Costless Fundraising: Deconstructing the Evidence

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Costless Fundraising Deconstructing the Evidence

• Joseph Cordes
• Sarah Wilson

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Inactive Fundraisers

• This paper sets out to explore the phenomenon of
  Inactive fundraisers. Inactive fundraisers is a
  term used by Tuckman and Chang in 1998 to denote
  organizations that receive direct public
  contributions but do not report fundraising
  expenses.

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Active and Inactive Fundraisers

• Of the 155,000 organizations in our database, 75
  (116,000) receive direct public contributions.
• Nearly three out of five organizations that
  receive direct public contributions do not report
  fundraising expenses 59 are inactive
  fundraisers, and 41 are active fundraisers.
• Hospitals are most likely to be inactive
  fundraisers, while higher education institutions
  are least likely.

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Active and Inactive Fundraisers by Selected
Sub-Sectors
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Active and Inactive Fundraisers by the Amount of
Direct Public Contributions
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Reliance on Contributions

• Overall, Active Fundraisers are more reliant on
  contribution revenue than inactive fundraisers.
• For active fundraisers, the mean percentage of
  revenue derived from contributions is 46 and the
  median is 38
• For inactive fundraisers, the mean percentage of
  revenue derived from contributions is 34 and the
  median is 15

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Use of Professional Fundraisers The Percentage
of Active Fundraisers Reporting Professional Fees
by Selected Sub-Sectors
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Use of Professional Fundraisers

• Only a minority of active fundraisers use
  professional fundraisers.
• There is a perception that some inactive
  fundraisers use professional fundraisers but
  dont report their fees as a fundraising expense.
  
• The NCCS Digitized Data only shows what is
  reported on IRS Form 990
• For more information weve looked at a second
  data source audited financial statements

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Conclusions drawn from NCCS/PRI National
Nonprofit Organization Data

• Inactive Fundraisers
• Represent over half of organizations who receive
  direct public contributions
• Collect significantly less in direct public
  contributions than Active Fundraisers
• Are less reliant on contribution revenue than
  Active Fundraisers
• Often use Special Events

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Sample of Audited Financial Statements

• We randomly selected fifty organizations that
  were
• Based in Maryland
• Public Operating Charities
• Filed an IRS Form 990 (rather than the 990ez) in
  1998
• Reported no Fundraising Expenses
• Reported Direct Public Contributions greater than
  200,000
• Thirty-one of those organizations were on file at
  the Secretary of States office in Annapolis and
  make up our sample.
• The sample includes a range of sub-sectors, but
  includes more hospitals and education
  organizations than is representative.

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Allocated Fundraising Costs to Another Functional
Expense

• Nine organizations (28 percent) allocated their
  fundraising costs as either management and
  general expenses or as program service expenses.
  
• One organization explicitly stated that they
  allocated their fundraising expenses as
  management and general.
• Two organizations allocated their fundraising
  expenses as program service expenses.
• Six organizations allocated their fundraising
  expenses as management and general these six
  include the organizations that hired a
  professional fundraiser -- her fee was allocated
  as a management and general expenses. Three of
  the other organizations allocated their expenses
  under a sub-setting of management and general
  Development, Membership Development, and
  Development and Alumnae.
• Example Preservation Association

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Relationships with Affiliated Nonprofit
Organizations

• Another nine organizations (28 percent) relied
  heavily on affiliated charitable organizations.
• Five organizations, all hospitals or hospital
  corporations, created separate charitable
  entities specifically to raise funds.
• Three organizations received a significant amount
  of their contributions from affiliated
  organizations.
• One organization was an affiliated organization
  created by a college specifically to raise money
  they used the schools facilities and services to
  raise funds.

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Volunteers

• Six organizations (19 percent) reported a heavy
  reliance on volunteers.
• These organizations were from several different
  sub-sectors arts, public health, housing,
  recreation, religious.
• Two of the four organizations in the sample who
  held special events reported that they relied
  heavily on volunteers.

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One or Few Major Sources of Contributions

• Two organizations reported receiving most or all
  of their contributions from one source.
• Another organizations reported receiving well
  over 90 from four foundations.

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Donations of Land or Property

• Two organizations received large gifts of
  property.
• A historical preservation organizations was given
  the use of a building by a city in Maryland.
  This donation represented 40 of their
  contributions.
• A denominational nursing home was given land by
  their denomination worth 500,000 that
  represented well over 90 of their direct public
  contributions.

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Use of Professional Fundraisers

• Of the thirty-one organizations, only one filed a
  professional fundraisers report.
• Reliance on professional fundraisers isnt large
• Greenlee and Gordon published similar findings in
  their 1998 article The Impact of Professional
  Solicitors on Fund-raising in Charitable
  Organizations.

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Conclusion

• Some have argued that the large number of
  inactive fundraisers is indicative of
• Widespread mis-reporting of costs
• Questionable reliability of IRS Form 990 data
• A closer look indicates that in many instances
  there are plausible explanations