Management of Overhead and Fundraising: Preliminary Case Study Findings

1
Management of Overhead and Fundraising
Preliminary Case Study Findings

• ARNOVA
• November 21, 2003

2
Multiple Research Phases

• Analysis of IRS Form 990 data, n228,000
• Survey of fundraising and accounting practices,
  n1500
• Our focus today Detailed case studies, n10

3
Overall Study Design

• Goal Ten case studies (five completed)
• Diverse NTEE group, size and location
• 3 reporting zero fundraising cost
• 3 best practice sites
• Draw from survey respondents
• Review 990s, surveys, and audits
• Onsite interviews with CEO, CFO, CDO

4
Interview Protocol, CFO (2 hr)

• Sources and uses of funds
• Restrictions, fundraising methods, admin coverage
• Functional expense tracking
• Joint costs, time tracking, allocation method and
  rationale
• Infrastructure costs
• Who pays, adequacy, perceived pressure to keep
  low
• External reporting audit and 990
• Internal financial management
• Budgeting, internal reports, distribution,
  appetite
• Finance department
• staffing, technology, outside supports

5
Interview Protocol, CEO (1 hr)

• Financial management
• Whos involved, what they see, how often, how
  its used, finance dept.
• Fundraising and Development
• Information available for management, development
  dept.
• Covering admin infrastructure
• Difficulty, adequacy, gaps, reporting pressures

6
Interview Protocol, CDO (1 hr)

• Sources of funding
• Methods of fundraising used
• Management and coordination of methods, people
  involved in F/R
• Department staffing, technology, outside supports
• Planning and information to manage F/R
• Costs and revenues
• Raising money for admin infrastructure
• Perceived pressure to keep admin costs down

7
Progress Report

• Five site visits completed so far
• Still organizing and analyzing the data
• Findings reported today are PRELIMINARY,
  INCOMPLETE, and ANY OTHER DISCLAIMERS??!!
• However, these findings are quite suggestive and
  troubling.

8
1M Domestic Abuse Agency

• 2/3 revenue contributed, 1/3 govt. contracts, no
  development staff, CEO very involved in F/R
• A few corporate board members deliver significant
  special event sponsorships and program grants
• UW, newsletter, corp and foundation grants,
  thrift shop
• No personnel costs for F/R on audit or 990

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Domestic Abuse Agency, contd

• Im not an accountant, but I play one at work.
• Functional expense reporting a work in
  progress no time tracking by functional expense
  area
• On MG, our auditor says theres no definition.
  You can do whatever you want.
• 990 prepared by auditor

10
5M Community Development Corp

• 70 program service revenue, 30 contributed
• 2 FTE development department
• Foundation grants, corp support for spec events,
  annual appeal, newsletter, UW
• Senior execs deeply involved in fundraising, but
  no salary allocated to F/R

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5M CDC, contd

• CFO plus 3.5 FTE accounting department
• Staff assigned to cost centers, cost centers
  assigned to functional expense categories
• No time tracking by category
• Anything not at the parent is program
• Auditor prepares 990
• Lack of infrastructure funding handled by paying
  low salaries and doing without

12
Literacy Agency of Arguable Size

• 50 revenue from govt., 45 contributed
• 1 development person plus vol. coord. CEO very
  involved in F/R
• Foundation grants, UW, spec. events, mail appeals
  and newsletter, local corps.
• Development person charges time to program to
  keep F/R ratio down
• Grant budgets avoid too much in certain line
  items and all hard-to-explain line items, focus
  on direct program costs

13
Literacy Agency, contd

• Use of volunteer tutors means a 1.1 million org
  on audit, 400K org on 990
• Admin and F/R ratios a wasteful 30 based on
  990, efficient 12 based on audited financials
• Agency has been threatened with cutoff by a
  funder using 990
• No trained financial staff person 1 admin
  director
• Timesheets support allocation by functional
  expense category

14
Literacy Agency, contd

• Class Z office space, very junior staff, cast-off
  furniture, etc.
• Lack of infrastructure funding handled by paying
  low salaries and doing without

15
2.5M Food Bank

• 60 govt funding, 40 contributed
• 3-day/week grantwriter CEO relationships
  important to many funding sources
• Foundation grants, spec. events, newsletter, UW,
  churches, local corps.
• Zero fundraising cost on 990 was a mistake
• All admin staff share one office, roof leaks,
  broken furniture
• Low salaries We couldnt replace X for what we
  pay her.
• The advantage of running a thrifty organization
  is that you continue to get support.

