My father always said, "You never get something for nothing." That motto holds true for philanthropic investments. In the news the past couple of days there has been discussion around the ethics of the Banyan Tree Foundation. At the time of this posting there were no notices on their website indicating the charges laid against them and their donors. There was a series of correspondence between the Foundation and the Canada Revenue Agency on the topic of donation filing. Click here to view the correspondance.
It is up to you, the donor to do your due diligence when it comes to making donations. Questions should immediately arise when you make a donation for $1,000 and you get a tax receipt for more than that. CRA is pretty clear on what constitutes a charitable donation and it is not on the accrued amount over time (i.e. principal plus interest earned until donation was disbursed).
Another thing that I find especially unnerving is the fact the BDO Dunwoody LLP were the auditors for 2004, 2005 and 2006. The cover letter of all three audited statements reads, "We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects..."
If the auditors were doing their job they should have found some discrepancies between what was being receipted, what was being donated to the Foundation and how much was going out of the Foundation to charitable organizations. The other item that caught my eye was in the 2004 audited statements there were some fundraising fees that went to corporations which are, "...under the common control of the directors of the Banyan Tree Foundation." The way I am reading this is that board members are getting financial kick-backs for donations brought into the foundation. Besides that not being ethical, professional fundraisers (of which I was one for 15 years) would not accept compensation that was directly tied to the amount of donations brought into the Foundation.
So what are some questions to ask. As I have said in previous blogs a donor should ask the following:
1. Are you a member of the Association of Fundraising Professionals (AFP)?
2. Do you hold by the code of Ethical Fundraising either through AFP or Imagine Canada?
3. Go to the CRA charities section and see if the organization has ever been flagged.
4. How are you going to spend my money?
Your receipt should NEVER be more than what you have given.
I hope that this negative experience will not preclude you from making your donation to any of the thousands of reputable organizations. Just ask questions. If you would like some more guidance on how and what to ask, please drop me a line. I look forward to hearing from you.
For a list of links please visit the Links section of this website.
I was recently asked what the best philanthropic tool is for distributing funds to chosen charities. My response to the individual was that it depends on what your needs are and how much you want to donate in a year. Below is a chart that might help with the decision making process. Please note, these categories apply to Canada ONLY. There are different benefits and tools available to Americans and I am unsure of what is available overseas. If you are living outside of North America, please share with everyone your information.
Photo Credit: NewfieBullet
Sources for this posting come from:
and the Scotia Private Client Group - Aqueduct Foundation
I was planning on writing this piece before the Bell Canada Enterprises (BCE) deal was stopped by the courts and their stock tumbled. The concepts are still the same, if the dollar figures are not.
Until recently, BCE stock prices had been making considerable gains and if the sale had gone through shareholders would have had to sell by the end of this calendar year.
Any sale of stock where there is a net gain is subject to capital gains tax. This tax is applied to 50% of the shares sold and as a result the seller can be paying upwards of 24% tax on the money earned. So how can you avoid paying tax on the gains?
In 2006 the Canadian government passed a bill ensuring that donations made to a registered charity by way of publicly-listed securities are 100% free of capital gains taxes. By donating a portion (or all) of the taxable amount to a charity through stocks the donor not only receives a tax receipt for the donation (tax credit) but they also do not pay the taxes on their earnings AND they generate additional social capital through the investment in a charity that is benefiting society.
BCE aside, any stock that has seen considerable gains (EnCana) over the past year can be used in this example.
(All figures are rounded and approximate)
Let's say you sell 5,000 shares at $30 with an adjusted cost/share of $14 and the tax credit rate is 46%. Total value of the sale is $162,500.
If you DO NOT donate your stocks to charity you will be paying capital gains in the amount of $46,000 (total capital gain recognized $92,500 - after $70,000 adjustment). This leaves you with $141,000 to reinvest back into the stock market, add to the economy by purchasing a new car or going on a nice holiday.
If you DO donate your stocks (or a portion thereof) to charity you will be paying capital gains in the amount of $0! How does this work?
You determine what your taxes would be on selling 5000 shares (in this case $46,250) if you didn't make the donation. Now here is where it gets tricky...
