June 17, 2015
Fundraising & Expense Ratios and Best Practices
Fundraising is any activity that includes a solicitation of present or future donations of cash or gifts in kind or the sale of goods or services to raise funds, whether explicit or implied.
Fundraising expense ratios
A charity’s fundraising ratio can serve as a self-assessment tool to see whether the Canada Revenue Agency (CRA) is likely to have questions or concerns about its fundraising activities. As a general rule, the higher a charity’s fundraising ratio, the more likely it is that the CRA will seek additional justification for fundraising costs. A high fundraising ratio is an indicator that a charity may be engaged in fundraising that is not acceptable – forming a collateral non-charitable purpose, delivering a more than incidental private benefit, or being contrary to public policy or deceptive.
Generally, a charity’s fundraising ratio is an indicator of how the CRA is likely to approach a charity’s fundraising:
• Ratio of costs to revenue over fiscal period – under 35%
This ratio is unlikely to generate questions or concerns by the CRA.
• Ratio of costs to revenue over fiscal period – 35% and above The CRA will examine the average ratio over recent years to determine if there is a trend of high fundraising costs. The higher the ratio, the more likely it is the CRA will be concerned the charity is engaged in fundraising that is not acceptable, requiring a more detailed assessment of expenditures.
• Ratio of costs to revenue over fiscal period – above 70%
This level will raise concerns with the CRA. The charity must be able to provide an explanation and rationale for this level of expenditure to show that it is not engaged in unacceptable fundraising.
While the ratios above refer to a global ratio over a fiscal period, a high fundraising ratio for an individual event may, on its own, be an indicator of unacceptable fundraising where the event forms a collateral non-charitable purpose, delivers a more than incidental private benefit, or is contrary to public policy or deceptive.
The adoption of best practices for managing fundraising may decrease the risk of a charity engaging in fundraising that is not acceptable.
I hope you enjoy my postings and find this information useful. Please let me know what you think in the comment section of my Blog http://raveresults.ca/blog/ .
If you would like to learn more about how my experience and skills would benefit your nonprofit, or a nonprofit you may be associated with, please do not hesitate to get in touch with me as I would be pleased to meet and discuss the opportunity of working together.
Mitchell Ravvin, BComm, PFPC, CFRE
Rave Results Inc.
7436 21A Street SE
Calgary, AB T2C 0V9
Rave Results Inc. is a professional fundraising service specializing in assisting mid-size nonprofit organizations. Areas of expertise include: Donor Development, Major Gift Fundraising, Sponsorship, Planned Giving, and both Annual and Capital Campaigns.