1. Delwin Derksen Carlene Gilbert Kim Luchsinger Beth Mammenga Jon White
Expenses and Contributions in Minnesota Housing and Homelessness Nonprofits
Delwin Derksen
Carlene Gilbert
Kim Luchsinger
Beth Mammenga
Jon White
Beth

2. Agenda Purpose statement Operational definitions Problem statement
Research questions
Background research
Limitations and ethical considerations
Data and analysis
Results and conclusions
Recommendations
Beth
Beth - Purpose statement
Beth - Operational definitions
Beth - Problem statement
Beth - Research questions
Jon - Background research
Carlene - Limitations and ethical considerations
Kim and Delwin - Data and analysis
Kim and Delwin - Results and conclusions
Kim - Recommendations

3. Purpose Statement
Determine the effect of administrative expense efficiency ratio and fundraising expenses to contributed income
Within Housing and Homelessness nonprofit organizations
As listed by the Charities Review Council
Years
Beth
Determine the effect of administrative expense efficiency ratio (which is the administrative expense divided by the total expense for an organization) and fundraising expenses to contributed income
Within Housing and Homelessness nonprofit organizations (85)
As listed by the Charities Review Council
Years These years had consistently available information

4. Operational Definitions
Administrative Expense Efficiency Ratio: Management and general expenses divided by the total expenses.
Fundraising Expense: Costs incurred in raising contributions.
Contributed Income: Gifts, grants, and contributions received by the nonprofit organization. Also known as contributions or charitable donations.
Beth

5. Problem Statement
Varied beliefs within nonprofit sector about the impact of expenses on contributed income.
Confusion leads to distrust. Distrust leads to lower donations.
Beth
Nonprofits and the general public have various beliefs about how expenses impact contributed income. Anecdotally, some believe nonprofits with higher administrative and fundraising expenses lead to less money spent on program services, and therefore, fewer people served. However, others believe higher administrative and fundraising costs could mean that the charity is:
Younger, with more start up costs.
Smaller, with fewer economies of scale.
Able to dedicate more resources to advertising and marketing of services, and therefore, raise more money through fundraising.
Still others believe that administrative and fundraising expenses should not be an indicator of the nonprofit’s effectiveness or impact on the community. “Experts cite many reasons that focusing on an overhead ratio is the worst way to choose a charity:
It tells you nothing about the impact the charity has on people it's trying to help.
It discourages charities from investing in tools and expertise that would make them more effective.
The rules for determining overhead costs are vague and every charity interprets them differently.
Accounting experts estimate that 75% of charities calculate their overhead ratio incorrectly.”(Ogden, 2009)
Donors often look to overhead expenses (administrative and fundraising) to determine the nonprofit that will receive their donation. “Many donors seek charities with low overhead costs, and numerous watchdog groups look at the percentage of funds used for fundraising and administration when rating charities. Because donors are more inclined to give to charities with low overhead, organizations have a strong incentive to underreport their fundraising and administrative costs, or lump them together with program expenses, the study says.” (Block, 2004)
If the expenses are reported correctly, nonprofit organizations may choose to spend funding on program services expenses, rather than necessary overhead to run the organization smoothly. “The heightened focus on fundraising and administrative costs may discourage organizations from spending money on things that could make the charity more effective, says Patrick Rooney, director of research at the Center on Philanthropy. Non-profits deal with ‘the most intractable problems society faces,’ he says. ‘They need good staff and accounting systems. They also need roofs that don't leak and computers that don't crash.’” (Block, 2004)
According to Charitable Choices, “…all charities in this service must have combined fund-raising and administrative costs around 25 percent or less, often much less. We note the costs of each charity. They vary a lot. Should you choose a charity because its costs are among the lowest? Obviously, if overhead is most important to you, that should be a key consideration.”
Because there is confusion on how nonprofit expenses impact contributed income and the effectiveness of services provided, there is distrust in the management of nonprofit funds. This distrust can lead to a decline in individual giving, as noted in the Charities Review Council’s Report of Findings of a survey of Minnesotan’s Charitable Giving Habits and Perceptions of Charitable Organizations. This study found that “…most Minnesotans (83 percent) said that their general trust in charities influences their charitable giving.” In a time when “nearly four of five Minnesota households (78 percent) contributed money to a charity other than their religious congregation or their college,” building trust is essential.