Then you donate IN-KIND a portion of that value in shares to a charity(ies) of your choice. This amount should be the value of the charitable tax credit that you would like to see offset your capital gains AFTER you have set up a donor advised fund. Keep reading, it makes sense...
So let's say that you decide to donate 1200 (of the 5000 that were in scenerio 1) shares at $30. After adjustment the capital gain recongized is $20,000. You aren't paying tax on the capital gains and you receive a donation credit of approximately $16,000.
With the remainder of the share (just over 3800 totalling 5,000) you sell those shares. The adjusted sale is $72,000 and the capital gains is $16,000. You have a $16,000 tax credit from the donation of stocks in-kind to a charity that offsets the capital gains you with $126,500 in cash to reinvest, buy a new car, or go on a very nice holiday! AND you have $36,000 in your charitable fund or foundation (the initial portion that you donated through your fund to a charity(ies) of your choice earlier). The net total exceeding ($162,500) what you would have if you had just sold off the shares without developing a funding strategy.
Phew that was hard... Drop me an email if you have questions.
Here's to generating social capital!
How do you discuss philanthropy and charity in your family? Growing up in mine the act of charity was never really discussed. It was done, but I think there were some opportunities lost in having an open dialogue with my parents around how they donate their money. Don't get me wrong, my family is very generous with their time and their financial resources, it was just never discussed.
One of my earliest childhood memories was putting loose change in what we call a pushke (Yiddish for coin box). Once the box was full we would take it to the community centre where the money would go to one of many Jewish charities.
As I got older, my own personal contributions to community broadened. Supporting organizations' internal capacity is just as important to me as supporting a specific project. As well, recognizing that my cultural community is only one part of a larger picture, my philanthropy is a representation of all the communities that I am actively engaged with. For a complete list of the charities and organizations that I support please click here.
As I have said in pervious posts, it is important to ask questions. Questions of the charity in which you are about to make a financial investment AND questions of you and your family as to how you want to make those donations. In the very first post of this blog I laid out a series of questions you should be asking yourself. Those questions were to get the ball rolling. Below are some more that you might want to ask yourself and your family as you delve deeper in to philanthropic investing.
What was your fist charitable donation? What was your first major donation (a dollar amount that you had to really think about)?
How did your family discuss charity in your house? Was it action based?
What has been your most important charitable investment? When did you make it? What made it important? Was it your most important charitable gift your largest?
How did you make your financial wealth? Has that influenced you in how you contribute back to your community?
As someone who has financial resources, do you think it is your responsibility to support community initiatives?
How do you leverage your charitable dollars with your family, friends and colleagues? Do you?
Is it important to you that your contribution (whether time, money or professional expertise) be recognized publicly?
If money were not an object, is there a project or organization you would invest in?
How do you think your charitable contributions are going to change over time? Are you speaking with your children about how you give and learning from them how they are contributing back to society?
For more in-depth questions I suggest you refer to Scott Fithian's book, Values-Based Estate Planning. Or stay tuned - I am sure that future blog postings will add another layer of questions!
Photo Credit: Limowreck666 (flickr)
Did you know that in 2006 North American spent over $2,000 per person on entertainment and just over $1,000 per person on charitable activities?
I found this stat staggering. I recently returned from a trip to Ethiopia, where some of the world's poorest of the poor live. People are living on less than $1/day in hovels that we even our homeless would turn their noses up at.
Since returning something that I have been struggling with is the excess waste that we generate just from every day living. I don't mean pollution waste (though that is shocking and can easily be applied to this piece). I mean waste from leftover food that gets thrown out because we don't want to eat day-olds, to clothes that are from last season, to technology that has been outdated before it even leaves the store.
I think there is a need in our communities and society to strike a balance between our needs and our wants. I am not saying don't go to the summer blockbusters. I am just thinking that when our social safety net is being compromised because we are making choices to spend our money on the latest and greatest instead on what makes our communities strong and vibrant.
This is a link to a blog, Non-Profit Communications, written by Kivi Leroux Miller, about what you get for donation. An interesting experiment in community investing and testing the donor stewardship programs of charities.
Enjoy the read!
The Globe and Mail recently ran an article by Jonathan Drew on the selfishness of altruism. His article entitled, "This is Good You can be Selfish and Altruistic - Employer-supported volunteering programs prove rewarding to communities, volunteers and companies" comes at a fitting time. Trends indicate that volunteerism across Canada is down and just as there is discussion on donor-fatigue there is also discussion around volunteer-fatigue.
