Every year again – The business with feelings

How to recognise dubious aid organisations

Christmas is upon us once again: fundraising galas on all TV stations, appeals for donations in provincial newspapers and in the mailboxes of German citizens, who donate around four billion euros every year. Around a third of this amount is spent in November and December, an average of 115 euros per capita. It goes without saying that such helpfulness also brings charlatans onto the scene.

The extent to which giving has become a matter of emotional commitment can be seen in the fact that especially in the run-up to Christmas many initiatives appeal to our charitable work. They send us postcards with foot-painted pictures, personalized return address labels with our name on them, and some more. Coldly calculated, we are taken to task for donating. If we don’t donate, we get the mailings as a gift. By doing so, we are causing damage to previously paid donations, we feel guilty. Only large aid organisations can afford such advertising campaigns. But if you’ve donated to a large organization and then find out about a smaller one, you’re already feeling guilty of an omission.

Donating is chic and reassuring

Fundraising is a business with feelings and means using a lot of imagination to raise as much money as possible for the organizations. In addition, there are patronizing gestures on the part of the donor, which are often used to ease a guilty conscience. Eat first, donate later – galas and charity banquets often serve an end in themselves. Mostly it is about the self-presentation of exclusive ladies from sports or show business, who are mainly interested in being pictured in the right gossip column next to the right top dog. Not to forget the self-proclaimed Samaritans, for whom demonstrated compassion serves only to cultivate their public image. The misery of those for whose benefit one pretends to dine there is quickly forgotten. Instead of spending the money on feasting, it would be better to donate it to social projects.

In order to create an attractive event, a much higher effort is often made than with pure fundraising. A considerable portion of the donations collected – up to 35 percent – is used to finance the respective organizations themselves. Among certified benefactors, advertising and administrative expenses average 16 percent. Few people question the fact that raising money also costs money.

The only question is whether these costs are disclosed transparently, whether they are reasonable and whether they cannot be reduced in individual cases. Exclusive banquets may bring in a certain amount of revenue for the respective organization, which is then often presented pathetically as a giant check, but they usually have no immediate broad impact. The begging management appears to have integrity, announces a sense of social responsibility and sounds a bit like jet-setting. In the process, organisations invest huge sums in campaigns whose immediate aim is not to alleviate need and misery, but to activate new donations. This fundraising marketing is how many make their living. Fundraisers, as social brokers, get paid by donors for the illusion that their organizations are taking partial responsibility for making the world a better place. Misery and compassion are instrumentalized for fundraising. While the organizations point out grievances and present solutions at the same time, the donors provide funding and hand over their human responsibility. Donating thus becomes a form of mass consumption.

The benefactor industry

The willingness of German citizens to help not only helps many people in need. Organized philanthropy simultaneously feeds a gigantic benefactor industry. The big players in the sector, Caritas (Catholic) and Diakonisches Werk (Protestant), employ almost two million people, the Red Cross “only” 80,000. The number of jobs at the five major organizations has tripled since 1970. With almost 500,000 employees, Caritas is the largest private employer in Germany. But who knows. This is due to the notorious secrecy of the benefactors. They like to talk about the good works, but the social enterprises remain in the dark. Turnover and cash position of welfare empires are usually unknown. And there is no comparative data on where work is done efficiently or sloppily. Charity sanctifies the veil of opacity. Lack of economic efficiency is the result. They have billions of dollars in donations at their disposal, but only about half of the fundraisers account for their use. In addition, there are many larger and smaller aid organizations that have hunger, water, children, sick people or even animals written on their banner. They all try to alleviate misery, lack and other needs with their projects, some of which span the globe, through the funds they collect. We can’t do it without donations. But many people pay for the thrill of feeling like a do-gooder deep down. At the same time, they drink coffee in the morning that is harvested by poor people, often children, in the Third World. They wear clothes made under inhumane conditions in Asian special economic zones, where 14-year-olds are flayed in performance chord. And the sneakers for evening jogging come from factories where underage workers aren’t even allowed to go to the bathroom. Giving buys us freedom from guilt – but only for the moment. Once you’ve become a donor, the requests pile up: potentially abused children, leprous sick people, mangled animal carcasses, etc. All the charity industry has to do is torture us a little more, and we’ll pay our way out with a donation. At the same time, we know that the demand for child prostitution or child labour – seen from the end of the production chain – comes from our countries. Of course, others get their fingers dirty, but the consumers are next to us.

“We help! Help us”

What do you donate to? What happens to the donations, how do they work? What is the real benefit of our donation? Too many donations don’t reach the goal. They are lost to the organization and acquisition of donations. It’s other people’s money that fundraisers and charities spend on it. In addition to donations from private individuals and companies, these include distributions from the state gambling monopoly, donations from court-imposed fines, funds from nursing and health insurance and billions from the Federal Ministry for Economic Cooperation and Development (BMZ). In doing so, the benefactors refrain from using their profits for their own benefit. As a reward, they are recognized as charitable. Those who obtain the seal of approval are granted a wealth of privileges by the state. Charity has its price. It tempts expensive inefficiency, while for-profit private providers are condemned to cost discipline. The privileges granted by the state secure the cartel-like market position of the welfare sector. In the expensive cartel they work hand in hand: Undisturbed by competitors, Caritas & Co. negotiate care rates for old people’s homes or care costs for day-care centres with the funding agencies. By referring to their non-profit status, the charity sector feels immune.

