Charity fundraising and ethics

August 5, 2017 3:35 PM

Why would someone chose to go through the work of running a charitable organization in such a way that only a small percent goes to their cause?

I recently ran across a news story about a non-profit foundation which used a majority of its budget for fundraising, mostly through third-party solicitation, and only a small percentage for direct aid. This sounds inefficient to me but not criminal - I don't see how the nonprofit would benefit from the practice unless the execs had ownership in one of the vendors, or got some kind of kick-back. Based on their tax filings, the payroll is not that high. If making money was the goal, I'd expect to see fatter checks to the exes. If having a benefit to the cause was the goal, you'd be better off encouraging people to give to more efficient charities. What's the point of running an organization in this way?

posted by bunderful to Law & Government (7 answers total)

Best answer: These charities may have started out small, but at some point, the cost of collecting each dollar gets larger and larger as you run out of people who will donate easily. So, what are you willing to pay to get an extra dollar for your cause? Logically, 99 cents. Because that extra penny is still more than you had before.

So if you increase the amount of money actually going to your cause from $1 million to $2 million, but you spend $100 million doing that, you're still contributing twice what you were before, and so it was worth it to spend the $100 million. It's just that now you look inefficient.
posted by kindall at 3:43 PM on August 5, 2017 [5 favorites]

Best answer: It's not necessarily always unethical, though as you note, it is inefficient. Here are some reasons why organizations spend so much money to raise a dollar, for better or for worse:

• They are new, and don't have the infrastructure in place to go to an annual pool of donors because they're still trying to form that annual pool. Donor acquisition is expensive, much more expensive than retention.
• They are old and stagnant, and have tapped out their existing annual pool or had their annual pool die out. Acquisition is expensive.
• They are doing really important work that can't just be stopped on a dime and are just barely covering their expenses, but still covering them. Operating is better than shutting down even with a high cost per dollar raised ratio.
• The founder is the charismatic type and wants to continue the work even if there are mission-competitors in the space for reasons related to personal fulfillment or personal gain.
• There is temporarily no fundraising team at all and the charity needs to still operate, or they don't have the money to hire top-rate fundraisers or track donations internally.
• They are lacking the human capital resources infrastructure for complex financial reporting and don't want to mess it up so outsource fundraising in order to minimize number of transactions.
• They have a reputation for raising money in this way and people expect them to use third-party fundraisers, third-party fundraisers are highly visible and part of the identity of the organization.
• They are morally corrupt and exist as a revenue source for the third-party fundraisers rather than the mission-related work.
• They are morally corrupt and exist as a revenue source for a founder or founders linked to the third-party fundraiser.
• They are morally corrupt and exist as an ego feed for a founder or founders rather than as a public good.

Those are just a few reasons I've seen over the course of my career. Happy to elaborate on any if desired, feel free to PM me.
posted by juniperesque at 3:58 PM on August 5, 2017 [10 favorites]

The people running these charities are trying to make connections and establish a reputation as a community leader. With this publicity they will then be able to run for entry level political positions such as school trustee, then city council. Enough time there and they can run for higher political positions.
posted by Coffeetyme at 7:10 AM on August 6, 2017 [1 favorite]

This sounds inefficient to me but not criminal

It can easily be criminal. Fraud and money-laundering are both possibilities in this scenario, as are the kickbacks you mentioned.
posted by Miko at 9:18 PM on August 6, 2017

Response by poster: To my knowledge, the exec in this case is not getting kickbacks and does not have ownership in the solicitation firms the nonprofit uses - which is why I find it so odd.
posted by bunderful at 5:09 AM on August 7, 2017

Do his friends have ownership?
posted by Miko at 7:41 AM on August 7, 2017

The other thing that comes to mind is the example of a fundraising org that runs a "charity" event like a marathon or race. The costs of that event might run almost as high as the proceeds earmarked for the donation. But events like that exist to serve more than one purpose. A charitable race, for instance, often has a budget with revenue that includes fees for participation, sponsorship, donation, and concessions sales. Then, from that budget out come costs for race timing, food and beverage, police detail and road blocking, printing and production, staffing (like volunteer management and accounting), marketing, and cleanup. Sometimes there's very little left over after the race is done, maybe a few thousand bucks, to send to the charity.

So why do it? It's good marketing for the aid cause and usually at no (or not much) direct cost for them. It's a fun community event. It's important to local runners and probably part of their training calendars. It provides a venue for local direct marketing to the running/health/outdoor community. It's an annual ritual. It's something that has a tight group of leaders who derive a lot of personal satisfaction from running it. And so on with reasons like that.

If it's something like an event, concert, race, festival - those other outputs might be every bit as valuable to the org as the direct aid, and their fundraising mechanism might just be very costly (as a race is).
posted by Miko at 7:46 AM on August 7, 2017