Raising and Spending Money

An animal welfare group has been in the news recently for its slowness in spending money raised from bushfire appeals. Through the generosity of donors, the organization was able to raise over $100M, but two years later, had only managed to spend less than one fifth of this amount. This scenario occurs more frequently than one thinks.

I have been indirectly involved in fundraising for over 30 years, and have often had to encourage others to spend on projects, more than having to reign in expenses. This is not what most expect, but the wise and strategic expending of raised funds can be quite a challenge.

This may be one of my most controversial articles as attitudes to money can be quite polarizing. While I am mostly addressing acquittals, attitudes towards money often affect our starting point in the conversation. Our world view, or our assumed a prioris mean we often start at a different place. I therefore want to start with a brief introduction on two factors that can affect our starting point.

The two factors are generosity and the value of money. We are not going to reach consensus on these, and I won’t even try, but we should be aware of them as they determine our approach.

Generosity is obvious, how much do we keep for ourselves. How much is an acceptable surplus or nest egg for any of us to have to carry out our tasks comfortably? How much do we save to improve infrastructure (what is infrastructure anyway and how much of it can we include in specific project costs); or put aside for rainy day or black swan events. How much fat do you have built in the system or how much do you expend for the genuine good of others? I am sure you will agree there are no easy answers there, but our views (often unstated) come to any discussions we have about money. There is a danger in running too lean an organisation, which doesn’t allow for crises or pre-emptive spending. Those entities that survived the pandemic best were those who had some fuel in the tank. ?

The other attitude is the value of money. There is a reason we often refer to the bottom line over other lines; money is easier to measure. It has a numerical value that is the easiest way to provide a benchmark.

Creating measurement devices for Environmental, Social and Governance (ESG) factors are not straightforward, especially if you want to keep it meaningful and not just tokenistic. Money is a measurement we can all understand, so it usually is the default position we all take. It is why any negotiation or decision-making process should incorporate a scoring process to make sure our decisions aren’t solely influenced by the monetary component. Feel free to contact me if I can help you establish scoring mechanisms or KPI’s beyond monetary amounts only.

Now for acquittals.

I have often said that the easiest acquittal processes may not be the most effective or best value, but once again, it depends on how or what you are using as a measurement. Think of the scenario of where a consultant is called in. $x needs to be spent for a specific purpose, and $x can be assigned to one transaction in the expense line. One would hope that due diligence would be taken in choosing a consultant, and it is hoped that if you choose Zamagias Consulting, you would get good value.

Now if that same project is met in-house, the transactions are less likely to be that neat. There are staff costs; travel costs; hospitality costs (which are essential for good stakeholder management); property and utilities costs (where will meetings be held, who pays for the air conditioning?) and what about basic office supplies like the packet of Tim Tams to encourage attendance to those particularly boring but essential meetings. Depending on the sophistication of your accounting system you may be able to attribute some of these costs to your specific project, but even the most sophisticated system will have some expenses fall through the cracks. There is also the factoring in of the cost of a sophisticated accounting system, and the staffing needed to carry out efficient accounting with appropriate checks and balances.

In recent years there have been changes made in the Australian Accounting Standards, making it easier to identify grant or donor funds, but this can also add an extra layer of complexity to expending funds. Many an NFP gets criticized for what their ‘administration costs’ are, but you rarely get to compare apples with apples at this point, as most calculate their administration costs differently depending on the sophistication of their accounting system.

As mentioned, the raising of funds can be easier than expending them according to the wishes of funding bodies or donors.

Strategic thinking and budgeting needs to be at the forefront of decision making. Contracts need to be adhered to, thus ensuring funds are used in accordance with the funding body or donors’ wishes. In some instances contracts may be limited to the wording around how you asked for a donation, and for what purpose you gave at the time, so care needs to go into what you are actually asking for, and whether you can deliver. A tricky part of the spending is to evaluate your resources and determine how much you can exploit or leverage your in-house resources without depleting them too much (my article - how we shape culture gives insight into how we value resources and the implication of how we ‘do things’). Sometimes it is quickest, easiest and most economical to use your own knowledgeable staff for a task, and sometimes they have just too much going on so adding one more thing to their load is not feasible.

The bottom line is, spending money is tricky, and you are likely to encounter different views on how it should be done - often influenced by their own unspoken attitudes or values. Take the time to think, plan and act. This needs to be commensurate to your entities long term vision, the current situation and opportunity, and the resources you have available. In other words, think, and act, strategically.