Only those who donate become donors

Whether for aid projects abroad or poverty projects in Germany – each donation euro can only be spent once. Many donors are not so well off that they would have anything to donate. They do it anyway, out of sincere compassion, romantic self-exaltation, or at least the realization that only solidarity can bail someone else out. However, donors should be aware of the organization and the route their donation will take. There are many good and bona fide charities that give donors the opportunity to volunteer to support specific charitable causes. They are all worth supporting with their concerns. For them, every donation counts. On the whole, only a few organizations engage in dubious fundraising, and they are not interested in positive charitable effects, but only in their own personal enrichment. Others lack the necessary expertise to plan and implement projects successfully. Their practices endanger the good reputation of the entire donation system. Every donation counts. But donations should be made to alleviate hardship. There are plenty of those around the world. But no donor can seriously assume to be able to change anything in this overall picture by his contribution. His help is not even a drop in the bucket compared to the size of the planet. But if we look with a magnifying glass at a single place, we can see that this tiny and inconsequential donation can change many things there. Many initiatives and aid organisations involve the people in the target countries in the design of their projects. Helping people to help themselves is the goal.

Honesty, transparency, cost overview – what donors should know

Does the organization provide up-to-date reporting?

Does the organization present its organizational structure and disclose the compensation of its governing bodies?

Does the organization provide insight into its goals, strategy, and statutory work?

Does the organization report on projects, services, or programs implemented and how much funding went into them?

Does the organization report on the results of projects, programs, and services implemented?

Does the organization publish a balance sheet and explain the balance sheet items and reasons for significant differences from the previous year?

– Does the reporting include an income statement and are the individual items and any deviations from the planned or previous year explained?

– Does the income statement contain a statement of income and expenditure, are line items and any deviations from the planned or previous year explained?

– Does the organization report on the appropriation of net income or the settlement of net loss?

– Does the organization report on the amount of advertising expenses and provide insight into administrative expenses?

– Does the organisation make a statement about the audit of the financial statements by an auditor or similar?

– Is a report of the executive bodies available and does it present significant developments or events of the financial year, does it give an outlook on future plans?

– Does the organisation provide an overview of its financial situation?

– Does the organisation provide information on the monitoring of the use of funds?

Recognize dubious aid organizations

In Germany, there is no publicity obligation and no legally binding accounting standards for fundraising organisations. There is also a lack of uniform calculation methods for assessing effectiveness. How much money a non-profit organization needs to secure its own existence still seems to be a matter of interpretation. The German Central Institute for Social Issues (DZI), German Donations Council and others provide interested donors with guidance on measurable criteria for organizations and initiatives. The DZI awards a so-called donation seal. Organisations wishing to run it must be non-profit and demonstrate that they collect nationally. The latter above all so that small initiatives, which are often successful at regional level, do not come under pressure. For them, the application for the donation TÜV would be too expensive and not very profitable. So not having a seal does not have to be a shortcoming, at least for small initiators. However, the larger an organisation is, the more important the DZI seal is. Currently, 251 organizations bear the seal, and they can be found at www.dzi.de Upon request, the DZI will provide information on about 2,100 fundraisers. But certification does not make an organization beyond reproach. The children’s charity UNICEF was also blessed with the DZI seal of approval until 2008, when the seal was withdrawn due to incorrect information on commission payments for donations.

Organizing charitable activities yourself – the private trust foundation

German tax law allows founders to deduct around one million euros per capita every ten years as a special tax expense. The tax distribution of this gift to the Foundation may be distributed within ten years. The founder can give his private trust foundation any charitable purpose – but of course also determine and monitor the ongoing use of the money. The trustee’s settlement costs are mostly in the single-digit percentage range. For entrepreneurs, this offers interesting additional tax structuring possibilities, e.g. by working for their own foundation. A relief is sometimes the fact that no state foundation supervision burdens the administration. On the other hand, the establishment in individual cases requires close coordination with the tax authorities, because the requirements may differ “depending on the landscape” in practice. The charm of this tax-saving model lies in its high efficiency and transparency for the founder. In addition, there are options for the founder’s marketing and a self-determined participation in the implementation of his own charity.

Those who donate want to save taxes

About 40 percent of Germans donate; in 2008, each of them spent more than 100 euros. Up to a certain limit, donations are tax deductible. At a marginal tax rate of 40 percent, for example, the tax authorities contribute 40 cents for every euro donated. According to a study by the Centre for European Economic Research (ZEW), if the state increases the tax rebate by one percent, the volume of donations increases from an average of 1.38 to 1.54 percent. The effect of an increase in income on the donation behaviour of Germans is less pronounced. Rich people do donate more than poorer people, but not proportionally more. If income rises by one percent, those studied gave an average increase of only 0.74 percent.

by Dr. Johannes Fiala and Hans-Lothar Merten

by courtesy of

www.network-karriere.de (published in Network Karriere 04/2011, page 34)

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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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