Free Finance Essay Sample - American Humane Association

Introduction

Though the non-for-profit organizations do not have profit maximization as a primary objective, the donors generally assume the charity should be as financially self-reliant as possible. This paper aims to analyze ‘value for money’ created by one of the US charities – Americane Humane Association.

Organization overview

American Humane Association (AHA) is classified as organization dealing with animals’ protection and welfare under The National Taxonomy of Exempt Entities (NTEE). According to its codes, it is engaged in preservation of natural resources, school related activities and disaster aid. Thus its philantropic activity focuses on defending the rights of two vulnerable populations: the society (children) and the environment (animals). To ensure protection of the animals’ rights, AHA has been realizing several programs which address the needs of certain animals’ groups: emergency services for animals in disaster (Red Star ® brand), sheltering and treating the homeless animals (Second Chance ® brand) and keeping the animal actors safe from the sets of filmed productions (No Animals are Harmed® brand). The typical projects on children’s rights protection are assistance to the children affected by migration (Child Welfare and Migration program), children who are chronically neglected (AHA Front Porch Project), and children who grow in the families without father (Fatherhood Initiative program). It also deals with strengthening the bond between animals and humans (programs of complementary dog therapies for children with cancer and certified service dogs working with veterans with postraumatic stress disorder (PTSD).
Charitynavigator.org shows AHA is classified as an organization which receives a substantial part of its support from a governmental unit or the general public. As such a charity performance cannot be assessed by conventional methods such as accounting ratios; ‘value for money’ indicators can give a clue for the potential donor whether the organizations’ activities are worthwhile and financially reasonable. Economy, effectiveness and efficiency indicators can demonstrate how the charity performs against its objectives. Other non-financial indicators such as management structure, mission statement availability, transparency scores, expert reviews and evaluation reports are also used to make overall impression of the organization sustainability.
Economy. Economy, or the ability of the charity to optimise the use of its productive resources shows whether the organization can realize its programs at low price\low cost for the donor. The analysis of AHA audited financial statements for 2013-2014 shows that it actively uses functional expenses allocation method to allocate the indirect costs of supporting services activities among its programs while direct program costs are attributed to the programs. The method both allows utilizing the donors’ funds in economical way and enhances transparency of AHA financial statements. Though program services expenses for 2014 demonstrate increase in absolute figures, AHA manages to maintain direct program costs\revenue ratio at the same level of 0.77 (compared to 2013) which can be an indicator of proper costs control within the organization. However supporting services costs increased 3% in 2014 (from 21 to 24%) which led to the total deficit of 41,344 $ (the bottom line). On ther other hand, the careful analysis shows it is connected with 7% growth of fundraising expenses (2,035,090 $ vs 1,901,571 $ in 2013) while administration costs decreased 31 % (748,432 $ vs 987,618 $ in 2013). That shows that AHA tries to utilize the donors’ funds to cover the expenses which contribute to selffinancing and generate profit in order to survive and grow. Also, it attempts to minimize the costs actively attracting volunteers who perform great bulk of its activities. AHA searches for alternative financing sources such as governmental and other grants, however the reduction of government grants from 655,029$ in 2013 to nil in 2014 can be an indicator of worsening performance. The decline in revenues as the main reason of worsening expense\ revenues ratio, can also be a signal that fundraising activities do not reach its goal, given that contributions income decreased 46% vs. 2013.
Efficiency. Efficiency demonstrates the outcomes of the charity in relation to the unit of resource consumed. It shows whether the funds are used in cost-effective manner and in the right way. AHA is highly dependent on the community support and government grants. Its revenues are represented in majority by contributions and sponsorships which constitute 33.4 % of total revenue for financial year 2014. As it can be seen from AHA financial statements, it tries to derive maximum benefit from such revenue sources as royalty payments and service fees (22% of total support and revenue), successfully applying for external grants (24.6%) as well. There are some other indicators that AHA uses its funds efficiently The American Humane Certified® farm animal welfare program grew 900% over the past three years having achieved the level of certification of nearly 10% of the animals in U.S. food production in 2014. The No Animals Were Harmed® Certified Animal Safety Representatives monitored 78.3% of all intense animal action representing 1,343 production days for U.S. based SAG-AFTRA productions. To close the gap between the program costs and grant awards, AHA implemented fee-for-service module.
Fees from seminars, net investment returns and other miscelanneous income constitute the remaining part of AHA support and revenue (20%). To maximize the return on donors’ funds, the funds excess is borrowed, giving the net investment return of 67,736$ (includes both interest and dividends’ income), which is almost 20 times higher than the corresponding amount of 2013. Generally, net investment return for AHA exhibits 77% increase compared to the year 2013.
Effectiveness. Effectiveness is the extent to which the charity achieves its objectives. It shows how much effort is put to achieve the organization strategic goals and whether these goals are met. Only in 2014 AHA provided treatment and protection to more than 50 million animals and conducted about 500 000 visits to children in need. AHA animal-assisted therapy improved the lives of 60 000 children across the US (both cancer-affected and from veterans’ families). AHA demonstrates the impressive output in all of the directions, expressed both quantitatively (e.g. 70,000 rescued animals over the last 5 years, humane treatment of 200 million farm animals, or 99.98% safety rate of animal actors during the films production), and qualitatively (e.g. the gas chamber ban for pets in Pennsylvania, or the Child and Family Services Improvement and Innovations Act with the specific steps for 2012-2016 to extend the Child Welfare Services program). In general, the majority of AHA objectives seem to have been met.
Non-financial indicators. The organization has a transparent management structure being managed by Board of Directors whose role is to ensure compliance with AHA objectives. The Board of Directors adheres to Sound Governance Principles, and the mission of AHA is clearly stated on its site and is completely consistent with the organization’s goals. It runs as ensuring “the welfare, wellness and well-being of children and animals” as well as unleashing “the full potential of the bond between humans and animals to the mutual benefits of the both”. Experts’ reviews from Guidestar.org show the organization keeps to the principles it pronounces, though some negative reviews related to the efficiency of funds’ use and accountability are presented. Still, the overall rating of AHA is as high as 4 of 5 (based on 63 personal reviews of Guidestar.org), or 77.17 out of 100, with 67.86 being assigned for financials and 97.00 for accountability and transparency (based on the data from Charitynavigator.org). As AHA is coded under subsection 503(c) (3) under the list of non-profit codes, the contributions to this charity are tax deductible which can also be an important factor for decisions to donate.

Conclusion

AHA activities cover those social, environmental and health aspects which are neither addressed directly nor covered in full through the existing US legislation. Value for money analysis shows that in general, AHA provides services reflecting the needs and priority of its contributors and the whole community, at good quality level and at decent cost. Though all AHA activities are aimed at specific groups of the society, realization of these activities covers the whole range of general public interests such as prevention of children’s abuse or neglect, protection and improvement of the environment (animals), and advancement of public health. Generally, except for some indicators of possible slight decrease in performance (fundraising), the organization has a high level of public accountability and transparency. Its funds are used in a cost-effective manner which makes AHA the charity the author would rather choose to support.

Works Cited

Americanhumane.org. American Humane Association (AHA), 2013. Web. 22 March 2015.
“American Humane Association”. Charitynavigator.org, n.d. Web. 22 March 2015.
“American Humane Association”. Guidestar.org, n.d. Web. 22 March 2015.