Winter 2000 Newsletter

Table of Contents

1. The Impact of Gaming Upon Canadian Non-profits: A 1999 Survey of Gaming Grant Recipients by Loleen Youngman Berdahl

2. Book Review: Succeeding with Consultants: Self-Assessment for the Changing Nonprofit by Barbara Kibbe and Fred Setterberg

3. Considering the Users in Financial Reporting by Betty Thompson

4. Sponsorship Tips from Corporate Sponsors

1. The Impact of Gaming Upon Canadian Non-profits: A 1999 Survey of Gaming Grant Recipients by Loleen Youngman Berdahl

Background

Interest in the Canadian non-profit sector has increased dramatically in recent years. As governments download services and reduce government-run programs, the number of non-profit organizations grows. This raises questions about the role and importance of the non-profit sector, as well as concerns about the viability of these organizations. Of particular consideration is the funding of these organizations: will they have the resources to meet their needs, and will they be able to manage ever-larger responsibilities, clients, and societal expectations?

To explore the issues surrounding non-profits and gambling, the Non-Profit Gaming Study began in November 1998, as one part of the larger Canada West Foundation Gambling in Canada Project.

The survey was received by 916 organizations; 406 were returned and of those 47 agreed to a phone interview. Questions explored in this report include:

Gaming Grants in Canada

At present, three provinces offer formalized programs to provide gaming grants to non-profit organizations: Ontario, Saskatchewan and Alberta. Each system is highly unique and has undergone changes in recent years. Other provinces may also fund non-profits with monies derived from gaming, but not through a formalized, transparent funding structure.

Alberta has a total of eight grant agencies: the Wild Rose Foundation (est. 1984); Alberta Foundation for the Arts (est. 1991 after four agencies amalgamated); Sports, Recreation, Parks and Wildlife (est. 1993 after two funds amalgamated); Community Lottery Boards (est. 1998); Community Facility Enhancement Program (est. 1988); Alberta Historical Resources Foundation (est. 1976); Human Rights, Citizenship and Multiculturalism (est. 1996 to replace one fund); and the Agriculture Initiatives Program (est. 1988). Funds are derived from VLTs, slot machines and lottery ticket sales. The Community Lottery Boards (CLBs) were established after a provincial community consultation process in reaction to criticisms that insufficient gambling revenues were directed back to Alberta communities. A total of 88 CLBs were established to distribute $50 million per year. Funds are allocated to CLBs on a per capita basis.

Non-Profit Dependence Upon Gaming Revenues

Are non-profits growing more dependent upon gambling revenues? To explore this question, we must first differentiate between gaming grants and charitable gaming, due to the differing regulations on each form of gambling-generated funding. As will become clear, regulations dramatically impact the levels of dependency upon gaming funds. The potential for generating revenues from charitable gaming and gaming grants varies significantly between provinces; as the potential for revenues increases, so too does the potential for dependency.

If dependency upon gaming grants can be measured in terms of the grant's weight in the organization's overall annual budget, the data indicate that only a few organizations are currently dependent upon gaming grants. For many organizations, gaming grants represented only a small portion of their 1998 funding. In total, 46% reported that only 1 – 10% of their 1998 annual revenues came from gaming grants. However, a full 20% received over half of their annual revenues from gaming grants, suggesting high dependency for these organizations.

The fact that the plurality of organizations report that gaming grants represent only 1 – 10% of their annual revenues does not mean that gaming grants are unimportant to the non-profit sector. Indeed, 69% of respondents rate gaming grants as having high importance to their organizations. Asked during interviews how important the gaming grants are to the non-profit sector in general, executive directors unanimously indicated that the funds were "critical" and "essential." Many argued that without gaming grants, a large number of non-profit organizations would cease to exist.

Why are the gaming grants viewed as being so critical to the non-profit sector? As many executive directors stated during interviews, every dollar collected by non-profit organizations is valued and necessary. Reductions in the number and value of gaming grants, they report, would lead to program cuts and staff layoffs.