More and more people are looking for the quick volunteer opportunities. Companies use volunteer projects as team building exercises. But how does this impact the organization on the receiving end of the one-off volunteer? Many organizations rely on multi-day, longer-term volunteerism. That is how committees work, board's work and consistency is maintained. In fact, I would argue that one of the biggest challenges is the fact that organizations struggle with the corporate volunteer program when it is only one day out of the year.
Enter the NEW WORKFORCE... The new workforce is demanding time from work to make community an integral part of their lives. Several companies, of all sizes are giving employees one-day-per-month leave to participate in community activities. This approach to corporate philanthropy is building stronger communities and it is providing non-profit organizations with a consistent volunteer body.
So how do you integrate a volunteer program in your company or small business? Organizations like Volunteer Calgary can help. Most major cities have similar type agencies working with individuals and businesses to identify volunteer opportunities.
What does a Volunteer Program look like? A successful program will take into account the number of employees that are going to participate in the day, the type of organization you want your company to associate with, the number of hours/year (or month) that you can contribute, the cost of lost labour for that day as it compares to the retention cost and a happy work environment (a key question... what will be my return on this investment), and your area of professional expertise (many organizations are looking for people to donate their business acumen).
The same thing applies for individuals and families who want to get more engaged in community. Before you accept any volunteer project, ask yourself some basic questions:
1. Do I have the time to make this commitment?
2. Is this an organization I want my name affiliated with?
3. Who else can I engage in the activity?
4. How does this organization reflect my overall value system?
5. How will my time be best utilized?
Several companies have adopted a volunteer program. One such company is Suitcase Interactive. Each month staff members donate their time to a local soup kitchen and once a year the entire staff go to Mexico to build playgrounds. Their foundation, Project Smile, was the creation of CEO - Ryan Gill.
This is only one of many such companies. Does your company have a volunteer program? Email me and I will highlight it in a future posting.
For more information on creating a volunteer program in your business please contact me at firstname.lastname@example.org. I will be happy to facilitate an introduction with a Volunteer Centre in your community.
I have been thinking recently on how the charitable sector mirrors the corporate sector. This thought process was triggered by an article I read in the NY Times and then by a blog posting on Tactical Philanthropy.
The NY Times Magazine article, Self-Made Philanthropists shares the story of one couple who approached philanthropy from a Venture Capital perspective. This article highlights how Venture Capital investors are shaping the way people invest in philanthropic projects. The Tactical Philanthropy blog was on how foundations are struggling with this new approach to philanthropy because “business matrixes” are being applied to measuring social outcomes. So even though foundations in North America are larger than some of the GDP’s of whole countries, this new form of philanthropy is shaking the “foundations” of major philanthropic funding bodies.
I find several things interesting about the new approach to philanthropy -the angst that it is causing traditional foundation models, the response of philanthropic investors seeking transparency and accountabilities from their investees, and the creativity that is being generated by philanthropists and within the charitable sector to report back on the social impact generated by the philanthropic investment.
The Sandlers who are the focus of the NY Times piece, wanted to support effective investigative journalism so this is what they did, something that few others had done:
They chose a path… Rather than give money to someone who approached them, they did the approaching. Rather than finance an organization that already existed, they started their own outfit. They found a star to run it. They seemed almost to relish the thought that they risked failure with this new, unproven model of journalism, though if truth be told, they don’t think they’ll fail. And they gave a lot of money — $30 million for the first three years, with the expectation of continuing that commitment, if not more, for years to come. It’s hard for philanthropists to make a big difference if they’re not willing to spend some serious money, the Sandlers say.
On one level Herb and Marion Sandler are part of the new wave of philanthropists that Matthew Bishop of The Economist calls “Philanthrocapitalists”: wealthy entrepreneurs who are applying to philanthropy the same principles that made them successful businesspeople. They make big bets, demand results, take risks, want some control over how their money is spent and so on. The quintessential philanthrocapitalist, of course, is Gates, but many others are now following his lead, trying to forge a new kind of activist philanthropy. Even among the philanthrocapitalists, though, the Sandlers stand out. Herb, in particular, can sound nearly contemptuous about how other philanthropies go about their business. Mainly, it seems, they don’t do it the way he and Marion do.
