ACCT350, Assignment 7e&f, Charities
Every educated donor should perform a little analysis before whipping off a check to a charity, especially to
charities who promote themselves with tear-jerking images of hungry children. There are plenty of scam
charities around. As NFP accounting students, you should be experts in knowing how to evaluate charities.
1. Refer to the Forbes article entitled “The Largest U.S. Charities for 2015” at the end of this document
below.
(A) Define the three ratios used by Forbes to evaluate charities, and explain why a higher ratio is
better or worse. Also, record the average for the year for each of the three ratios.
(B) From the Forbes data, complete the table below and then rank the three organizations according
to which are most worthy of a donor’s dollar.
Boy Scouts of America
American Cancer
Society
Task for Global Health
Private Support
Total Revenue
Fundraising Efficiency
Charitable Commitment
Donor Dependency
Your Ranking (#1 the best)?
2. (A) The Adventists and Catholics haven’t always been on the same team. But both their charities in
international relief & development work very hard to make the world a better place. Obtain a charity
evaluation report from Ministry Watch for Adventist Development & Relief Agency (ADRA) and
also for Catholic Relief Services (CRS) using one of three methods: (1) Find the ADRA and CRS
links on the course webpage; (2) Find the files on the K:\class drive; or (3) go to
http://www.ministrywatch.com/ministries/ministries.aspx and register (free). Use the charity
evaluation reports to complete the table for the latest year.
ADRA
CRS
Year Founded
Fiscal Year-End
Financial Info Obtained From?
Efficiency Rating (number of stars)
Overall Rank
Rank within Relief & Dev. Sector
Fund Acquisition Rank (number of stars)
Resource Allocation Rank (number of stars)
Asset Utilization Rank ( number of stars)
NOTE: refer to the table at end of this document for ratio formulas
Fund raising cost ratio
Contributions reliance ratio
Spending Ratio
Program output ratio
Degree of L/T investment
Current asset turnover
(B) Which of these two charities is most worthy of your dollar? Defend your answer with solid
analysis.
3. We have a popular and effective charity located right here in College Place called Gospel Outreach
(GO). Its office used to be in an old house beside the post office but has now moved a few blocks
away. Obtain its 2014 Form 990 through one of the following methods: (1) search
http://nccsweb.urban.org/PubApps/search.php (because more than one GO exists, you’ll need to
enter the organizational name “Gospel Outreach” and the location “College Place”); (2) find the GO
link on the course webpage; or (3) find the GO file on the K:\class drive. You can learn more about
the charity at its website http://www.goaim.org/.
(A) According to Part I, line 1 (page 1), what is the mission of Gospel Outreach?
(B) According to Part I, line 5, how many paid employees are there? How does the work get done?
(Hint: line 6 is supposed to say “100” but it says “0” by mistake)
(C) Calculate each of the following ratios for Gospel Outreach, using pages 9-11 of its Form 990.
Note that on the balance sheet, lines #1-9 and 17-19 relate to current assets and current liabilities,
respectively. Also note it appears that the amount on Part VIII (line 1e) should actual appear on the
next line (1f).
(D) Prepare an analysis (1-2 paragraphs) evaluating whether this organization is worthy of a donor’s
contribution (assuming the donor supports the mission).
Gospel Outreach
Industry
Average
Fund raising cost ratio
(Fund raising expense /
total revenue)
5%
Contributions reliance
(Public contributions /
total revenue)
94%
Spending ratio
(Total expense / total
revenue)
98%
Program output ratio
(Program expense / total
revenue)
82%
Current Asset Turnover
(Total expense / current
assets)
1.55x
Liability Ratio
(Total liabilities / total
assets)
12%
America's 50 Largest U.S. Charities for 2015
Sizing Up A Charity
William P. Barrett, Forbes
http://www.forbes.com/sites/williampbarrett/2015/12/09/sizing-up-a-charity/#361807e739b3
For a would-be donor, evaluating a charity–big or small–is not easy. The latest available data is often dated. Metrics for
measuring results and accomplishments are subject to outrageous spinning by the charity itself. On top of that, it appears a
surprising number of folks are willing to pledge funds to outfits whose paid telemarketers cold-call on the phone and somehow
don’t mention that 90% of the gift will go not to the charity but to the fundraiser–and that’s assuming the charity is legitimate in
the first place. (Please note this is a fundraising efficiency ratio of 10%, which is very bad.)
