Antipoverty Charity’s Revenue Drops in Half Due to Accounting Change

One of the nation’s largest charities announced this week that it is raising half as much as it once did. But the slide has almost nothing to do with the economic downturn or any of the usual reasons giving drops sharply. Instead, the charity says that following a new accounting rule slashed the value of its donated goods.

Feed the Children, in Oklahoma City, said this week that it received $525-million in cash and donated products and services during its most recent fiscal year, down from over $1-billion in 2009.

The fiscal year that ended in June 2010 was the first one for which Feed the Children was subject to new accounting standards, which change the way charities are supposed to value noncash gifts.

Under the previous accounting rules, for example, Feed the Children reported in 2009 that it received $544-million worth of a deworming medicine used in developing countries. Last year, the charity received about the same amount of the same product but this time valued the gift at $23-million.

The rules, issued by the Financial Accounting Standards Board, primarily affect donations of products used in more than one country. The guidelines value the cost of the product based on the countries where it is used; so a medicine in the United States might be very expensive, but the same product might be worth far less in poor countries. In the past, Feed the Children and other charities were allowed to count all the donations at what would be their American value.

Cass Wheeler, Feed the Children’s interim president, says the group has always complied with accounting standards, and the lower revenue figure “should not overshadow all of the good works Feed the Children has done and continues to do.”

Overcoming Controversy

Mr. Wheeler says Feed the Children decided to announce the financial data in advance of this year’s tax filing with the Internal Revenue Service as part of the group’s “renewed pledge to be more accountable and transparent.”

In December, Mr. Wheeler took the helm of the charity, which has been battered over the past few years by a power struggle and legal battles among the group’s board members, its founder and former president, Larry Jones, and members of Mr. Jones’s family, including his daughter, who served as the group’s general counsel.

The lawsuits against Mr. Jones included accusations he received kickbacks and misspent charity money. Mr. Jones denied wrongdoing, and Feed the Children announced in January an undisclosed settlement ending litigation between the charity and Mr. Jones. A spokeswoman for Oklahoma’s attorney general said in an e-mail that the office completed an investigation of the charity in December but that “the situation is still being monitored.”

In recent months, Feed the Children has adopted new policies on ethics, nepotism, and fraternization. The new nepotism policy, for example, prohibits the charity from hiring relatives of current employees.

Mr. Wheeler says the financial reporting and the new policies are the latest examples of Feed the Children “doing the right things for the right reasons.”

Nonprofit Rankings

Feed the Children ranked as No. 4 among the nation’s charities that raise the most in private donations, according to The Chronicle’s Philanthropy 400 last fall.

But the group’s ranking will probably tumble based on the way it now values donated goods. Its 2010 figure of $525-million would have placed the charity at No. 21 on The Chronicle’s latest list.

In addition to the change in the product calculations, Feed the Children’s 2010 revenue also fell because of a decline in cash donations from $127-million in 2009 to $94-million last year.

Mr. Wheeler says that while some of that decline was due to what he calls “the leadership transition,” most of it resulted from the poor economy.

Mr. Wheeler, the retired head of the American Heart Association, plans to step down this summer when Feed the Children is expected to name a permanent chief executive.