What The HSUS, ASPCA & Charity Navigator Don’t Tell You About Fundraising Costs

Finding the right charity to support can be a daunting task. Do you agree with where the money goes? Do you agree with how it is spent? Do you use a website like Charity Navigator to help with the process? So many questions and answers can be difficult to find.

After writing this post about the HSUS, ASPCA, AWI & API being up on racketeering (RICO) charges, I received this comment from John Doppler Schiff;

 ”You decry the fundraising expenses of the HSUS, but their fundraising *works*. Staggeringly well. HSUS has gotten high marks from the major charity evaluators: CharityNavigator, Philanthropedia, Wise Giving Alliance… even a shout out from Worth Magazine as one of the nation’s most fiscally responsible charities”

It made me think about a post that Terrierman wrote about The HSUS and their fundraising economics. So I looked at the IRS forms and I looked at the Charity Navigator reports and I FINALLY understood what Patrick was talking about!!! So read his post, all of it. This means you! It explains a lot about how charitable organizations use direct mail programs to solicit donations and the cost allocation methods that they use. I also might add that Patrick is a 25 year veteran of managing non-profit organizations and is a ninth degree black belt in direct mail accounting, he knows what he is talking about.

It’s All About the 990 IRS Reporting Form

The information I’m going to give you seems a little complicated at first, but if you are going to donate money to ANY U.S. based charity, it is in your best interest learn how to interpret the numbers. ALWAYS look at the IRS 990 form NOT the audited financial forms supplied by the charity in question.

ANY registered U.S. Charity has to fill out an IRS 990 tax form. Theses are the most important lines & sections to look at.

IRS 990 Part One

Summary

Line 12 – Total revenue

Line 13 – Grants & similar amounts paid out

Line 14 – Benefits paid to or for members

Line 15 - Salaries, other compensation, employee benefits

Line 16b - Total fundraising expenses

Line 18 - Total expenses.

IRS 990 Part 3

Statement of Program Service Accomplishments

This section details the organization’s three largest program services by expenses

IRS 990 Part 7

Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors

IRS 990 Part 9

Statement of Functional Expenses

Pretty much the whole thing is important, but Line 26 - Joint Costs.  IS VERY IMPORTANT. “Complete this line only if the organization reported in column (B) joint costs from a combined educational JSA campaign and fundraising solicitation” More on that later.

IRS 99o Schedule C - Political Campaign and Lobbying Activities

Depending on you reason for donating, you may or many not agree with a charity using your donation for political  or lobbying purposes.

IRS 990 Schedule F - Statement of Activities Outside the United States

Details of grants or activities of a charity outside the U.S.

IRS 990 Schedule I - Grants and Other Assistance to Organizations, Governments, and Individuals in the United States

Details of grants or activities of a charity inside the U.S.

IRS 990 Schedule J - Compensation Information For certain Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees

Look at Part Two, Column E. This is the total dollar amount that key employees have received in salary compensation.

IRS 990 Schedule O

A detailed explanation of how the charity spent it’s donations from Part Three.

An Explanation of Joint Cost Allocation

Remember how I mentioned Line 26 on the IRS 990 form and how it is VERY IMPORTANT? The IRS allows charitable organizations to deem fund solicitation mailers as a joint “educational” program expense if a certain percentage of the mailer has an educational message relative to the charity’s goals. The joint program expense costs ARE NOT included in Line 16B Total fundraising expenses.

Terrierman explains it best.

“The fact that the direct mail industry has spent a lot of time, money and influence getting the IRS and folks like Charity Navigator to allow them to call direct mail costs a “program expense” does not make it so.

What it does do, however, is support the essential truth I made in my earlier post: The core business of many nonprofit organizations really IS direct mail. That IS their “program.”

The first point to know is that the IRS allows nonprofit groups like HSUS to calculate what “percentage” of their direct mail letters are to be counted as “fundraising.”

The calculations to support these numbers are pretty amusing. If they have a 4-page letter (the average length) which sets out “the problem” for 3.5 pages and asks for a gift in the last half page, then 87 percent of the letter is deemed to be “education” and listed as a “program expense,” and only 13 percent or so is deemed to be “fundraising.”

In fact, a direct mail letter is no more about “education” than a used care salesman’s pitch is about auto mechanics. Both exist for one reason: to close the sale and separate you from your wallet.”

So the long and the short of it is that if that box on line 26 has been checked off, “true” fundraising costs are NOT being disclosed. Charities that use this method of joint cost allocation are NOT sending out educational mailers because they are nice guys, they are doing it to solicit donations and are masking part of the expense by claiming it as a public education program.

