Spring 2011 issue of Horizons

Not-For-Profit

percentage of expenses spent on fundraising and administrative overhead. If the percentage is too large, will it negatively impact their donors’ perceptions of their organization and their willingness to provide funding? In addition, watchdog groups such as Charity Navigator have often traditionally based their evaluations of charities—at least in part—on these percentages. While it might be perceived as unfair to compare organizations in this manner—as all organizations operate differently, allocate differently, have varying reliance on fund raising events, are at different stages in their life cycle, etc.—it is an objective calculation that has often been used in rating charities. And while there is little evidence that this calculation will completely disappear from the evaluation process, it does appear that reliance on it may be waning. Since its inception in 2001, Charity Navigator, for example, has rated charities based on two categories—efficiency and capacity. The efficiency score was calculated primarily on the functional expense allocations. Charity Navigator recently added a second dimension—accountability and transparency—to its rating system and is currently testing a third dimension—results. Once the third dimension is in place, it is expected to carry the greatest weight in the rating system. When this overhaul will be complete has not yet been determined; however, it could certainly be the start of a trend to rate or evaluate charities in a new way. Reserves Another area of concern for not-for-profits is the level of reserves they should maintain. Many organizations’ reserves have been negatively impacted by the economic downturn.

Judy Murphy, partner in charge of RubinBrown’s Not-For-Profit Services Group presented trends and technical updates to more than 150 clients and contacts.

RubinBrown’s Not-For-Profit Services Group is frequently asked questions about two areas: • Functional expense percentages/allocations • Levels of reserves In both cases, the inquiries pertain to best practices, benchmarks, and how their particular organization’s percentages and reserve levels will be evaluated. Expense Allocations & Reserves For Not-For-Profit Organizations By Judy Murphy, CPA

Functional Expense Allocations With respect to functional expense allocations, not-for-profits are often concerned about the

Raise Your Expectations

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