16
Food Bank, contd

• 2M food donations, 500k cash expenses
• 2.2 FTE admin and F/R staff allocated across
  functional expense categories by fixed percent
  no time tracking
• 990 prepared by contract accountant
• Change in food inventory led to 250K surplus and
  deficit in adjacent years
• Donations for capital purchases led to phony
  operating surpluses

17
40M Diversified Human Services Agency

• 80 govt., 10 contributed, 10 other program
  service
• CDO has 7 reports
• Senior execs heavily involved in govt funding, in
  other F/R as orchestrated by dev. dept.
• Board, spec. events, foundation grants, corps.,
  planned and major gifts, newsletters
• Zero fundraising cost on 990. No one noticed.

18
Diversified Human Services, contd

• CFO has 27 reports
• Auditor prepares 990
• Functional expense breakout on audit Staff
  charged to cost centers, cost centers charged to
  functional expense categories. No time tracking
  by category. What would be the benefit?
• Primarily public sector funding percentage for
  admin ranges 0-15
• 600 employees, 40 locations no backup for
  1-person payroll, benefits, phone support, and
  network support
• No evaluation, internal audit, or quality
  improvement

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Tentative Generalizations

• Functional expense tracking of personnel time low
  priority, low perceived benefit
• Glaring 990 errors even when prepared by
  auditors, CPAs
• NPOs responding to perceived pressure to keep
  real and reported MG but esp. fundraising ratio
  low
• Fundamental issues with GAAP and 990 rules for
  donated goods and services, and capital gifts

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Tentative Generalizations, contd

• Personnel costs in fundraising are generally not
  tracked
• Relative costs of different fundraising methods
  are generally not considered in the management of
  fundraising
• NPOs generally classify govt funding as direct
  public support on 990, but do not classify costs
  of raising those funds as fundraising costs

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Tentative Generalizations, contd

• Hard to raise adequate funds for admin
  infrastructure at all sizes
• NPOs responding with varying mixes of paying low
  salaries and doing without
• You get what you pay for with infrastructure

22
Speculative Hypotheses (emerging from but
reaching beyond data)

• Lack of adequate administrative infrastructure
  appears to be almost endemic among human services
  NPOs
• The proximate cause appears to be limited funding
  for administration
• Most importantly in public sector funding
• But mirrored at smaller scale in restricted
  foundation grants

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Speculative Hypotheses, contd

• Possible root causes of this sector-wide funding
  approach
• Trying to make limited dollars go farther
  peanut butter approach
• Ideas of administration as waste, shared by
  NPOs and funders, that were more appropriate
  during an earlier, all-volunteer era
• Under-reporting by NPOs that suggests they need
  even less than they actually spend now
• Competitive grant and contract award criteria
  that reward low overhead cost ratios

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Next Steps

• Complete at least 5 more site visits
• Write disguised profiles of each case
• Cross-case analysis
• Analyze case data in conjunction with survey and
  990 data
• Raise confirmed issues and findings broadly

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Contact Information

• Thomas Pollak, Assistant Director, National
  Center for Charitable Statistics, Urban
  Institute, 2100 M Street NW, Washington, DC
  20037, 202-261-5536 tpollak_at_ui.urban.org
• Patrick Rooney, Ph. D., COO, Center on
  Philanthropy, Indiana University, 550 West North
  St, Suite 301, Indianapolis, IN 46202-3272,
  317-684-8908, rooney_at_iupui.edu
• Ken Wing, Kennard T. Wing Co., 224 Kathmere
  Rd., Havertown, PA 19083, 610-789-8727,
  kennarwing_at_aol.com