But what makes them so sure their way is better?
A statistic I read a few years ago, stated that 4 out of every 10 start-ups make it to year three, and then only 2 of those make to year five. Unfortunately I have not found a statistic that states how many start-up charities there are and of those how many make it beyond years three and five (if someone knows this information please share). What I do know is that in Canada the average age of a charitable organization is 29 years old and that there are over 500 registered charities to every 100,000 Canadians (see the NSNVO study in the resources section of this website). These stats are based on a 2003 survey. If we were to do a very (admittedly) unscientific extrapolation, with 1,000,000 people in Calgary there are just over 2,000 registered charities. In 2002 there were approximately 800,000 people in Calgary. So in just over 5 years the number of charities has grown by just over 25%.
Is it better for society to have more selection of charitable services, or is it better for society to have fewer charities that are addressing more needs? How does supply and demand actually play out in the charitable sector - is it donor driven (revenue stream), is it client driven (end user seeking services), is it government driven (cut backs to various sectors requiring charities to fill the gap), or is it collectively driven (social networking)?
- My guess is, in order to even start answering these questions we need to know a few more facts, such as: how many charities are started because someone wants to change something?
- or becuase the government cut services?
- or because someone created a cause on Facebook?
- or because someone got frustrated with what is currently available?
- and how many of those are already duplicating services that are out there?
As a philanthropic investor, do you have the time to research where your charitable dollars are going? According to the Sandlers, they spent as much time researching one of their recipients as they did in preparing for an S&L acquisition!
If the Sandlers are a new breed of philanthropists, not only are they changing the face of the charitable sector by creating organizations that address their needs, they are also investing resources in identifying organizations and projects that fulfill their philanthropic objectives. But most especially, they have identified what those objectives are!
Depending on your objectives, creating a new charity may help reach your goals, but ultimately will it be better for society? It is generally understood that resources are finite. As more and more charities are created to fill niche markets, it seems to me that we will see a wave of mergers and acquisitions simply because a new breed of philanthropic investors are changing the way charities do business.
So you've identified your values, you'ver picked how you will give and you've set your philanthropic goals. The goals that articulate the kind of social impact you want to make. How will you find the charities that best fit your values and goals?
First, decide if your community investment goals are locally, nationally or internationally based. Depending on how you decide to disburse your funds will also play into the type and geographic location of the recipient organizations. Make sure you have checked with your tax accountant and lawyer about any financial and legal implications your decision will have.
For charities that are Canadian based it is easier to make sure your philanthropic investment will be used appropriately. Canada Revenue Agency recently released its policy guidelines on fundraising for charitable organizations. This document defines what "charitable objectives" are and how organizations can spend your philanthropic investment. A copy of this policy can be found under Materials in the Resources section of this website.
Second, ask questions!
Some basic questions you will want to ask a charity before investing are:
- Has the agency adopted the Code of Ethical Fundraising (see Resources on this site for a copy) developed by Imagine Canada?
- Can the agency provide you with two years audited financial statements? You want two years (preferably three) because you need to compare growth in both revenue and expenses.
- Who is on the Board of Directors? What are their terms? Does the Executive Director have a vote? Are any of the Board Members financially compensated?
- Where does the core funding come from? How long is that funding in place?
- Does the agency have a strategic plan? How often is it reviewed? How are is the organization measuring itself against the plan?
- What percentage of the operating budget goes to the highest paid salary? How many paid staff are there?
- How much does it cost to raise a dollar? You might want to take the following measurements into consideration: 40% of Executive Director's salary, 100% of Fund Development staff salary, 50% of marketing/communications budget and 5-7% of general overhead expenses (rent, phone, etc.). Under the Donor Bill of Rights written by the Association of Fundraising Professionals, as a philanthropic investor you have the right to know this information. A copy of the Donor Bill of Rights can be found in the Resources section of this website.
- Finally, and probably the question you are most interested in knowing the answer to, how will this agency invest your money? How many people will be helped, animals saved, programs delivered, etc.
If you need more clarification - ASK. For the most part, charities want to be accountable to their donors. If you are not satisfied with the answers do not make that charitable investment.