Creative accounting

From ANIMAL PEOPLE, December 1995:

WATKINS GLEN, N.Y.––Over the past four years Farm Sanctuary annual reports
have claimed $822,878 more in spending than Farm Sanctuary declared to the Internal
Revenue Service––and have ascribed $683,146 of that amount to program service. The ghost
expenditures have enabled Farm Sanctuary to claim that it spent 86% of revenues on programs
in 1993, and 88% on programs in 1994.
The income lines in the annual reports for fiscal years 1991 through 1994 match the
Farm Sanctuary IRS Form 990 filings, but the program spending and total expenditure lines
vary by as much as $257,961:
Year Program expense Difference Total expenditures Difference
To donors To IRS To donors To IRS

1991 $390,491 $282,739 $107,752 $451,807 $345,963 $105,844
1992 $504,355 $345,159 $159,196 $590,934 $423,732 $167,202
1993 $788,015 $530,054 $257,961 $917,471 $656,594 $260,877
1994 $591,485 $433,248 $158,237 $675,210 $519,567 $155,643
“The discrepancies,” claims Gene Bauston, who cofounded Farm Sanctuary with
his wife Lori, “are the result of the inclusion of monies spent on capital in our financial
reports. The IRS does not consider monies spent to buy capital items such as barns and property
to be ‘expenses’ because this money is technically not disbursed from the organization.”
It isn’t actually disbursed from the organization, either: money spent on capital
acquisition is properly reported when the capital shows up in the asset column of a financial
report or IRS Form 990. And indeed the Farm Sanctuary acquisitions do show up in the asset
column of their Form 990 filings. Farm Sanctuary in 1990 claimed assets worth $226,615.
Farm Sanctuary now claims assets of $1,049,493. The gain is exactly $822,878––the amount,
to the penny, of the discrepancy.
But the increase in assets isn’t noticed by donors because Farm Sanctuary’s annual