Community - DonateSmarter

The devil's in the details.

The devil's in the details.

If the words "Ramen Noodles" conjure memories of creative budgeting, you know what small charities deal with every day and ultimately why we overlook them. How overlooked you wonder? Of the four hundred Billion dollars donated to charities last year over ninety percent of the funds went to less than 10 percent of the registered charities. Donors say they give locally but the statistics overwhelmingly show otherwise i.

Small charities are uniquely positioned to address community needs. Over 70% of all charities registered in the US qualify as "small charities" most are small board or founder-driven and operate at or close to 100% volunteer.

Of the forty states that require charity registration and annual reporting, most post an expense/income ratio representation of an organization's last reported financials on their state-funded website. It's a comprehensive effort to provide donors and investors a reliable means to evaluate a charity's performance before supporting them. Unfortunately, it's broken and it's harming our communities by hiding the efficiency and potential which local charities provide.

All charities are tacitly mandated to carry insurance (E&O, Liability, etc.). If not required by law, carrying E&O Insurance makes good business sense for several reasons. Primarily, it offers protection to the potential board members by shielding them from potential malfeasance or misfeasance. But under current accounting guidelines, insurance is classified as a Management & General Expense. The average cost can be 20 – 30% of a small charity's annual budget. There is currently no ethical way to allocate this expense above the expense line of the form.

It's a basic accounting problem that makes small charities look less efficient than larger charities. Mathematically a small charity's operating income can't overcome the weight of this expense in their efficiency ratio. Larger charities with greater annual income do not feel the same impact. The result is that small charities show an efficiency level that gets them overlooked by donors and investors.

Isolating the mandated expense for small (or all) charities will account for the cost and reflect Management & General Expense ratios, which more clearly reflect the efforts and accomplishments of the smaller organization.

If the state's goal is to provide a tool that accurately reflects the charity's program vs. management expense efficiencies so they can be used to compare different sized charities, this simple fix will achieve that goal. 

An adjusted Managements & General Expense ratio provides a more accurate ratio for the specific fiscal performance of any small charity. It eliminates the negative impact or burden of carrying a substantially higher expense when comparing different sized charities.

Proposed Solution: Clear education via video and print via a pop-up on the website itself also clearly written instructions for the forms printed on the state's website.

Cost to Implement: Video and cost to decide on the proper language for the directions. Time and cost to load the video as a pop-up and to update the text on the PDF directions (1 day?)


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