How to dig deeper into a nonprofit’s finances

In response to America’s Worst Charities, our investigation with the Tampa Bay Times, we’ve received more than 290 suggestions for nonprofits we should investigate. The requests have varied: Some people were curious about well-known charities. Others had specific concerns about accounting tricks or scams.

The best way to get financial information about nonprofits is through their Form 990, a report that they file each year with the IRS. The 990s are filled with information, but they can seem intimidating.

So we’ve created a guide to help examine financial statements of nonprofits. You can find an organization’s most recent 990 at Guidestar.org. You also can access the forms by requesting them directly from the charity, which is supposed to keep several years of tax returns available for public inspection. In this guide, we are using the 990s of Wounded Warrior Project (2011), the Humane Society of the United States (2011) and World Vision (2010) as examples. We selected these charities because many people asked about them. Unlike the charities identified in the Times/CIR America's Worst Charities list, these organizations do not direct most of the money raised from donors to professional solicitors. They all meet the accountability standards set by the Better Business Bureau.

What does the nonprofit do?

Mission: The nonprofit’s mission statement can be found in Part III, line 1.

 

 

Programs and program expenses: You can find out how much the nonprofit spent on its programs in Part IX, line 25, column b. Wounded Warrior Project reported spending $69,599,744.

 

 

Finally, divide column b by column a ($69,599,744/$95,511,549) to see what percentage of its expenses were programming (about 73 percent). In its standards of accountability, the Better Business Bureau says an organization should spend at least 65 percent of total expenses on programs. Program expenses are allowed to include some salary, overhead and fundraising costs to the extent those activities promote the charity's programs.

Does the nonprofit use professional fundraisers?

The series by the Tampa Bay Times and The Center for Investigative Reporting focused on organizations that rely heavily on high-cost solicitors that take as much of 90 percent of every dollar raised. Most charities do not use outside fundraisers.

To find out if a charity uses professional fundraisers, look at Part I, line 16a, column b. The Humane Society reported $4,343,746 in professional fundraising fees. A more detailed breakdown can be found in Schedule G, line 2b.

If a nonprofit uses a professional fundraiser, be aware that part of your donation may go to the fundraiser. When you get a solicitation call, ask what percentage of your donation will go to the solicitor. Experts say that charities should not spend more than 35 cents to raise a dollar. Many of America’s worst charities spend 80 cents or more of every dollar on fundraising costs.

 

 

How much does the CEO make?

Officer and compensation information can be found in Part VII. World Vision’s president, Richard Stearns, reported a salary of $379,861. According to a CEO compensation study conducted by charity watchdog Charity Navigator, CEO salaries vary according to nonprofits' location, mission and size. World Vision's total expenses in 2010 were more than $1 billion. In the same year, the median CEO salary for nonprofits with more than $500 million in expenses was $477,920, according to the study. 

 

 

What accounting tricks can I look out for?

Sending medical supplies abroad and other noncash assistance. Some nonprofits give out noncash assistance, known as gifts-in-kind. These can include clothing, medical supplies or other goods.

Gifts-in-kind have come under increasing scrutiny from regulators. Some nonprofits overvalue their noncash assistance, which makes the nonprofit appear to be spending more on its programs than it is. For example, Breast Cancer Society of Mesa, Ariz., one the charities highlighted in the Times/CIR investigation, claimed to have donated medical supplies valued at more than $36 million in its most recent tax filings. Breast Cancer Society said its medical supplies came from two organizations. But both suppliers told reporters they had no record of providing goods to Breast Cancer Society or shipping them overseas on its behalf.

For information about a nonprofit’s grants and assistance, look at Schedule F (outside the U.S.) and Schedule I (inside the U.S.). The schedules can be found toward the end of the 990, listed in alphabetical order.

The Humane Society reported $6,749,139 in direct cash aid and no gifts-in-kind. 

 

 

Fundraising costs counted as programs. Joint costs, reported in Part IX, line 26, refer to activities that combine educational campaigns with fundraising. Joint costs can disguise a charity’s true fundraising costs and inflate its programs. While many charities have education as their mission, says Putnam Barber, a nonprofit expert affiliated with the University of Washington in Seattle, "the practice of combining fundraising with education and only doing education through fundraising is something I'm deeply suspicious of."

You can see the amount of joint costs in a nonprofit's program expenses by dividing line 26, column b by line 25, column b (total program expenses).

In the case of Wounded Warrior Project, about 20 percent ($14,212,791/$69,599,744) of its programs were delivered in conjunction with fundraising pitches. In contrast, the Police Protective Fund, No. 20 on the Times/CIR list of the worst charities in America, reported that 80 percent of its programs were delivered in conjunction with fundraising pitches.

 

 

How can I find out more?

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