 Charity Navigator’s Position On Joint Cost Allocation

“Generally Accepted Accounting Principles (GAAP) allow for organizations that follow SOP 98-2 or ASC 958-720-45 to report their specific joint costs from combined educational campaigns and fundraising solicitations and the IRS requires organizations to disclose this on the Form 990. In most cases, charities utilizing this technique allocate a small percentage of their solicitation costs to program expenses from fundraising expenses. However, we believe that donors are not generally aware of this accounting technique and that they would not embrace it if they knew a charity was employing it, nor does Charity Navigator. Therefore, as an advisor and advocate for donors, with rare exception, when we see charities using this technique we factor out the joint costs allocated to program expenses and add them to fundraising.”

Of the nine animal charities with joint cost allocations that I examined on Charity Navigator, only 4 had their Program Service Expense joint costs figured into fundraising expenses.

One of the more disturbing things I discovered was that while Charity Navigator DID  report the HSUS’s fundraising joint costs on their income statement table, they DID NOT factor those numbers into their “Financial Performance Metrics” thereby giving the HSUS a better fundraising performance than they actually had. It seems that even Charity Navigator can be charitable at times….

Let’s Really Look At the Numbers

So what I’m going to do is share the important financial details about nine National U.S. animal charities that use joint cost allocations reporting on their 990 IRS tax forms. I am also going to compare Charity Navigator’s fundraising expenses & efficiency numbers with my own calculations that will include joint cost allocations related to fundraising. And if any CEO’s of these charities have a problem with my calculations, Terrierman has offered a nice lunch to Wayne Pacelle in return for a look at the books. Patrick seems like a pretty charitable guy, I’m sure he would extend the offer to any other CEO of a charity.

Charity Navigator determines a charities fundraising expenses with this method.

“We evaluate a charity’s spending on fundraising by comparing it with the charity’s overall spending. That is, we divide a charity’s fundraising expenses by its total functional expenses. Charity Z, which spends $500,000 on fundraising and $3.5 million in expenses overall, spends 14.3% on fundraising.”

Charity Navigator determines a charities fundraising efficiency with this method.

“Financially effective charities must in part be efficient fundraisers, spending less to raise more. We calculate a charity’s fundraising efficiency by determining how much it spends to generate $1 in charitable contributions. In other words, we divide a charity’s fundraising expenses by the total contributions it receives. For example, Charity Z, with fundraising expenses of $500,000 and total contributions of $3.4 million, has a fundraising efficiency of $0.147, which means it spends 14.7¢ to raise $1″

To determine actual fundraising the way the Charity Navigator says it does when a charity uses joint cost allocation, I will add the joint cost allocation portion of Program Service Expenses (The second column) of line 25 to the Total Fundraising Expenses.

The Humane Society of the United States

view 2010 990 IRS form here

Total Revenue – $148.7M
Total Grants Given – $5.2M
Total Salaries & Benefits – $36.2M
CEO Salary – $248K
Lobbying Activities – $3.6M
Fundraising Expenses – $24.2M
Total Expenses – $126.3M
Joint Allocation Costs Program Services Expenses – $28.8M

Charity Navigator Performance
Fundraising Expenses – 19.1%
Fundraising Efficiency – $0.18

*NOTE* Charity Navigator did add joint program service costs to total fundraising costs on the HSUS income statement table, they DID NOT factor those numbers into their Financial Performance Metrics. Total Fundraising Expenses only were used to determine Financial Performance Metrics

Performance with Joint Costs Program Service Expenses Added
$28.8M Program Service Expenses + $24.2M Total Fundraising = $53M
Fundraising Expenses – 41.9%
Fundraising Efficiency – $0.36

The HSUS’s fundraising expenses are 41.9% of it’s revenue and they spend 36 cents to raise $1.

Humane Society International

View 2010 990 IRS Form here

Total Revenue – $6.8M
Total Grants Given – $551K
Total Salaries & Benefits – $2.4M
CEO Salary – $111K
Lobbying Activities – No
Fundraising Expenses -$541K
Total Expenses – $7.5M
Joint Allocation Costs Program Services Expenses – $1M

Charity Navigator Performance
Fundraising Expenses 7.2%
Fundraising Efficiency-$0.08

*NOTE* Charity Navigator DID NOT add joint program service expenses to total fundraising costs

Performance with Joint Costs Program Service Expenses Added
$1M Program Service Expenses + $541K Total Fundraising = $1.5M
Fundraising Expenses- 20%
Fundraising Efficiency-$0.22

The HSI’s fundraising expenses are 20% of it’s revenue and they spend 22 cents to raise $1

American Society for the Prevention of Cruelty to Animals

View 2010 990 IRS Form Here

Total Revenue – $133M
Total Grants Given – $6.4M
Total Salaries & Benefits – $45.5M
CEO Salary – $510K
Lobbying Activities – $907K
Fundraising Expenses – $25.7M
Total Expenses – $119.7M
Joint Allocation Costs Program Services Expenses – $19M

Charity Navigator Performance
Fundraising Expenses – 21.5%
Fundraising Efficiency – $0.23

*NOTE* Charity Navigator DID NOT add joint program service expenses to total fundraising costs

Performance with Joint Costs Program Service Expenses Added
$19M Program Service Expenses + $25.7M Total Fundraising = $44.7M
Fundraising Expenses – 37.3%
Fundraising Efficiency – $0.34

The ASPCA’s fundraising expenses are 37.3% of it’s revenue and they spend 34 cents to raise $1.

