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More bang for your donated buck

Judith Evans | Financial Times | 18 Sep 2015

It was outrage that motivated Joan Woolard to make the biggest donation of her life. Already infuriated by what she saw as the unbridled greed that caused the financial crisis, Ms Woolard — a pensioner from Lincolnshire — was even more horrified when she heard Camila Batmangelidjh, head of the youth charity Kids Company, speak on the radio about thousands of children going to bed hungry at night. She decided to sell her home and give the £200,000 it fetched to Kids Company.

That was in 2013. It didn’t take long for Ms Woolard to become concerned about how her money was being spent. She says Ms Batmangelidjh could not fully account for how her donation had been used — a claim Kids Company disputes, saying it showed her accounts. Amid an escalating row with Ms Batmangelidjh, Ms Woolard demanded her money back; she didn’t get it.

The Kids Company saga did not end well: the charity was forced to close lost month when it abruptly ran out of funds and now faces claims of financial mismanagement and an investigation into sexual abuse on its premises.

Ms Woolard admits: “I should have spied out the charity and looked before I leapt.” But she adds that Kids Company convinced “bigger heads than mine”. Her fellow donors included the band Coldplay, the US investment bank Morgan Stanley, and of course the UK government.

More than 160,000 charities operate in this country, attracting about £10bn a year in individual donations, according to the Charities Aid Foundation. This forms part of the sector’s annual income of about £40bn, according to the National Council for Voluntary Organisations.

Yet, according to Dan Corry, chief executive of the consultancy New Philanthropy Capital, many donors — even those with large amounts to give — donate on the basis of an emotional connection to a charity’s message, a personal link or a well-known brand, without carrying out the kind of research they would before buying a car or investing money in a fund.

“There are an awful lot of charities with a lot of heart and passion that don’t deliver very much,” he says. “Surely we want to give our money to the charities that are really achieving something?”

Fallen angels

People give to charities because they want to do good, and often give those organisations the benefit of the doubt because of this. “It’s seen as the sector of the angels,” says Gina Miller, founder of Miller Philanthropy and a campaigner for greater transparency in the non-profit sector.

But a series of charity meltdowns have shown how this can go wrong. Last year, BeatBullying, another fast-growing charity which like Kids Company, had received government money, also collapsed due to funding problems.

Meanwhile, the Charity Commission recently began investigating the Halo Trust, a landmine clearance charity supported by the late Diana, Princess of Wales, after the actress Angelina Jolie left its board in a row over payments to her fellow trustees.

Some non-profit founders have abused their charitable status. In 2013, the Cup Trust, which had raised £176m in donations, was revealed to be — in the words of parliament’s public accounts committee — a “vehicle for tax avoidance” that only gave £55,000 to good causes while claiming Gift Aid of £46m.

Another smaller charity, the Melton Arts and Crafts Trust, was shut down after councilors raised concerns it was set up to avoid tax, and the Charity Commission found “no evidence of charitable activity”.

Because the commission does not have the resources to monitor charities, Ms Miller says there are likely to be more cases of charities failing to generate value for money that have not reached the public domain.

There are many charities, Mr Corry argues, which do not have such obvious problems but also fail to check whether their work is actually effective.

Both are keen to emphasise, however, that such cases do not mean donors should lose their faith in charitable giving — merely that they should be smarter about it.

Miller Philanthropy backs charities such as Respond, which works to help people with learning difficulties who have experienced trauma and abuse. Ms Miller describes the organisation as “extraordinary” and helping people who have experienced “real evil”.

Place2Be, a children’s mental health charity, wins Mr Corry’s vote as a truly effective organisation in its field. But how can individual donors tell a Place2Be from a Kids Company?

Making a difference

The top priority in assessing any charity must be effectiveness. A charity should have clearly thought through the difference it wants to make, and how it will achieve and monitor that. In non-profit circles this is known as a “theory of change”.

Place2Be, for example, collects data on children’s mental health and academic achievement from each school where it provides counselling, and compares them with outcomes from other child mental health services in the UK and Scandinavia; it also works with academics on research in this field.