To provide another measure of the importance of gaming revenues to non-profits, respondents were asked to identify their top three funding sources. Overall, gaming grants were rated as the top funding source for 28% of the sample, and rated in the top three funding sources for 50% of the sample. Charitable gaming rated less highly, with 13% of respondents rating it as the top funding source, and 33% rating it in their top three funding sources. For 17% of the sample, both charitable gaming and gaming grants were rated in the top three funding sources, suggesting a high level of dependence upon gaming revenues for these organizations. (By contrast, 18% of the sample rated "other government funds" as their top funding source, and 35% rated government funding in their top three funding sources.)

What becomes clear from the data is that gaming revenues, in the form of grants and charitable gaming, are seen as significant and vital within the Alberta, Saskatchewan and Ontario non-profit sectors. In response to the statement, "Without lottery/gaming grants and charitable gaming, many non-profits would not have the funds necessary to run their programs," a full 84% agreed or strongly agreed. Agreement was strongest amongst the sports and recreation and arts and culture organizations, which are less likely to receive significant government funding.

Non-Profit Exposure: Perception or Reality?

Are non-profits replacing dependency on government revenues with dependency upon gaming revenues? To answer this question, one must consider not only the importance of the gaming revenues themselves, but also the overall number of funding sources that an organization utilizes. A non-profit may receive a large proportion of its revenue from a limited number of sources but, due to an overall diversified funding portfolio, have in place the infrastructure and capacity to pursue other funding avenues. The greater the diversity of a non-profit's funding, the greater its ability to redirect revenue generation should a significant source be cut or eliminated.

Nonetheless, when one considers the degree to which organizations have diversified their funding sources, it is clear that some organizations are strongly reliant upon a small number of funding sources. A full 33% rated as poorly diversified, meaning that they reported only between one and three funding sources in 1998. A plurality of organizations (45%) had between four and six funding sources (moderately diversified), while 22% of organizations were highly diversified, reporting over seven funding sources. Of course, a diversity of funding sources does not guarantee that an organization is not heavily reliant upon a single source. It is possible that an organization receives funds from seven sources, with 50% of their budget coming from a single source. However, the more diversified an organization is, the greater their ability to survive change in the funding environment. Michael Hall of the Canadian Centre for Philanthropy writes, "The ability of charities to weather cutbacks in government funding depends, to a large extent, on the degree to which their revenue base is diversified."

Desirability of Gaming Funds

For many non-profits, gambling grants are seen as a government-provided replacement for government grants. What became clear is that most consider the gaming grants to be an ersatz stand-in for government funding. While gaming grants are appreciated, the preference is for core government funding.

Others felt that gambling revenues were less desirable than traditional forms of charitable fundraising.

For almost all organizations, however, the need for funding combined with the relative convenience of securing gambling-generated revenues make the gaming grants and charitable gaming desirable funding sources.

There are reasons to believe that gaming funds are inconsistent revenue sources for non-profits.

First, overall gaming revenues are finite; there is a limited number of individuals willing to participate in gaming, and the monies these individuals are able to spend on gaming are also limited. For this reason, as more charities enter the charitable gaming arena, each receives a smaller and smaller slice of the charitable gaming pie.

Second, and again due to the finite nature of gaming revenues, the introduction of new gaming opportunities in a province results in decreased revenues for established games. For example, the introduction of casinos will decrease established bingo revenues. Likewise, it has been shown that casino revenues decrease when video lottery terminals (Volts) are introduced. In this way, the stability of gaming revenues for the non-profit sector is dependent on the stability of government gaming policies. Changes in policy result in changes in funding stability for the non-profit sector.

Third, the level of provincial gaming grants is dependent upon political will. In Ontario and Alberta, funds available for gaming grants increased dramatically in 1998 due to government decree. In this way, gaming grant policies can be seen as political tools, open to manipulation for electoral gain and/or other purposes.

Do non-profits see gaming revenues as a stable source of funding? Which funding source is seen as most stable? What becomes clear upon reviewing the data is that non-profits do not report a strong funding environment in the recent past, nor do they perceive a bright funding future.

Overall, foundation funding is perceived to be the most stable funding source: 57% of respondents report no change in the availability of foundation funding in the recent past, and 51% predict no change in the near future. No source of funding is seen as consistently increasing; however, two sources — individual donations and corporate donations — are perceived to be consistently decreasing. Gaming sources are seen as the most erratic funding sources.

