Figure a Charity Program Spending Percentage in 3 Minutes
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- Figure a Charity Program Spending Percentage in 3 Minutes
- We’re talking again today about the smart part of Give Smart from Your Heart.
- What’s a charity program spending percentage?
- In its Form 990 or 990-EZ, a charity will report the amount it spends on programs and the total amount it spends. Its program spending percentage is calculated by dividing the amount spent on programs by the total amount spent and then (to get a percentage) multiplying the result by 100.
- For example: if an organization reports spending $750,000 on programs while spending a total of $1,000,000, dividing $750,000 by $1,000,000 produces the decimal number 0.75, and multiplying that by 100 produces the program spending percentage of 75%.
- Why calculate this percentage? The program spending percentage is an indicator of the focus and management approach of an organization.
- What’s an appropriate percentage? In SeriousGivers’ view,
- a percentage between 60% and 80% is appropriate (green zone),
- a percentage above 80% or below 60% (but not below 50%) might be reasonable in an organization’s specific circumstances, but should be discussed directly with and satisfactorily explained by the organization’s management before a donation is made (yellow zones), and
- a percentage below 50% (red zone) means the organization failed to meet our screening standard.
What’s the concern with a program spending percentage above 80%? At times we’re asked why a program spending percentage above 80% should be discussed with the organization.
- If an organization reports spending more than 80% on programs, that means it is spending less than 20% on administration and fundraising. While an organization might be proud of minimizing administrative and fundraising costs, we believe that well-run organizations must spend meaningful resources on administration and fundraising.
- You also want to make sure that the organization is not
- having administrative or fundraising costs paid from an outside source or
- mis-categorizing administration or fundraising costs as program costs.
- How can you figure a program spending percentage in 3 minutes?
- It’s time for an 3-minute thrill.
- Start with a charity’s Form 990.
- Go to Part IX, the Statement of Functional Expenses.
- Divide the reported program spending total by the total expenses, and get the percentage by multiplying the result by 100.
- Watch me do it in the Charity Sherlock video.
- Your smart and easy assignment for today
- Figure the program spending percentage for a charity you gave to recently. Time yourself. You can beat 3 minutes.
- A big part of giving smart from your heart is knowing your top charities well, and that includes knowing what portion of their spending goes to programs.
- Had experiences? Have feedback? Share your thoughts in the Reply / Comment section at the bottom of the page. Or email me at ed[@]seriousgivers.org
- Today’s sponsor is the number 80.
- 80% is the top of our acceptable range of charity program spending percentages. When a charity reports spending more than 80% on programs, you should dig deeper.
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About Ed Long, the podcaster
Podcaster Ed Long has been preparing more than 40 years to do this podcast. He knows charities and the rules that apply to them. He’s analyzed charity finances and operations. He’s founded and run charities, and volunteered for them. He’s helped the public and law enforcement fight fake charities, and has served as a philanthropy educator and coach. Before all that he worked as a partner with a major Wall Street law firm. Ed is the founder and CEO of SeriousGivers, which itself is a charity. Ed knows the great work that strong charities can do with the resources entrusted to them, and is passionate about helping others find and support strong charities.