02 February 2006

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?

9 comments:

kite said...

Just a thought,

Could it be, that the deficits are funded by the reserves accumulated from the years before 2002?

Which argues for NKF's practice of keeping reserves, because they may run into deficit one day, and still have to go on?

I see Club Rainbow fund raisers at Aljunied MRT station. Enthusiastic and regular. Which makes me wonder if they are professional fund raisers, and if they are, how much commission are they paid?

I'm not against people making money from raising funds though. It's a nobler career than most. :)

kite said...

Re-read your post. I think "reserves" is accumulated "surpluses" from many years. So while they have less than zero surpluses, they may not have leass than zero reserves.

(This coming from a psuedo accountant.)

Mr Wang Says So said...

The letter does mention that Club Rainbow uses professional fundraisers. This is what it says:

"Most of the funds we receive are in the form of one-off donations. Due to our limited manpower, we have engaged a professonal fundraising company Appco Pte Ltd, to raise sustainable income through regular public donations via their credit cards. This is subject to police licencing guidelines and is again audited by an external professional auditor. Appco is a global operation and has assisted a number of reputable charitable organisations around the world."

The letter does not mention how much Appco is paid.

hugewhaleshark said...

Club Rainbow has been running down its "reserves", which are "surpluses" accumulated in the past. According to financial information from its website, its General Fund has been run down from S$1.2m at end-2001 to S$693,522 as at end-2004.

I'm weighing whether to donate to Club Rainbow or the Children's Society or both. Maybe I'll run some simple numbers...

lbandit said...

Did the letter mention what percentage of a donation dollar is used to aid beneficiaries?

hugewhaleshark said...

This may help.

chrischoo said...

Interesting analysis and good link :)

What struck me is that their employee costs for Club Rainbow have risen considerably although their employee count has remained more or less the same at 8.

This works out to an average wage of $45,637 per employee each year in 2004, up from $30,109 in 2001. Why are they paying their employees more if they're continuing to run down their funds?

There may be a good reason for this, but like what hugewhaleshark said, I think they could provide better information.

Mr Wang Says So said...

Aha! I knew I could count on Huge Whaleshark.

hugewhaleshark said...

Anytime!

As donors, we do have to decide what level of "reserves" we want to support for the charities. For example, my personal view is that NKF's target of 10 years' reserves may be excessive. My feel is that three years is adequate, while charities with more that five years' reserves should think about expanding their activities.

Today's Straits Times carried an article about Teen Challenge, which is on much thinner ice with its reserves. Should NKF not spare a thought for these more needy charities as well?