Ethical Considerations for Non-Profits Using Gaming Funds

Increasingly over the past decade, the non-profit sector has been concerned with maintaining high ethical standards. Infrequent but high profile scandals in the United States, such as the misuse of funds by the United Way of America, have drawn attention to the need for ethical fundraising practices and policies in the Canadian non-profit sector. Gambling is an activity that has attracted considerable social debate: religious leaders oppose gambling activities as encouraging covetousness and greed, while others argue the ethical issues of compulsive gambling and its negative impact upon some individuals and families. Proponents of gambling, on the other hand, argue that the social values of freedom of choice and action supercede the negative effects on a limited proportion of society.

What became clear in the data is that consideration of the ethics of gambling revenues vary with the types of services the non-profit organizations provide, and that different sources of gambling revenues (for example, lotteries versus VLTs) present different moral debates.

It is occasionally argued that increased gambling opportunities lead to an increased number of problem gamblers, and as a result, rising demands upon the non-profit sector for family and other services. To what extent is this perceived to be true within the sector itself? The survey data suggested some ambivalence to this idea. When asked if "problem gamblers are likely to become clients of the non-profit sector," a plurality of 45% agreed or strongly agreed, while 22% disagreed or strongly disagreed. One respondent argued that the issue of problem gambling presented an inherent paradox for the gaming grant system: "taking funds from gambling – having then to assist in funding programs that deal with helping problem gamblers. Some agencies do not accept gaming funds for this reason."

What was raised more regularly as an issue was concern about the participation of lower income people in gambling. A number of respondents referred to gambling as "regressive taxation" or a "tax on the poor." Gambling's impact upon the poor was an important ethical consideration for many non-profits – but not sufficiently important to cause these non-profits to decline gaming dollars.

Non-Profit Responses

Are ethical questions about the use of gambling revenues being raised in non-profit organizations? Do clients or board members object to the use of gambling funds? In a strong majority of the sample, the answer to these questions is "no." When presented with the statement, "Our clients oppose our organization's use of gaming revenues," 59% of the sample disagreed or strongly disagreed. Objections are even less likely to be raised at the board level: a full 68% of the sample disagreed or strongly disagreed with the statement, "Our board members oppose our organization's use of gaming revenues."

What became apparent was that for many boards, there is a feeling that any funding, regardless of the source, is necessary to fulfill the organization's mandate. Thus, while individual board members may object to the funds, the greater sentiment is that their commitment to their cause overrides their ethical concerns about gambling. For these individuals, the acceptance of gambling revenues is seen as a "compromise," or a "necessary evil," that must be accepted to meet their larger goals. As one respondent wrote, "ethically our staff and board are always debating this issue. Our need for operating money usually wins out however."

Characteristics of an Ideal Gaming Grant System

If gaming grant systems are truly to benefit the non-profit sector, it is vital that these grant systems consider and reflect the needs of the sector. Through the survey and interview data, it is possible to identify a number of characteristics of an "ideal" gaming grant system; that is to say, a gaming grant system that would be seen as ideal by the non-profit sector itself. The ideal gaming grant system is characterized by the following:

1. Absence of political interference.

Governments must work to ensure not only the independence of gaming grant organizations, but also the public image of an independent, neutral granting mechanism.

2. Greater proportions of gaming revenues benefiting the non-profit sector.

Government practices such as directing gaming funds to general revenues, imposing high lottery licensing fees, and other general fees on charitable gaming are viewed by many as government imposing its will to take from charities and non-profits what is rightfully theirs.

3. High levels of non-profit sector involvement.

Criticism of politicization and government interference in the gaming system can be addressed through high levels of community and non-profit participation in the gaming grant system.

4. Supplementary, rather than replacement, funding.

Many non-profit executive directors raised concerns that governments were using gaming grants to replace government core funding in a climate of fiscal restraint and cutbacks. Strong beliefs that governments are using gaming grants as replacement funding can damage both the reputation and the mandate of gaming grant organizations.

5. Consolidated and directed granting systems.

For the sake of simplicity, all gaming grant programs could be consolidated into a single system. Non-profits, regardless of sector, would apply for funding from this single organization. For the grants themselves, granting agencies are encouraged to divide funding according to organizational mandates.