North Shore Animal League America

View 2010 990 IRS Form Here

Total Revenue – $32M
Total Grants Given- $764K
Total Salaries & Benefits – $11.7M
CEO Salary – $344K
Lobbying Activities – Unknown. 990 IRS form provided was incomplete.
Fundraising Expenses – $5M
Total Expenses – $30.8M
Joint Allocation Costs Program Services Expenses – $7.2M

Charity Navigator Performance
Fundraising Expenses – 16.4%
Fundraising Efficiency – $0.19

*NOTE* Charity Navigator DID NOT add joint program service expenses to total fundraising costs

Performance with Joint Costs Program Service Expenses Added
$7.2M Program Service Expenses + $5M Total Fundraising = $12.2M
Fundraising Expenses – 39.6%
Fundraising Efficiency – $0.38

The NSAL’s fundraising expenses are 39.6% of it’s revenue and they spend 38 cents to raise $1. What I found troubling was that the 990 IRS form that NSAL provided was incomplete, so itemized breakdown of salaries and other data was not available. I obtained CEO salary from Charity Navigator information.

International Fund for Animal Welfare

View 2010 990 IRS Form Here

Total Revenue – $19M
Total Grants Given- $2.2M
Total Salaries & Benefits – $5.5M
CEO Salary – $338K
Lobbying Activities – $59K
Fundraising Expenses – $2.6M
Total Expenses – $18M
Joint Allocation Costs Program Services Expenses – $2.2M

Charity Navigator Performance
Fundraising Expenses – 13.1%
Fundraising Efficiency – $0.12

*NOTE* Charity Navigator DID NOT add joint program service expenses to total fundraising costs

Performance with Joint Costs Program Service Expenses Added
$2.2M Program Service Expenses + $2.6M Total Fundraising = $4.8M
Fundraising Expenses – 26.6%
Fundraising Efficiency – $0.25

The IFAW’s fundraising expenses are 26.6% of it’s revenue and they spend 25 cents to raise $1.

Born Free USA united with Animal Protection Institute

View 2011 900 IRS Form Here

Total Revenue – $1.8M
Total Grants Given – $98K
Total Salaries & Benefits – $764K
CEO Salary – $23K
Lobbying Activities – No
Fundraising Expenses – $347K
Total Expenses – $2M
Joint Allocation Costs Program Services Expenses – $308K

Charity Navigator Performance
Fundraising Expenses – 31.5%
Fundraising Efficiency – $0.44

*NOTE* Charity Navigator DID add joint program service expenses to total fundraising costs. Their numbers accurately reflect the financial performance metrics of Born Free.

The BF’s fundraising expenses are 31.5% of it’s revenue and they spend 44 cents to raise $1.

Defenders of Wildlife

View 2011 990 IRS Form Here

Total Revenue – $30M
Total Grants Given- $567K
Total Salaries & Benefits – $12.6M
CEO Salary – $289K
Lobbying Activities – $555K
Fundraising Expenses – $2.7M
Total Expenses – $30M
Joint Allocation Costs Program Services Expenses – $6.4M

Charity Navigator Performance
Fundraising Expenses – 30.1%
Fundraising Efficiency -$0.32

*NOTE* Charity Navigator DID add joint program service expenses to total fundraising costs. Their numbers accurately reflect the financial performance metrics of DoW.

The DoW’s fundraising expenses are 30.1% of it’s revenue and they spend 32 cents to raise $1.

World Wildlife Fund

*NOTE* The link that WWF provides to their 2011 990 form produces the 2010 990 form. Charity Navigator uses the 2010 form data to provide 2011 performance results for the WWF.

View 2011 990 IRS Form Here

Total Revenue – $182M
Total Grants Given- $57M
Total Salaries & Benefits – $60M
CEO Salary – $459K
Lobbying Activities – No
Fundraising Expenses – $25.7M
Total Expenses – $184M
Joint Allocation Costs Program Services Expenses – $13.9M

Charity Navigator Performance
Fundraising Expenses – 21.5%
Fundraising Efficiency – $0.23

*NOTE* Charity Navigator DID add joint program service expenses to total fundraising costs, but they used the 2010 990 IRS return as data for 2011. Their numbers accurately reflect the financial performance metrics of WWF.

