1. Costless Fundraising: Deconstructing the Evidence
Joseph Cordes
Sarah Wilson

2. Inactive Fundraisers
This paper sets out to explore the phenomenon of Inactive fundraisers. Inactive fundraisers is a term used by Tuckman and Chang in 1998 to denote organizations that receive direct public contributions but do not report fundraising expenses.

3. This is a quote from an article published by the Chronicle of Philanthropy this past May
The article examined several “inactive fundraiser” organizations and concluded that many of these organizations violated federal rules by omitting fundraising expense from their Form 990
While that may be the case for some inactive fundraisers... We’ve come up with several preliminary scenarios that could help explain the existence of so many of this type of organization

4. Active and Inactive Fundraisers
Of the 155,000 organizations in our database, 75% (116,000) receive direct public contributions.
Nearly three out of five organizations that receive direct public contributions do not report fundraising expenses: 59% are inactive fundraisers, and 41% are active fundraisers.
Hospitals are most likely to be inactive fundraisers, while higher education institutions are least likely.

5. Active and Inactive Fundraisers by Selected Sub-Sectors
Of the 155,000 organizations in our database, 75% (116,000) receive direct public contributions and so are either active or inactive fundraisers. That is who is represented in this table. We’ve also included four sub-sectors:
Nearly three out of five organizations that receive direct public contributions do not report fundraising expenses: 59% are inactive fundraisers, and 41% are active fundraisers.
Hospitals are most likely to be inactive fundraisers, while higher education institutions are least likely.

6. Active and Inactive Fundraisers by the Amount of Direct Public Contributions
CONTRIBUTION LEVELS This table shows the relationship between contribution level and inactive fundraisers.
Less than 30% of organizations that collect less than $100,000 in direct public contributions are active fundraisers.
Almost 80% of organizations that collect over $5 million in direct public contributions are active fundraisers.
SO There is a strong relationship between contribution levels and status as an active or inactive fundraiser; the more an organizations collects in direct public contributions, the more likely they are to be active fundraisers.
Active fundraisers collect significantly higher direct public contributions.

7. Reliance on Contributions
Overall, Active Fundraisers are more reliant on contribution revenue than inactive fundraisers.
For active fundraisers, the mean percentage of revenue derived from contributions is 46% and the median is 38%
For inactive fundraisers, the mean percentage of revenue derived from contributions is 34% and the median is 15%

8. Use of Professional Fundraisers: The Percentage of Active Fundraisers Reporting Professional Fees by Selected Sub-Sectors
Only a minority of active fundraisers use professional fundraisers.
There is a perception that some inactive fundraisers use professional fundraisers but don’t report their fees as a fundraising expense.
The Digitized Data only shows what is reported on IRS Form 990
For more information we’ve looked at another data source: audited financial statement

9. Use of Professional Fundraisers
Only a minority of active fundraisers use professional fundraisers.
There is a perception that some inactive fundraisers use professional fundraisers but don’t report their fees as a fundraising expense.
The NCCS Digitized Data only shows what is reported on IRS Form 990
For more information we’ve looked at a second data source: audited financial statements

10. Conclusions drawn from NCCS/PRI National Nonprofit Organization Data
Inactive Fundraisers
Represent over half of organizations who receive direct public contributions
Collect significantly less in direct public contributions than Active Fundraisers
Are less reliant on contribution revenue than Active Fundraisers
Often use Special Events

11. Sample of Audited Financial Statements
We randomly selected fifty organizations that were:
Based in Maryland
Public Operating Charities
Filed an IRS Form 990 (rather than the 990ez) in 1998
Reported no Fundraising Expenses
Reported Direct Public Contributions greater than $200,000
Thirty-one of those organizations were on file at the Secretary of State’s office in Annapolis and make up our sample.
The sample includes a range of sub-sectors, but includes more hospitals and education organizations than is representative.

12. Allocated Fundraising Costs to Another Functional Expense
Nine organizations (28 percent) allocated their fundraising costs as either management and general expenses or as program service expenses.
One organization explicitly stated that they allocated their fundraising expenses as management and general.
Two organizations allocated their fundraising expenses as program service expenses.
Six organizations allocated their fundraising expenses as management and general; these six include the organizations that hired a professional fundraiser -- her fee was allocated as a management and general expenses. Three of the other organizations allocated their expenses under a sub-setting of management and general: “Development,” “Membership Development,” and “Development and Alumnae.”
Example: Preservation Association

13. Relationships with Affiliated Nonprofit Organizations
Another nine organizations (28 percent) relied heavily on affiliated charitable organizations.
Five organizations, all hospitals or hospital corporations, created separate charitable entities specifically to raise funds.
Three organizations received a significant amount of their contributions from affiliated organizations.
One organization was an affiliated organization created by a college specifically to raise money; they used the school’s facilities and services to raise funds.
Examples:
Denominational Nursing Home:
Direct Public Contributions = $520K
96% of donations = land worth $500K from affiliate,
4% was legal services donated by another affiliated nursing home,
Just .3% left, contributions valued at 1.5K.
Hospitals with Charitable affiliates

14. Volunteers
Six organizations (19 percent) reported a heavy reliance on volunteers.
These organizations were from several different sub-sectors: arts, public health, housing, recreation, religious.
Two of the four organizations in the sample who held special events reported that they relied heavily on volunteers.

15. One or Few Major Sources of Contributions
Two organizations reported receiving most or all of their contributions from one source.
Another organizations reported receiving well over 90% from four foundations.

16. Donations of Land or Property
Two organizations received large gifts of property.
A historical preservation organizations was given the use of a building by a city in Maryland. This donation represented 40% of their contributions.
A denominational nursing home was given land by their denomination worth $500,000 that represented well over 90% of their direct public contributions.
Association received a contribtion of property valued at over $400K.
This Represented 40% of contributions.

17. Use of Professional Fundraisers
Of the thirty-one organizations, only one filed a professional fundraisers report.
Reliance on professional fundraisers isn’t large
Greenlee and Gordon published similar findings in their 1998 article The Impact of Professional Solicitors on Fund-raising in Charitable Organizations.
Our findings don’t match the perception that many organizations are using professiional fundraisers but are not reporting the fee
Cite: Janet Greenlee and Teresea Gordon, Nonprofit and Voluntary Sector Quarterly, September 1998.

18. Conclusion
Some have argued that the large number of inactive fundraisers is indicative of
Widespread mis-reporting of costs
Questionable reliability of IRS Form 990 data
A closer look indicates that in many instances there are plausible explanations
The overhead cost study is a joint project of Indiana University’s Center on Philanthropy and the Urban Institute’s Center on Nonprofits and Philanthropy. It’s in its first of several years.