It may be possible to have a granting system that directs lottery funds (which are perceived as more benign) to the social, education and health service organizations, with the more controversial gambling funds, such as casinos and VLTs , directed to organizations with different mandates. At the same time, a non-gaming grant system specifically targeted to non-profits with ethical concerns about gambling might also be considered.

6. Fairness and accountability.

Providing clear criteria of who is and is not eligible for grants, and awarding grants to organizations based upon history, mandate and service provision. Organizations must be required to report back on the usage of the funds. This ensures the reputation of not only the granting systems, but also of the non-profit sector itself.

7. Minimal bureaucratization and helpful staff.

To reduce the bureaucratic demands upon non-profits, granting agencies are urged to consider the following:

• Keep applications as clear as possible. Deadlines should be indicated, criteria should be defined carefully, and required supporting documentation should be identified.

• Provide a filter mechanism at the start of the application process to prevent ineligible organizations

• from devoting time to grant application.

• Base funding decisions upon the history and mandates of organizations, rather than upon specific projects (see characteristic eight).

• Keep reporting requirements limited to accountability.

8. Global funding.

Many gaming grants limit funding to projects or programs, rather than allowing non-profits to use the funding as best suited to each individual non-profit's needs. A global or core funding model would allow non-profits to direct funding to its best usage. This may be to fund office rental, computers, staff salaries, programs or other costs. In this approach, the mandate of the grant program is to help establish and maintain a particular non-profit organization, rather than a particular program.

9. Longer-term funding, such as three-year renewable grants.

To maximize the impact of granting dollars, it is recommended that some grants be given for a three-year period. To ensure accountability, continued funding over the three-year period should be dependent upon proper accounting.

10. Programs to assist non-profits in fundraising diversification.

It is recommended that special gaming grants be established to assist non-profits in the goal of fundraising diversification. These diversification grants could fund the individual non-profit to hire a fundraising consultant to review viability of its fundraising agenda, explore potential avenues of fundraising, and increase overall development efficiency.

Conclusion

What is apparent from this study is that gambling revenues are an increasingly important source of funding for the non-profit sector, despite the facts that such revenues are often unstable and present ethical conflicts for a number of organizations. How can these findings be used to aid governments, the non-profit sector, and subsequent research?

For governments, it is hoped that the data will be used to inform the grant-making process.

For non-profits, the data from this study should draw attention to common concerns regarding non-profit dependence upon gaming funds.

Printed with permission from: The Canada West Foundation. Full report available phone: (403) 264-9535, fax: (403) 269-4776, e-mail: cwf@cwf.ca, web site: http://www.cwf.ca 

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2. Book Review Succeeding with Consultants: Self-Assessment for the Changing Nonprofit by Barbara Kibbe and Fred Setterberg, 80 pages

Succeeding with Consultants is produced by the David and Lucille Packard Foundation and is intended to "enable organizations to see problems and dilemmas as challenges and to begin addressing those challenges…" It is a package of practical tools that can be used to achieve a variety of objectives.

The book is divided into three sections. Part I provides insights on how non-profit organizations can prepare for change and identify whether change is required within the organization. Part II looks at the business of consulting and working with consultants and demystifies this potentially stress inducing topic. It provides positive strategies for how to work with consultants, how to engage consultants and gives a framework for what to expect in consultant proposals.

Part III is a series of practical self-assessment tools that can be used by the organization or a consultant to assess the current situation and need for consultant support. The self-assessment questionnaires are divided into 6 sections: governance, planning, fund development, financial management, public relations and marketing, and quality assurance. Each section begins with a brief discussion and contains a quick and easy to use questionnaire.

This small but information-packed book is a useful resource. It presents a straightforward approach to an issue non-profit organizations could consider as one way to assist them in achieving their goals while establishing productive relationships with consultants.

Jackie Specken is Director of "Partners in Excellence" at the Volunteer Centre of Edmonton; a program that matches volunteer consultants with boards and senior managers of non-profit organizations.

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3. Considering the Users in Financial Reporting by Betty Thompson
   

It has now been almost three years since the implementation of not-for-profit accounting standards as part of generally accepted accounting principles. This has been a time of learning for both accounting practitioners and their clients, not-for-profit organizations. There are many considerations in deciding how to report; contributions—restricted or deferral method? capital assets—to capitalize or not?; and considerations of relationships between entities—is there control and what level?

