25% of top U.S. charities say they get something for nothing

From ANIMAL PEOPLE, June 2000:

 

WASHINGTON D.C.––More than 25% of the U.S. charities which collectively rake in more than 90% of all donated dollars are declaring expeditures of zero on fundraising, revealed the Chronicle of Philanthropy in a May 18 cover feature.

A Chronicle of Philanthropy analysis of Internal Revenue Service data for tax year 1996 “found that more than one fourth of the 4,889 nonprofit organizations that received $500,000 or more in gifts from private sources reported spending nothing on fundraising,” the authors stated. Their findings were affirmed by the Urban Institute’s Center on Nonprofits and Philanthropy.

Examining IRS Form 990 filings from tax years 1997 and 1998, the Urban Institute found that between 25% and 35% of charities with at least $500,000 in contributions from private sources declared that they had spent nothing on fundraising.

“IRS rules for filling out such returns clearly state that all funds spent on solicitations must be reported,” The Chronicle of Philanthropy emphasized, noting that some high-priced accounting firms serving major nonprofits have misinformed their clients to the contrary.

“The percentage of charities that were confused by the rules, or deliberately skipped reporting any spending on fundraising, alarmed charity regulators,” the Chronicle of Philanthropy continued. “Not only does it make some charities seem more efficient than they really are, but it also puts charities that report their expenses accurately at a disadvantage when competing for contributions.”

Reporting annually on the balance of program versus fundraising and administrative expense by major U.S. animal protection charities since filings became available from fiscal 1989, ANIMAL PEOPLE a d d r e s s e s nondisclosure of fundraising costs in three ways.

First, our annual tables on expediture include two parallel percentage figures. One is the percentage balance of program versus fundraising and administrative expense as declared by the charity. The other is the balance as we assess it from the other information in the IRS Form 990 and from examining copies of the organizations’ mailings. Differences are highlighted in boldface.

Second, our introductory preface each year includes this explanatory text, pertaining to the realities of fundraising and need:

Groups which collect interest on large endowments tend to have lower over – head because they are able to do less fundraising.

Shelters, sanctuaries, and some activist groups which use mostly volunteer labor and donated supplies by contrast may have “high” overhead, as much of their pro – gram work doesn’t appear in cash accounting.

The practice of ascribing direct mailings to program service instead of fundraising reflects the common but erro – neous belief that the best-run organizations have the lowest fundraising and other over – head costs relative to program service.

In fact, it is completely normal and healthy for an organization which is not collecting interest from huge reserves to spend between 25% and 33% of total budget on fundraising and administration. Further, a charity with huge reserves may have them chiefly because it is hoarding resources rather than fulfilling its mission.

Third, we advise readers that if a charity misrepresents fundraising expense, for instance by calling direct mailings “public education,” it should not be trusted in any other regard, either, without independent verification of claims, and should never be given money in response to an unverified appeal.

ANIMAL PEOPLE is consulted several times per week about various animal protection charities by people who are planning major gifts or bequests. Our advice may cost organizations which do not fully and accurately declare their fundraising expense several million dollars per year.

Perhaps for that reason, since our policies are well-known, under 3% of the more than 100 U.S. animal protection charities whose IRS Form 990 we examined in 1999 failed to declare any fundraising expense. Most charities whose filings we monitor annually seem to have become generally more candid and complete about their disclosures than when we started.

About a third of the charities whose Form 990s we examined in 1999, however, declared some direct mailing and/or telemarketing expense as “public education,” a ploy just a handful used as recently as 1992.

IRS Exempt Organizations division chief Steve Miller told the Chronicle of Philanthropy that his office is adding “a significant number” of accountants and lawyers, preparing to crack down more vigorously on nonprofit cheats.