But there are ways. The trick is to look for information–hello, Google–ask a lot of questions, and think before giving money. And
the annual Forbes list of the 50 largest U.S. charities can help. The Forbes list is quantitative, based on hard numbers. It’s not
judgmental, although over the years we’ve bounced a few nonprofits for sketchy accounting. But the evaluative techniques for the
largest charities in the land are just as valid when looking at far-smaller ones, and a good place to start.
First, some basics. The metric for making the Forbes list is the amount of private donations received in the latest available year.
The gifts can come from individuals, corporations, other nonprofits and estates, but not governmental agencies. Moreover, the
largess can be in cash, stock and goods (called gift-in-kind). But this is charity, and the donations to be counted by us have to be
of the no-strings-attached variety with nothing in return except the satisfaction of supporting a good cause. So we exclude
membership dues from, say, a museum, figuring that the membership is getting something back such as a reduced admission
price. And that admission price isn’t a donation, but a fee for service, like a bill from a hospital for services rendered.
Besides government grants and fee for service, our definition of private donations excludes fee for goods (like Girl Scout cookies)
and investment returns.
Since our roster is aimed at would-be donors among the public, certain kinds of nonprofits are ignored altogether. These include
academic institutions, which generally solicit only from their alumni; donor-advised funds (which administer gifts for many
different individual donors, each with their own account), and religious groups that don’t provide information. Also ignored are
nonprofits with few direct donors (virtually all private foundations), and charities that get most of their gifts indirectly via
community-chest-like fundraising drives run by others.
Our basic data is generally drawn from the charity’s own accounting, as expressed in official filings, tax returns, its own website
or answers on a survey form we send out annually.
For each charity we calculate several measures of financial efficiency, and the direction of the change, if any, from the prior
period. Here at Forbes we consider financial efficiency important, but far from the only factor to be considered. Overhead, which
is a component of these calculations, is not all bad. Charities need to pay for office staff, rent and, yes, accountants. The problem
arrives when these ratios get seriously out of whack, as will be explained below.
Here’s where looking at ratios can be useful. Say you’re considering donating to one of two charities in the same sector. Charity
A has far better efficiencies than Charity B. Ask Charity B why it thinks it is doing a better job than Charity A. And if Charity B
doesn’t get back to you, give elsewhere.
Thinking about donating to one of the 1.5 million smaller charities not on our list of 50? Find one on the list in the same line of
work and compare those ratios to the charity you are eyeing. Then ask questions.
Especially for smaller charities, useful financial information for evaluation can be found on the IRS Form 990 (in Parts VIII and
IX), an audited financial statement or an annual report. Form 990s can be downloaded for free from Guidestar, Foundation
Center, and, increasingly, the charity’s own website, although there you may have to look around.
The three financial efficiency ratios that Forbes calculates are these:
CHARITABLE COMMITMENT. This figures out how much of a charity’s total expense went directly to the charitable
purpose (also known as program support or program expense), as opposed to management, certain overhead expenses and
fundraising. On the IRS Form 990, the calculation is Part IX line 25(B) divided by Part IX line 25(A). The weighted average this
year is 87%. Charities that get most of their donations as gift-in-kind tend to do better here, because the individual gifts are
larger, entail little or no fundraising expense and have looser valuation rules. Charity watchdogs like the Better Business Bureau
Wise Giving Alliance look askance at a charitable commitment ratio of less than 65%.
FUNDRAISING EFFICIENCY. This shows the percentage of private donations left after subtracting the costs of getting them.
