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Wednesday, Oct. 26, 2016

CFC, administrative and fundraising expense rate explained

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It takes money to run a business. Charities are no exception, non-profits have operating costs. For-profit business use money from profits while charities have to use money from donations to operate. These costs vary by organization and the percentage of donations spent on running the charity is readily available.

The operating costs, properly called Administrative and Fundraising Expense Rate (AFR), is listed in the CFC Charity List, just after the 25 word Statement of Purpose as a percentage rate. These AFR percentages vary from just a few percentage points to a higher percentile. Skimming the CFC Charity List you will see AFR percentages like 1.8%, 15.4%, 25.5%, 41.7%, and even 81.8%, and everything in between. The AFR percentage is not a fixed amount, it varies year to year.

There is a common misconception that charities with higher percentages tend to waste donations. Truth is that it's unfair to judge a charity simply by the AFR percentage as it does not show the entire picture. There is much more that goes into the AFR percentage, and sometimes a higher percentage is a good thing. Here's a glimpse into what makes up the AFR percentage.

This is meant to provide some insight to the operational costs of charities and by no means is a complete comprehensive listing to all costs incurred by charities. Some of these expenses are easy to identify, such as Employee Salary and Operational Costs (rent, utilities, office supplies, transportation, etc).

One expense that can easily raise the AFR percentage but isn't always easily identifiable is Capital Expenses. Capital Expenses are cost for facilities and equipment. For example, a charitable hospital builds a new wing, outfits it with the latest technology and upgrades other departments. That's an expensive undertaking that will allow the charity to be better suited to provide services. Those Capital Expenditures will increase the AFR percentage until everything is paid for. Other expenditures that are not easily identifiable are Advertising (TV, radio, print) and Fundraisers. The cost of name recognition is expensive, but with greater name recognition comes greater donations. Charities live and die by name recognition. Same is true for fundraisers. Charities will conduct fundraisers hoping for a strong return on investment.

Other items to consider that factor into the AFR percentage is the size and scope of the charity, name recognition, and donation amounts. Smaller charities that receive smaller donation amounts may have to spend a higher percentage of contributions on operating costs.

Conversely, charities that receive larger donations will have to spend a smaller percentage for the same level of operating costs. Name recognition has a correlation to donation amounts. Easily recognizable charities tend to receive more in donations. Each charity publishes the percentile breakdown and is available upon request.

With this information you have a better understanding of what makes up a charities AFR percentage. This year's CFC open period is from Sept. 1 through Dec. 15.

The generosity of our installation has a positive impact on those in local communities, across the nation and around the world. If you would like to make a contribution see your Unit CFC Coordinator. Consider giving through the CFC to support charities helping those who need it most. Your gift makes a difference. If you have any questions please see your unit's CFC Coordinator or contact the Installation CFC Program Manager.

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