Charity Nuts & Bolts

Some time ago, Mr Wang mentioned that he had signed up to make regular donations to Club Rainbow via credit card. Club Rainbow is a registered charity that helps children suffering from serious chronic diseases.

Today Mr Wang received a letter from Club Rainbow. The purpose of the letter was to provide detailed information about Club Rainbow's operations and how it uses its donation money. In the post-NKF saga era, charities evidently feel that they need to be more transparent in order to retain donors' trust and confidence.

One particular paragraph in the letter which caught Mr Wang's eye was this:

"With a growing number of charities tapping into a limited supply of donor funds, fundraising has always been a struggle and will continue to be so. The last three financial years - from 2002 to 2004 - has seen Club Rainbow running deficits of $35,714, $209,612 and $285,216 respectively. This can be attributed mainly to a growing number of beneficiaries and other external factors like SARS, the Asian tsunami crisis and a general downturn in the economy which saw a decrease in both individual and corporate donations to smaller charities like ours."

Mr Wang is not an accountant and is slightly allergic to words like "deficits". Based on Mr Wang's simplistic understanding of the word, Mr Wang thinks that it means that in the respective years, Club Rainbow spent $35,714, $209,612 and $285,216 more than it actually raised. Mr Wang further believes that the opposite of "deficit" is "surplus", and "surplus" is something like "reserves".

What Mr Wang further thinks is that despite having less-than-zero reserves, Club Rainbow seemed to have been able to continue its activities throughout 2002, 2003 and 2004. Now if charities seem to be able to run on less-than-zero reserves, then perhaps Mr Wang has been thinking about the story of the NKF reserves in the wrong way.

Previously we were told that NKF had reserves that could last 30 years. Then we were told that NKF had reserves that could only last a much shorter time (3 years?) and the impression we were given is that this would be disastrous for kidney patients. Mr Wang (foolishly?) believed that if NKF's reserves totally ran out, then that was that and there would be nothing at all that NKF could do for any kidney patient.

Well, evidently that is not necessarily the case. Going by Club Rainbow's example, it seems that charities can actually run for years on less than zero. So it may not really be such a unmitigiable disaster for kidney patients if in fact the NKF reserves ran out. It may simply mean that the NKF will have to pay for one year's expenses using the next year's donations, and keep doing that, year after year.

Come to think of it, Mr Wang has just reminded himself of another old post he wrote. About another charity which regularly spent practically almost all the money it raised each year, and still went on and on, year after year.

Well, Mr Wang could be wrong. Readers who know more about accounting than Mr Wang (and Mr Wang is sure that there must be many of them) are invited to comment and educate Mr Wang about the deficits, reserves and surpluses of charities.

On a separate note - Mr Wang noted a few things about the Club Rainbow letter which pleased Mr Wang. The letter was printed on both sides of a single sheet of poor quality paper, the font was very small (probably Times New Roman font size 8?), the text came in single spacing, the margins (top, bottom, left and right) were narrow and the letter took up practically the entire of both sides of the sheet of paper.

What does this suggest? Club Rainbow was being very thrifty with its paper. Rather than use two or three sheets of paper for each letter to each donor, Club Rainbow tried very hard to squeeze the contents of the entire letter onto a single sheet. The extra paper probably wouldn't have cost that much, but after NKF, it does feel nice to see a frugal, thrifty charity at work. It reflects the kind of attitude that charities should have.

Or is Club Rainbow really, really broke?