6. Research Questions
Does a lower administrative expense efficiency ratio lead to higher contributions?
Does putting more money towards fundraising lead to higher contributions?
When comparing the administrative expense efficiency ratio to contributions, is there a difference between large and small nonprofits?
Beth
Does a lower administrative expense efficiency ratio lead to higher contributions? (Does overhead matter?)
Does putting more money towards fundraising lead to higher contributions?
When comparing the administrative expense efficiency ratio to contributions, is there a difference between large and small nonprofits? (Large and small were determined by revenue – top 50% and bottom 50%)
Next, Jon will discuss our background research.

7. Background Research Importance of the research
Scope and trend of contributions
Watchdog recommendations
Public opinion
Money where our mouth is?
Supporting and alternative theories
Research sources and methodology
Jon

8. Limitations and Ethical Considerations
Auditing requirements
Government stream of funding
Variations in reporting
Informed consent
Single, specific non-profit sector
Economic recession
Carlene

9. Analysis: Methods & Statistical Procedures
H1: Efficiency Ratio = Contributions
H2: Fundraising = Contributions
H3: LARGE NONPROFITS
Stronger correlation than
smaller nonprofits
Multiple regression analysis
Kim

10. Impact of 2003 Efficiency Ratio on 2004 Contributions
Delwin
Significance Level: .670
Conclusion: 2003 Efficiency Ratio does not have an impact on 2004 Gifts, Grants and Contributions
R-Squared Value Conclusions: 1.7% of the variability in contributions for 2004 is explained by the efficiency ratio. Slight to no correlation

11. Impact 2003 Fundraising Expenses on 2004 Contributions
Delwin
Significance Level: .000
Conclusion: 2003 Fundraising does have an impact on 2004 Gifts, Grants and Contributions.
R-Squared Value Conclusions: 70.4% of the variability in contributions for 2004 is explained by
Fundraising Expense. A Moderate to Strong Correlation

12. Impact of 2003 Program Service Expenses on 2004 Contributions
Delwin
Significance Level: .000
Conclusion: 2003 Program Service Expenses does have an impact on 2004 Gifts, Grants and Contributions.
R-Squared Value Conclusions: 52.3% of the variability in contributions for 2004 is explained by
Program Service Expenses. A Moderate Correlation

13. Table 1 R-Squared and Significant Level Statistics
Top 50%
Bottom 50%
Year
R Squared
sig
04 Contributions (Dependent)
03 Program Services
0.523
0.000
0.431
0.019
0.566
03 Fundraising
0.704
0.660
0.189
0.348
03 Efficiency Ratio
0.017
0.670
0.0069
0.984
0.046
0.644
05 Contributions (Dependent)
04 Program Services
0.405
0.277
0.016
0.327
0.040
04 Fundraising
0.307
0.097
0.207
0.390
0.361
0.021
04 Efficiency Ratio
0.082
0.013
0.093
0.006
0.597
06 Contributions (Dependent)
05 Program Services
0.608
0.51
0.197
0.008
05 Fundraising
0.532
0.442
0.003
0.012
05 Efficiency Ratio
0.044
0.158
0.079
0.165
Delwin
Contributions were lagged one year when comparing to the 3 major expense categories on the 990 form.
Dependent Variable = Gifts, Grants and Contributions
Independent Variable = Program Services, Fundraising, Efficiency Ratio

14. Table 1 R-Squared and Significant Level Statistics
Year
R Squared
sig
04 Contributions (Dependent)
03 Program Services
0.523
0.000
03 Fundraising
0.704
03 Efficiency Ratio
0.017
0.670
Top 50%
0.431
0.019
0.660
0.0069
0.984
Bottom 50%
0.566
0.189
0.348
0.046
0.644
Delwin
Dependent Variable = Gifts, Grants and Contributions
Independent Variable = Program Services, Fundraising, Efficiency Ratio

15. Results and Conclusions
H1: Efficiency Ratio = Contributions
Little evidence to support this hypothesis-weakest correlation.
H2: Fundraising = Contributions
Strong evidence to support this hypothesis
H3: LARGE NONPROFITS
Stronger correlation than
smaller nonprofits
Some evidence to support this hypothesis.
Kim

16. Recommendations More qualitative research
Study across sectors - compare and contrast
More years
Impact of recent economic depression
Kim

17. Kim
Blank slide to ask for questions