10 ways to give more effectively

Accountants can play a really significant role in encouraging philanthropy and more effective giving from clients while, at the same time, connect with them on a deeper level and help them to have greater social impact with their funds.

by | 15 Jun, 2018

Giving structures for new philanthropists

Current statistics tell us that only 37 per cent of people earning over $1 million in Australia are donating to charity. Before we gasp in shock realising that the majority of the most financially successful Australians are not giving back, let’s consider some of the main reasons they’re not giving:

– The tax benefits are not clear

– It’s difficult to set up a structured giving method leading people to give on an ad hoc basis

– The impact of giving is not always clear

Almost everybody — the wealthy and not so wealthy — wants to give something, if and when it can make a difference. It feels good. Really good. Endless research shows that giving can make you much happier than receiving. As an accountant or adviser, you can help someone experience the joy of giving. But how can your client be sure their donation makes a difference? This question probably pops into the mind of any donor at some point and can be a big obstacle when it comes to that crucial decision point of whether to give and how much.

Here are 10 ways to ensure that a donor is giving effectively.

1) Look at the different giving structures available. Whether it’s a private ancillary fund (PAF), a contribution to a public ancillary fund (PuAF), setting up a family trust or foundation, leaving a bequest or simply giving a straight donation before tax time, there are many options available. Some have very generous tax concessions that can be gained immediately. Some structures like PAFs and family trusts are also great for engaging family members and managing intergenerational wealth transfers. Leaving a gift in a will or a bequest can have a substantial impact on an organisation’s capacity. Preparing a will that contains a gift to charity is a great way to complement giving while living. Websites such as philanthropyaustralia.org.au and australianphilanthropicservices.org.au have detailed information about the different types of giving structures.

2) Do your due diligence on an organisation. A potential donor or funder should look at an organisation’s governance, leadership, cost efficiencies and program effectiveness. A close examination of the annual report as well as any impact reporting on measurable outcomes should give a clear indication of these areas. Non-profit organisations in Australia are slowly getting more sophisticated with impact measurement. There has been a recent shift – moving from measuring outputs (for example, the number of people helped) to outcomes (the change experienced by these people over the short to long term). If a non-profit is not already doing this they are unable to prove their effectiveness and are also missing out on key learning opportunities.

3) Become an expert on the cause. Just like business investors need to understand the industry and the market so too can philanthropists benefit from understanding the issue at a deeper level. It’s a good idea to see the work first hand, understand the complex environments the non-profit is operating in and the community need, reading research papers, policy documents and conducting internet research. It will make for a more rewarding donor experience and better-informed decision-making. Donors will be better able to design a grant program or philanthropic partnership that meets their personal interests as well as the needs of the non-profit with the goal of achieving maximum impact. It’s also advisable to look at charities that have a real presence in the community. Solutions to problems and innovations come about from deep experience at the community level, working side-by-side with community members. And don’t just look at funding new ventures. They can create a monster that no one can feed, at the cost of existing proven programs.

4) Be willing to fund operations, including salaries, administration and infrastructure. A non-profit cannot function well without these. Often there are grant opportunities from trusts and foundations that have a number of constraints on its uses. For example they want to fund programs but no salaries, even though a salaried worker is generally required to run a program. Yes, there are occasions where existing workers can take on additional projects, however, this isn’t the norm and nor should it be; frontline staff are usually always operating at full capacity – helping people in need. People don’t invest in a business without making sure its bottom line is sound. Donors and philanthropists who are willing to fund the operational aspects of the work will ultimately make the biggest difference. It’s that money that provides the space and security for the real work to happen.

5) Be strategic with your philanthropy. People rarely give money away as thoughtfully as they do when making a commercial investment. And a donor does not bear the ‘costs’ of making a bad decision so they also might not be tuned into seeing the opportunities to increase the impact with their decision-making. A donation is a social investment and social returns can be expected. The returns won’t always come back to the donor, but still, it’s their money and they have the power to make it work harder. Whether someone invests for profit or not for profit, investment principles are similar. More thoughtful giving is more impactful and more rewarding. And just like business investments, you want to make sure the organisation you’re giving money to has a healthy balance sheet and adequate reserves.

6) Understand funding cycles, particularly for larger non-profit organisations. Some charities work to two-year funding cycles. In some cases, they may not want to spend the money this year, but receiving this year can help them plan better. Non-profits are often urged to operate efficiently and effectively, however donor and grant making behaviour can actually hinder this. If a donor wants to give to X program this year but X program is fully funded they assume that money is not needed. The operations still need your support and funding is a recurring ever-present need. The charity may just decide not to spend it on that X program in the current or following financial year.

7) Where possible, leave your gift unrestricted. Many charities say they would rather have $70 with no restrictions than $100 with restrictions. You can therefore assume the value of a restricted $100 donation is automatically depleted by a minimum 30 per cent. [1] Restricted funds can often create extra work for the recipient and some organisations can actually experience a net loss. A good charity should have mainstreamed their social impact measurement to a point where additional reporting should not be too time consuming so a donor shouldn’t need to earmark funding to a particular program just to get an acquittal report for that specific program in order to prove an impact is being made.

8) Give bigger amounts, less frequently. When donors divide their funds into many grants of $10,000 rather than fewer of $100,000, the fundraising costs incurred by the non-profits increase nearly six-fold. [2]

9) Give for multiple years. If your wealth situation is good and stable, plan to set up a legal structure and give for multiple years to the one charity. This forward planning can lead to a more effective investment, even on your initial donation. Planned giving has been proven to be six times more effective than ad hoc donations. [3] Among donors in Australia only 40 per cent plan their giving while 60 per cent give spontaneously. So there is a lot of room to improve here. Short-term philanthropy does not lead to long-term impact.

10) Understand the trends in philanthropy. There is a shift from philanthropists wanting to distribute funds (often through a grant program) to wanting to co-design and partner with a non-profit to jointly develop programs and strategies to create systemic change.

Funders are now investing in research and taking the time to look closely at the issues and the players in the sector. The bigger grant makers are becoming the experts on the issues. For example the Paul Ramsay Foundation – a foundation with 3 billion in funds investments have committed to learning and evolving as an organisation. They want to partner with non-profits and be part of the eco-system in co-designing programs that are scalable. If a donor has some big goals in the philanthropy space, any number of charities would be open to a long-term partnership.

In summary

Too often philanthropic donations are specified to fuel unsustainable program growth while neglecting operations. This can be avoided with unrestricted, planned giving. There also needs to be a two-way shift where non-profits are having the tough discussions with their donors on the need to support capacity building. In addition to operating expenses and overheads, in order to remain truly effective and competitive in the third sector, non-profits need funding for innovation and research. This includes social impact and outcomes measurements enabling them to effectively evaluate their programs in order to continuously learn, improve and put them in a better position to seek further funding. Funding is not just necessary for the frontline. It is essential for all areas of the business.

Caroline Fisher, development manager – trusts and foundations, Salvation Army

[1] March 2016 Effective Philanthropy: Towards a Research Agenda. A White Paper. Caroline Fiennes, Giving Evidence, for the Social Enterprise Initiative, The University of Chicago Booth School of Business March 2016

[2] Ibid.

[3] Giving Australia 2016: Prime Minister’s Community Business Partnership. https://www.communitybusinesspartnership.gov.au/about/research-projects/giving-australia-2016

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