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Sunday, November 11, 2007

990's and Less than successful Fundraising

Fundraising with overhead, especially high overhead, drains precious resources from a community. Volunteers put a lot of time into planning events, paid employees often dedicate their own working time to planning an event, parents on "give or get" hours often trade their time for scholarship dollars, and those who donate to an event will not turn around and give again if the event is unsuccessful.

Lately, I've been building up a collection of envelopes for fundraising events and after seeing the
discussion on Hirhurim regarding fiscal accountability of charitable organizations, I figured it was time to look at the latest 990s that are available for the schools that are sending banquet invitations or offering tickets to an events, etc. (Not all organizations file 990s, but those that are available can be found at Guidestar).

Now the 990 form is not the most user friendly form in the world, nor are the numbers some schools report believable, rendering the form completely useless (although as a donor it is all I've got to go by). Fundraising dollars can be shown in different places making the actual gain or loss difficult to determine, or a schedule can co-mingled special events covering up data that would show if a fundraiser is worth its while. Needless to say, it is difficult for the reader to get a complete or even accurate picture. But being more familiar that your average Joe with the fundamentals of accounting, I believe I was able to reach some conclusions about the profitability of certain fundraisers.

One major fundraiser that a certain school puts on year after year, which uses plenty of precious resources in terms of time and overhead dollars, only managed to net $2000-$3000 during two of the last the years reported. Yet the fundraiser has become an annual event nevertheless. Now a simple rule of finance is that you don't throw perfectly good money after a loosing cause. While $2000 to $3000 might not be an actual loss, after indirect costs are considered(give or get dollars, staff time, and dollars spent/donated that will not be spent donated again) it may well be a loosing cause.

Another fundraiser I saw reported that was a definite loss was a raffle. I imagine what happened was that the prizes were paid for up front and ticket sales were estimated far too high. (Wish I knew what the prizes were. When I was asked to buy a ticket I told the kids selling the tickets I prefer to give cash). As far as I am concerned a raffle should never be run at a loss.

Now I know that mistakes will happen and that sometimes fundraisers will bomb. But one has to wonder if many of the fundraisers that are being conducted are simply not worth the effort. Perhaps "name recognition" has a indirect benefit that can't be calculated and that these fundraisers really are a success even if the numbers don't reflect that. I don't know the answers. But after seeing some low net gains and even some certain losses, I'm wondering how precious hours could be used more effectively.


Charlie Hall said...

isn't related to this post but I thought I should bring it to your attention in case you missed it. I commented on the voucher thread two posts ago.

David said...

Another consideration is the tax-deductibility of some of these fundraisers:

Raffle tickets are NOT tax-deductible (IRS rules say that they are gambling, not charity).

With regard to the banquet, only the amount above and beyond the costs is deductible - so if a $100/head dinner raises a total of $2000 net profit with 100 attendees, then each person only gets to deduct $20 (= net / number of people).

In both of these cases, everyone is better off if everyone just gave money directly to the institutions.

SephardiLady said...

When I get asked to buy a ticket for a raffle or Chinese Auction or something else (challah, flowers, etc), I always respond that I will be happy to give a donation but I don't want to buy something.

I've written about the non-tax-deductibility status of these events in the past and think it is a shame so much effort is used for (often) so little gain.

Mike S. said...

David--I believe that it is the amount over and above the value (rather than the cost) of the meal and entertainment that is deductable. For example, if the net is reduced because the organizers ordered too many meals, you can still deduct the difference between what you paid and the value of your meal, without accounting for a share of the extras.

mother in israel said...

It's only worthwhile to run a raffle or silent auction if you have good relations with business owners and get the prizes free. Of course, you also have to know how to run it efficiently.

Anonymous said...

As a business owner, I am often approached for raffle/chinese auction donations for organizations big and small. I choose the prize I donate based on the exposure my donation will get and the expected return to the organization. I consider it to be advertising at no cost with a tax benefit. I am frustrated when the organization gets a low return on my donation (and it does happen often) but that is the nature of the beast. Some people prefer to donate cash to an organization they support, but many do not. So a small return is preferred over nothing, and at the same time, the organization is gaining publicity and exposure, resulting in more indirect fundraising.