The main consideration in this decision-making is: who are the users of the financial statements? This has a great impact on how you report. For example, boards of directors have varying levels of comfort and understanding of the deferral method of reporting contributions. They need the financial information that is useful to them in making informed decisions about the financial management of their organization. If they have difficulty understanding what deferred contributions are, they must consider using the restricted method. Of course, if this method is chosen, they have to be aware that they must use fund accounting and only report restricted contributions as revenue in the funds. All unrestricted contributions are reported as revenue in the general or operating fund.

Funders are also major users of the organization's audited financial statements. They are using the financial information to ensure that the funding they have provided has been used as per their criteria for granting the funding. They are also interested to see how the stewardship of all revenues has been carried out. Funders are certainly interested in any other organizations that may be controlled by the organization so that they are aware of all funds to which the not-for-profit may have access. Careful consideration of all indicators of control needs to be carried out, as this may have a major impact on the perceived funding required for another year.

The following are some misunderstandings that have happened in the reporting of not-for-profit financial information. The restricted and deferral methods of reporting contributions are both being used in the same statement. It is necessary to show deferred contributions when using the restricted method if operating grants have been received for the following year at the end of the current year and would be revenue in the general or operating fund. There would be no deferral of any other externally restricted contributions. They would be reported as revenue in the current year to whichever fund they applied. The only way of moving funds from one fund to another, even from the general fund is through interfund transfers. There cannot be revenue from one fund to another. The restricted method must show details of each fund on both the statement of financial position and the statement of operations and changes in fund balances.

As you prepare financial statements, as an employee or as a practitioner, think about to whom the report is going and what the information needs are. Sometimes, statements are prepared without careful consideration of the users' objectives. The presentation and method selected should be reflective of the needs of the organization's users. Each organization will be different.

Betty Thompson, FCGA, is President of Thompson Lo & Associates Inc. and provides financial, management and administrative consulting services to the not-for-profit sector. Betty instructs the course, "Financial Management in the Non-profit Sector" in the Voluntary Sector Management Program. She can be reached at 403-283-1088 or e-mail: bthompson@porterhetu.com

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4. Sponsorship Tips from Corporate Sponsors

DOs:

• Offer something specific — a program or a niche — that the sponsor can make their own and attach their name to.

• Find or create opportunities for your sponsor to get exposure for their support.

• Be patient. Most corporations are overwhelmed with proposals. Expect to wait six to eight weeks for a response on a straightforward request, longer if your proposal is large or complicated.

• Honor your commitments.

• Keep your sponsor informed and involved after they have given you the cheque.

• Communicate. Send newsletters, annual reports, notes or letters from the ultimate beneficiaries of the corporate support you have secured.

• Ask your sponsor if they know anyone else who might support you or if they have an associated or sister company that may want to get involved (e.g., in Bells' case, Bell Mobility or Nortel).

DON'Ts:

• Don't feel you have to know someone in the company personally before you ask for support. Most of the causes supported by Bell involve no prior contact.

• Don't assume you have to start with the president or CEO. Similarly, if the person responsible for sponsorship turns you down, don't threaten to go to the president or CEO.

• Don't ask a company for support just because you've fallen victim to government cuts. Look for a good match between your organization and the company before you make an approach.

• Don't equate quantity with quality when putting together your proposal. Keep it simple and skip the gimmicks. A lot of proposals are read in taxis and airplanes, so resist the temptation to make your pitch on video.

• Don't assume that large companies only support large initiatives.

• Don't assume that once you get support, it will continue. Be sure to nurture and communicate with corporate sponsors just as you would any other funder or supporter.

• Don't insist on a face-to-face meeting. Bell, for example, receives over 9,000 proposals every year. There simply isn't enough time to meet everyone personally.

• Don't become discouraged — or angry — when the answer is no. There are many reasons proposals are declined — budget cuts, a bad match, too much similarity to an existing commitment. No this year doesn't mean no next year, so don't give up and don't burn your bridges.

Ruth Foster, Associate Director of Communications at Bell Canada, offered delegates at NSFRE Toronto's Fundraising Day in June some sponsorship do's and don'ts.

Reprinted with permission from Front & Centre published by The Canadian Centre for Philanthropy.

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