The WWF’s fundraising expenses are 21.5% of it’s revenue and they spend 23 cents to raise $1.

Ducks Unlimited

*NOTE* NONE of the data Charity Navigator uses to asses the 2010 financial performance metrics of DU match with the DU 2010 990 IRS form except for the Fundraising Expenses & Administration Expenses.

View the 2010 990 IRS Form Here

Total Revenue – $155M
Total Grants Given- $13.3M
Total Salaries & Benefits – $44M
CEO Salary – $257K
Lobbying Activities – $725K
Fundraising Expenses – $25.1M
Total Expenses – $147.3M
Joint Allocation Costs Program Services Expenses – 6.1M

Charity Navigator Performance
Fundraising Expenses – 16.1%
Fundraising Efficiency – $0.16

*NOTE* Despite the fact that the financial data Charity Navigator provides DOES NOT match with the 2010 DU 990 form, they DID NOT add joint program service expenses to total fundraising costs

Performance with Joint Costs Program Service Expenses Added
$6.1M Program Service Expenses + $25.1M Total Fundraising = $31.2
Fundraising Expenses – 21.1%
Fundraising Efficiency – $o.20

The DU’s fundraising expenses are 21.1% of it’s revenue and they spend 20 cents to raise $1.

Let’s Catch Our Breath 

So how was that for an interesting little trip into the world of charitable cause bookkeeping? Since this is a dog blog and I know a little about animal related charities, I thought this topic would be of interest to my readers. The information that I have provided is useful when looking at the financials of ANY U.S. based charity.

The pick and choose financial reporting that the Charity Navigator website uses is what bothers me most. They are considered the go to resource for researching charitable organizations. Many people use them to make decisions about where their charitable donations will go. Why is it that they follow their rules of joint cost allocation with some charities and not with others. By their own admission they state that only in “rare” cases do they NOT factor joint program expense costs into fundraising fees. Four out of the nine charities I looked at had their  joint program expense costs figured into total fundraising expenses. Either I hit the lottery of “rare cases” in the over 5000 charities that they have in their database, or someone is being charitable by spiffing up the numbers to make others look good.

There are Other Websites, Right?

Not to leave other Charity assessment websites out, I checked out Wise Giving Alliance and Philanthropedia. Wise Giving has very detailed information about joint allocation costs, they don’t factor them in, either. There is, however an interesting twist to one charity

Wise Giving Alliance has a Standards for Charity Accountability which has 20 requirements that a charity has to meet to be considered BBB Accredited. My favorite is Standard Number 9.

Wise Giving HSUS Report

Wise Giving HSI Report

Wise Giving ASPCA Report

 Wise Giving IFAW Report

Wise Giving Born Free Report

Wise Giving World Wildlife Report

Wise Giving Ducks Unlimited Report

The interesting twist? Wise Giving gave Defenders of Wildlife a good spanking. They disagreed with the $6.4 Million that DoW spent on Joint Cost Program Expenses.

Philanthropedia AKA Guide Star, requires registration to view information they provide about charities. When I did register for an account, the information that I did see was pretty limited. To see all their reports, I would have had to purchase a membership.

So What’s The Quick Take Away Message?

  • Joint Allocation Costs Program Services Expenses ARE part of fund raising expenses & should ALWAYS be factored in to the financial performance of a charity.
  • ALWAYS look at the 990 IRS form of ANY registered U.S. Charity that you intend to make a donation to. Do your own math.
  • Charity Navigator appears to follow their own rules when they feel like it.
  • Wise Giving Alliance doesn’t seem care about joint allocation costs except when they do.

So really, what is one to do when they want to make a charitable donation? I always donate locally since it’s usually the local charities that are in the most dire need of funds and goods. Want to help animals? Volunteer at your local animal shelter or buy something on their wish list. Want to help the environment? Help the Boy Scouts when they have a tree planting day or go help your city when they have a “clean-up” day. Want to help kids? Volunteer at your city’s family services branch, become a big brother or sister, become a Girl Guide leader. Charitable giving is never as easy as clicking the donation button, you have to do research.

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2 Responses to What The HSUS, ASPCA & Charity Navigator Don’t Tell You About Fundraising Costs

  1. houndstooth says:

    I love that you never pull any punches! I’ve always donated to our local groups, or to specific Greyhound groups that I know need help. The bigger groups haven’t been a draw for my donation money, and as I get, ahem, wiser, I am less likely to contribute to large groups like that.
    houndstooth recently posted..Lessons From AdventureMy Profile

  2. jan says:

    What a great post. You have really put time and effort in this. What a shame that organizations that probably started out with the best intentions have come to this. I have been donating to a local rescue for many years because I see the results myself.
    jan recently posted..Poodle survives 11 mile ride stuck in a car grilleMy Profile

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