On the IRS Form 990, the calculation is Part VIII lines 1a + 1c + 1f+ 8c minus Part IX line 25(D), divided by Part VIII lines 1a +
1c + 1f+ 8c. The weighted average for all 50 charities is 92%, meaning that it cost 8 cents to raise $1. But this is an average of
wildly differing kinds of charities with wildly different fundraising tactics. Relying on fewer but larger donations and perhaps
expansive valuations, some gift-in-kind charities look very efficient, with ratios of 100% (rounded) or very close. At the other end
are charities that use expensive direct-mail and telephone solicitation. Fundraising efficiency here can be as low as 10% and is a
scandal. While some charity watchdogs consider 65% to be the bottom of respectability, at Forbes we draw the line at 70%.
Fortunately, no one on the list this year falls below that level.
DONOR DEPENDENCY. This is a quirky ratio, measuring how badly a nonprofit needed contributions to break even. On the
IRS Form 990, the calculation is Part VIII lines 1a + 1c + 1f + 8c plus Schedule D Part XI line 2a minus Part I line 19 (current
year), all this divided by Part VIII lines 1a + 1c + 1f+ 8c plus Schedule D Part XI line 2a. (Hey, we didn’t say this was simple.) A
ratio of 100% means revenues equaled expenses. A higher ratio than 100% means the charity had more expenses than revenue.
It’s also possible to have a negative ratio, which means the charity (often a hospital or museum) had an annual surplus greater
than all private donations! The average for the list is 81%, meaning that the typical charity was able to bank 19% of donations
for the future. This ratio is highly sensitive to investment results and for many charities varies wildly from year to year. For the
other two ratios, all other things being equal, the higher the ratio the better. But the importance of donor dependency really
depends on the donor. If the goal is to give to poor and needy charities, a rating above 100 is good. On the other hand, if the
search is for charities that better stand on their own, a rating below 100 is better. This ratio tends to smoke out charities pleading
for money that actually have substantial financial reserves or other kinds of revenue.
http://www.forbes.com/top-charities/list/2/#tab:rank_header:name
Rank
Name
Private
Support
Total Revenue
Fundraising
Efficiency
Charitable
Commitment
Donor
Dependency
#10
American Cancer Society
$840 M
$886 M
79%
74%
97%
#23
American Heart Association
$546 M
$762 M
85%
78%
78%
#40
American Jewish Joint
Distribution Committee
$305 M
$319 M
96%
91%
103%
#16
American National Red Cross
$735 M
$3.071 B
75%
90%
97%
#22
AmeriCares Foundation
$558 M
$561 M
98%
98%
101%
#29
Boy Scouts of America
$393 M
$1.019 B
96%
89%
73%
#12
Boys & Girls Clubs of
America
$821 M
$1.711 B
88%
80%
79%
#50
Brother's Brother Foundation
$244 M
$245 M
100%
99%
96%
#32
CARE USA
$382 M
$540 M
94%
90%
93%
#15
Catholic Charities USA
$757 M
$4.485 B
89%
88%
81%
#33
Catholic Medical Mission
Board
$371 M
$382 M
99%
98%
102%
Rank
Name
Private
Support
Total Revenue
Fundraising
Efficiency
Charitable
Commitment
Donor
Dependency
#35
Catholic Relief Services
$328 M
$691 M
92%
92%
87%
#14
Compassion International
$765 M
$767 M
89%
82%
101%
#49
Cross International
$248 M
$248 M
98%
95%