Smaller, local charities may not have the resources to carry out assessments like this, but they should still be conscious of the need to ensure good intentions translate into results. The Philanthropy Workshop (TPW), which educates wealthy people on giving, urges them to ask questions such as: “Is this change sustainable? How many people will be affected? What other ways could this change be achieved? Who else is working in the space? Does the organisation measure the effectiveness of its work? Does it know it is making a difference?”

Simply asking such questions can “weed out an awful lot of organisations where probably your money shouldn’t go,” says Mr Corry.

This is particularly important in fields where many charities compete. In his 2014 book The Great Charity Scandal, David Craig, a management consultant, identified large amounts of duplication among UK charities, including 68 dealing with leukaemia and 354 with birds. While raising questions about the efficiency of the sector as a whole, this also highlights the importance of picking the best.

Then there is the question of whether to opt for a big, household name charity or one of the thousands of smaller organisations. Charities with an income of more than £5m — about 1.2 per cent of organisations — hold almost 70 per cent of the sector’s wealth, the Charity Commission says.

Smaller charities may be easier to assess, since they will often focus on just one area; they are also likely to be in need of financial help, as the figures show. On the other hand, some are set up by people who have a personal interest in a particular field but little expertise in making a difference in that area.

With larger charities, says Ms Miller, donors should ask which part of the organisation will receive their cash — some have commercial arms which are separate from the charity itself — and should consider whether they want their money to go to front-line services or activities such as lobbying.

Oxfam, for example, spends some £20m a year on political campaigning. This might put off donors who want their money to go directly to beneficiaries, but others may believe political action is key to achieving Oxfam’s anti-poverty goals.

Many donors have become focused on giving to charities that have low administrative costs and overheads, and in some cases these concerns appear justified. Cherie Blair, the wife of former prime minister Tony Blair, in 2012 left the board of a charity aiming to help abducted children after the lossmaking charity’s accounts showed more than half of its costs went on the salaries of its founder and her assistant.

But Jo Ensor, director at TPW, says administration costs should not always be pushed to the absolute minimum. “It is actually good for charities to commit a reasonable percentage of their turnover towards staff costs. An administrative cost of 15 per cent is absolutely reasonable, and that can be higher depending on whether the charity’s main purpose is advocacy,” she says.

Staying afloat

While debates still rage over the effectiveness of Kids Company’s work, one question is no longer in doubt: its poor financial health. Auditors had repeatedly raised the question of the charity’s low reserves, and even a £3m emergency grant from the government was not enough to solve its financial problems; it closed so rapidly that it was unable to put in place transitional arrangements for the people it had been helping.

Low reserves are a sign that a charity may not be sustainable — although large amounts of cash can indicate it does not need any more money from donors. About three to six months’ reserves is about right, says Ms Ensor, although charities may wish to hold 12 months’ worth in some circumstances. Gathering enough reserves is a perennial problem for many charities, since many donors earmark funds for specific projects.

“Charities should not be too dependent financially on one source of income,” adds Mr Corry. “You get charities that are very dependent on one contract, such as from a local authority.” This has been particularly problematic since the government began wide-ranging cuts, which have meant some contracts being cancelled or scaled back at short notice.

Potential donors should also scrutinise a charity’s team; a strong chief executive and trustees are vital. Since most charity trustees are not paid, standards of oversight vary widely. Beware of “founder syndrome”, says Ms Miller: a charity that is organised around one charismatic figure may be less effective and sustainable, especially if that person is not open to dissenting voices.

Clearly, a donor’s relationship with a charity depends on the size of their gift relative to the charity itself. Experts recommend that people giving large amounts to charities seek to visit the organisation if they can.

Caroline Duckworth, chief executive of Quartet Community Foundation, which links donors with charities in the west of England, says the small charities it works with are often happy to receive visits from people considering giving sums such as £2,000.

Substantial donors should ask charities to account for how their money has been spent, including impact reports and financial breakdowns; they may also earmark funds for specific projects, while small donations generally contribute to core costs. Large gifts can also be phased over time, while their donors can ask to meet a combination of fundraisers, front line staff, campaigners and trustees.

