Charitable Organizations' Strategies and Program-Spending Ratios

Abstract

Analysis in this study demonstrates how differences in strategy can be incorporated into evaluations and comparisons of financial statements of charitable organizations. The ratio of program spending to total spending, a metric commonly used in practice to evaluate charities, is the focus of the analysis. Our approach involves classifying charities according to how they access markets for donated resources and then using regression analysis to predict an organization's program-spending ratio, given the organization's strategic choice, size, and charitable objective. We then compare the predicted ratio to the organization's actual ratio to identify candidates for further review and investigation. In doing so, this paper illustrates how considering strategic choice enhances the analysis of financial statements of charitable organizations and informs assessments of organization effectiveness.

Predicting the accuracy of public perceptions of charity performance

“…44 As an example of the salience of these particular ratios, Margolis 45 noted the alarmingly damaging effects on the fundraising capacity of the National Society for the Prevention of Cruelty to Children of the adverse publicity surrounding the revelation in 1999-2000 that it was spending more on fundraising and administration than on helping children. The ratio of spending on charity programmes to total resources has also received attention [46][47][48] on the grounds that donors may be put off by the sight of charities accumulating large amounts of cash reserves instead of spending all their donor income on beneficiaries.…”

Assessing Potential Accounting Manipulation: the Financial Characteristics of Charitable Organizations with Higher than Expected Program-Spending Ratios

“…In the Baber et al (2001) model of the program-spending ratio, the authors control for the strategic position of the organization by incorporating two variables-professional fundraising expenses as a percentage of total expenses and joint costs of fundraising and programs deflated by total expenses. The latter variable attempts to distinguish organizations that solicit donations from relatively small donors, as opposed to relatively large donors.…”

Do people donate more when they perceive a single beneficiary whom they know? A field experimental test of the identifiability effect

“…However, due to state budget cuts, they shrank to 15 locations for the 2012 season, and decided to conduct an active fundraising drive for the first time among their clients and volunteers. The CEP were keen to maximize the yield on their drive, and to refine their fundraising techniques (Baber et al, 2001;Al-Ubaydli & Lee, 2011). We advised them on how to conduct a natural field experiment to meet their goals.…”