable Organizations

16% 48% 25% 9%

0% 20% 40% 60% 80% 100%

Great Deal

Fair Amount

Not too Much

None at All

Source: How Americans View Charities, 2008

Only 30% of Americans Believe Nonprofit Sector on the Right Track

In general, do you think the nonprofit sector in America is on the right track or has pretty seriously gotten off in the wrong

direction?

30% 32% 38%

0% 20% 40% 60% 80% 100%

Right Track

Wrong Direction

Not sure

Source: Harris Interactive Poll, April 2006

Over 25% of Americans do not Think Charities are Honest and Ethical in Use of Funds

Source: Harris Interactive Poll, April 2006

Based on what you know, please rate your agreement with the following statement: "Most charitable organizations are honest and

ethical in their use of donated funds."

10% 48% 15% 22% 5%

0% 20% 40% 60% 80% 100%

Strongly agree

somewhat agree

Neither agree nor disagree

Somewhat disagree

Strongly disagree

Negative Media Attention

• More than 200 articles published in the last six years with negative coverage of the sector.

• Focus of media attention related to Code over the last six years has been:

– high costs of fundraising,

– transparency,

– fraud,

– misleading donors,

– etc.

Some Headlines…

• “Murky books leave donors with questions”» The Globe and Mail, December 18, 2006

• “Finding out where your charity dollar is going”» Vancouver Sun, December 22, 2006

• “Charity scams bust public trust”» Toronto Star, June 7, 2007

• “Charitable empire has high costs”» Toronto Star, November 4, 2007

• “Charity’s licence revoked over inflated tax slips”» Toronto Star, August 12, 2008

CRA – Proposed Fundraising Guidelines

• In July 2008 the Canada Revenue Agency (CRA) released a “Proposed Policy on Fundraising by Registered Charities” for consultation.

• This 35-page document provides guidance on a number of issues including the evaluation of fundraising activities and the appropriate allocation of expenses.

CRA – Evaluation Grid

• Most controversial is an evaluation grid that provides a ratio of acceptable fundraising costs to fundraising revenue in a fiscal period.– Less than 20% costs: acceptable; – 20 - 35%: generally acceptable; – 35 – 50% potentially not acceptable; – 50 - 70% generally not acceptable; – more than 70%: rarely acceptable.

Fundraising Guidelines – Sector Response

• Imagine Canada, the Association of Fundraising Professionals (AFP) and Health Charities Coalition of Canada (HCCC) convened charities to discuss the impact of these changes.

• Concerns:– Evaluation grid does not take into account the variation in

the sector – assumes one size fits all.– Cost allocation methodology remains subjective and is

very complex. – Positive role of fundraising not reflected.

• Coalition submitted joint response with over 80 signatories.• Informal consultations now taking place between the CRA and

charity representatives to discuss some of these issues.

Conclusions

• Public expectations around accountability and transparency are increasing – Donors are asking more questions.

• Charities need to play a leadership role in responding to these issues before they become a problem.

• It’s the right thing to do – Charities have a responsibility to manage fundraising and finances ethically.

• Trust in the sector remains but there are reasons to be concerned.

The Ethical Fundraising and Financial Accountability Code – An Overview

Ethical Code - Introduction

• The Ethical Fundraising and Financial Accountability Code was first developed by the Canadian Centre for Philanthropy (now Imagine Canada) approximately 10 years ago.

• The Ethical Code sets out standards or guidelines on donor relations, fundraising practices and financial reporting for charitable organizations.

• In 2006, a research and consultation process was undertaken to update and revise the Ethical Code.

• A revised Ethical Code was released in October 2007

Content of the Ethical Code

• Ethical Code includes information related to donor protection such as privacy, disclosure related to who is soliciting, and limiting solicitations.

• Guidelines related to fundraising practices include misleading marketing, online fundraising, and transparency about costs of fundraising.

• Financial accountability guidelines touch on the treatment of restricted gifts, content of financial reports and requirements for financial statements.

• Imagine Canada’s Ethical Code is complementary to the Code of Ethics created by the Association of Fundraising Professionals.

Ethical Code Program

• Ethical Code is a donor assurance program aimed at helping to maintain public trust in the sector.

• It is also a movement of charities committed to ethical fundraising and financial accountability.

• Revised Ethical Code Program launched in January 2008 with a greater focus on accountability.

• Program participants are eligible to use the Ethical Code ‘trustmark’ or logo that signals to donors that they comply with the Code.

Ethical Code Program – Current Status

• More than 150 applications received since January 2008 launch of program.

• Marketing & Outreach– Supplement in Maclean’s focused on Ethical

Fundraising in June 2008

– News Release resulting in several newspaper articles including coverage in the Toronto Star.

– Thanks & Giving supplement planned for late-September – focus on the importance of giving and what donors should look for when making a donation.

Promoting Compliance

• Compliance is monitored through a complaints-based process.

• There is no accreditation process but donors or the public can file complaints.

• Charities are encouraged to settle complaints directly with donors.

• If this is not possible the complaint will ultimately be sent to the Ethical Code Committee.

Question & Answer