If this sounds like a big commitment, experts reassure time-poor donors that they can still gain from carrying out brief due diligence. NPC publishes a guide to assessing a charity in two hours, which includes looking at its website and the accounts filed to the Charity Commission, which are available online.

On the other hand, for those with time to spare, Ms Miller advises donors to think beyond cash if they can and offer help and expertise. Many charities need help with their finances or areas such as legal advice, she says, urging the generous to look “beyond their cheque books”.

How one family set up their own charitable trust

Peter and Helen Wilde, a retired hospital consultant and former charity fundraiser from Bristol, set up the Wilde Family Fund through the Quartet Community Foundation. They seeded the fund with £25,000, which was then boosted through a government matching scheme.

“We are part of the fortunate generation. Because of careers and houses and so on we are comfortably off, and so that’s why we put ourselves in this charitable zone,” says Mr Wilde.

The couple support local charities because “the kinds of contributions we can offer make much more difference to local charities than they would to national ones,” he says. The pair avoid medical and animal charities, instead focusing on social change, which they see as a more neglected area.

For example, they donate to One 25, which supports street sex workers and women seeking to leave sex work in the Bristol area — often helping people with complex histories of addiction and abuse. Ms Wilde has become a director of One 25; the pair often aim to get involved with charities in a practical sense as well as giving money, which also enables them to see if each organisation is delivering results.

They also support arts organisations and the Hannah Memorial Academy, a free school in Darjeeling, India; they have set up a local funding network to hold annual Dragons’ Denstyle events in which charities pitch to would-be donors, who agree donations on the spot.

Mr Wilde is keen to highlight the opportunities that charitable giving presents. “In any relatively wealthy area of any town or city, you will find people who have got assets more than enough to be philanthropic without it affecting their lifestyle,” he says.

“People seems to feel giving your money away makes you miserable, but if you talk to people who do this, you’ll find that giving your money away cheers you up no end. You get to feel like Bill Gates for five minutes, just on a different level.”

Effective altruism

The effective altruism movement supports data-driven charitable giving decisions aiming to do as much good in the world as possible. In his book Doing Good Better, published last month, William MacAskill — an associate philosophy professor at Oxford university — frames this as an enormous opportunity.

He argues that people living in rich countries have the chance to do good on a level approaching that of Oskar Schindler, the entrepreneur who saved the lives of more than 1,000 Jewish people from the Nazis during the second world war.

“Each of us has the power to save dozens or hundreds of lives, or to significantly improve the welfare of thousands of people,” Mr MacAskill writes.

He advocates a strictly rationalist approach to giving, founded on asking five key questions: how many people benefit, and by how much; is this the most effective thing you can do; is this area neglected; what would have happened otherwise; and what are the chances of success, and how good would success be?

In Mr MacAskill’s calculations, this often leads to supporting health and sanitation projects in the developing world. Giving What We Can, an organisation he works with, names as its top two charities the Against Malaria Foundation, which distributes mosquito nets, and the Schistosomiasis Control Initiative, which supplies medicine through schools to treat neglected tropical diseases.

The approach has its critics; they point out that if donors across the board adopted this approach, it would end giving to arts and cultural organisations, or involvement with local charities, for instance.

Mr MacAskill acknowledges that people may want to support local organisations for a mix of reasons. “I used to volunteer in my community while I was growing up and that was an important life experience. If that’s the motivation, I think it can be totally worthwhile,” he says.

“But if people are saying it’s more important to help people locally, there I’d have to disagree. Ultimately you can help people in the very poorest countries by 100 times as much.”

The effective altruism movement also looks at non-financial ways of making a difference; when it comes to the current refugee crisis, Mr MacAskill argues that action to push for political changes is likely the most effective way to help those fleeing war zones.

He says the response to his book has been positive. “People give to charity and volunteer because they want to make a difference, but there’s a lot of scepticism about how to do that. A lack of transparency is a structural issue with non-profits — you give money and you don’t know exactly where it is going without doing this extra level of research to ensure you know what the outcomes will be.”

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