99%
#24
Cru
$496 M
$533 M
91%
84%
98%
#43
Dana-Farber Cancer Institute
$280 M
$1.119 B
92%
81%
80%
#9
Direct Relief
$892 M
$892 M
100%
99%
81%
#34
Doctors Without Borders
USA
$332 M
$345 M
91%
89%
81%
#28
Feed the Children
$394 M
$401 M
93%
90%
104%
#3
Feeding America
$2.016 B
$2.06 B
99%
99%
99%
#8
Food for the Poor
$908 M
$913 M
96%
96%
100%
#39
Good 360
$309 M
$315 M
100%
99%
99%
#7
Goodwill Industries
International
$927 M
$5.373 B
97%
89%
75%
#13
Habitat for Humanity
International
$774 M
$1.538 B
86%
84%
95%
#41
Leukemia & Lymphoma
Society
$302 M
$316 M
83%
76%
100%
#17
Lutheran Services in America
$723 M
$21.017 B
90%
86%
-75%
#44
Make-A-Wish Foundation of
America
$276 M
$300 M
85%
76%
92%
#37
MAP International
$318 M
$320 M
99%
99%
95%
#45
Marine Toys for Tots
Foundation
$272 M
$277 M
97%
97%
97%
#19
Mayo Clinic
$615 M
$4.56 B
94%
85%
38%
#31
Memorial Sloan Kettering
Cancer Center
$385 M
$3.652 B
85%
96%
-25%
Rank
Name
Private
Support
Total Revenue
Fundraising
Efficiency
Charitable
Commitment
Donor
Dependency
#48
Metropolitan Museum of Art
$250 M
$661 M
96%
87%
33%
#21
Nature Conservancy
$596 M
$1.105 B
85%
71%
40%
#36
Operation Blessing
International Relief &
Development
$325 M
$338 M
99%
99%
100%
#18
Patient Access Network
Foundation
$659 M
$673 M
100%
99%
75%
#30
Planned Parenthood
Federation of America
$392 M
$1.303 B
84%
82%
65%
#42
Project HOPE
$282 M
$298 M
97%
96%
91%
#47
Public Broadcasting Service
$253 M
$649 M
100%
94%
57%
#46
Rotary Foundation of Rotary
International
$254 M
$301 M
94%
91%
83%
#2
Salvation Army
$2.116 B
$4.111 B
90%
82%
70%
#25
Samaritan's Purse
$467 M
$507 M
93%
89%
93%
#27
Save the Children Federation
$448 M
$664 M
92%
90%
102%
#5
St. Jude Children's Research
Hospital
$1.08 B
$1.3 B
83%
72%
82%
#26
Step Up for Students
$456 M
$458 M
100%
99%
82%
#4
Task Force for Global Health
$1.609 B
$1.661 B
100%
100%
100%
#20
United States Fund for
UNICEF
$599 M
$607 M
94%
90%
89%
#1
United Way
$3.873 B
$4.143 B
91%
86%
100%
#11
World Vision
$832 M
$1.036 B
87%
85%
99%
#38
Wounded Warrior Project
$314 M
$342 M
86%
77%
70%
#6
YMCA of the USA
$934 M
$6.609 B
86%
85%
68%
Ratio
involved
MINISTRY WATCH RATIOS
Division
Effect on 5
What the ratio answers
principle
star rating
FUNDING
Fundraising
Cost Ratio
Contribution
Reliance Ratio
Is a large share of donor
Fundraising Costs /
Less is better. dollars being spent on
Total Revenue
fundraising?
Does the ministry rely much
Public Contribution
on donations, or is a lot of
More is better
/ Total Revenue
money attained through other
means?
OPERATING
Are they spending too much
for what they get?
Is more money being spent on
Program Output Program Expense /
the ministry's progam, rather
More is better
Ratio
Total Revenue
than other expenses (ex.
management, fundraising)?
Spending Ratio
(Total Expense /
Total Revenue)
Less is better.
INVESTING
(Total Assets /
Degree of LongTotal Current
term Investment
Assets)
(Total Expense /
Current Assets
Total Current
Turnover Ratio
Assets)
SOLVENCY
Total Liabilities /
Liabilities Ratio
Total Assets
Less is better.
Is a lot being stored away for
later use?
More is better
Is much of what the Ministry
has being used?
What portion of an
organization's assets would
Less is better
have to be used to pay off
liabilities?