May 19, 2013 | Read Time: 6 minutes
The Chronicle reviewed the statements that four charities made in recent fundraising letters about how much they spend on their programs, as opposed to administration or fundraising. We compared those numbers with the spending breakdown they are required to enter on their Form 990 tax documents, as well as the percentages publicized by the watchdogs Charity Navigator and CharityWatch.
In addition to allowing expenses involved with providing goods and services to fulfill their charitable missions, the Internal Revenue Service lets groups count as program costs a percentage of their spending on items like salaries, benefits, rent, depreciation, office expenses, lobbying, and travel.
Charity Navigator generally accepts the figures that appear on the tax forms, while CharityWatch analyzes the organizations’ audited financial statements to calculate its own numbers. It excludes certain spending that the IRS allows to be counted as program costs, for example, the value of donated goods.
To show the kind of pressure charities feel to keep administrative and fundraising costs low, we included selected comments by reviewers on the GreatNonprofits Web site, which allows people to rate charities on a five-star scale.
Use the arrows or page numbers at the bottom of the page to see the next charity we reviewed.
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Feeding America
Mission
To feed America’s hungry through a network of member food banks
What it tells donors
“Our efficiency: 97% of operating expenses go to programs designed to advance our mission of a hunger-free America.”
What it spends on programs, according to its 2012 Form 990
97.9 percent ($1.53-billion out of $1.56-billion)
What it spends on programs, according to charity watchdogs
Charity Navigator: 97.9 percent
CharityWatch: 70 percent
Reason for the disparity
The vast majority of the dollars the charity reports spending on programs is in the form of donated food that it distributes to food banks, which it values according to average wholesale prices. CharityWatch does not include the value of donated goods when it calculates program costs, arguing that those numbers do not tell the public how efficiently a charity is spending its cash contributions. Feeding America says the food should be included because it is essential to its mission.
What commenters on GreatNonprofits say
No commenters mention directly how much Feeding America spends on programs, but many criticize what they perceive as high fundraising costs: “In the past few weeks we have been getting 2 to 3 letters a week to ask for more money. I am disgusted that they spend so much money soliciting when we donated to provide food for the needy.”
“In my opinion, they are absolutely profligate in their spending on fundraising. Once we began donating, we were inundated with mailings for more more more.”
(Average rating of 20 reviewers: 2.35 stars)
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Finca International
Mission
To provide financial services to the world’s lowest-income entrepreneurs
What it tells donors
“Learn how 93 cents of every dollar donated to Finca directly supports our affiliate programs across our network.”
What it spends on programs, according to its 2011 Form 990
78 percent ($34.4-million out of $44.1-million)
What it spends on programs, according to charity watchdogs
CharityWatch: 68 percent
Charity Navigator doesn’t rate it. Last year it agreed with the charity that its methodology, which relies on Form 990 data, cannot properly reflect the group’s business structure.
Reason for the disparity
In 2008, Finca began spinning off some of its overseas entities, which are now separate international groups. Under IRS rules, those programs are no longer captured on the Form 990. However, the charity reports on the 990 the fundraising and administrative work that it does for its affiliates, which it says makes its overhead appear higher than it actually is. Partly for that reason, Charity Navigator downgraded Finca’s previous four-star rating, prompting the two to part ways.
Finca calculates the 93-percent figure by counting all costs incurred by the overseas units. Finca’s audited financial statements are prepared according to international financial standards, which do not require the spending breakdowns required by U.S. standards, making the 93-percent figure hard to verify. But the charity says its program spending is high because its loan portfolio increased by 124 percent, to $626.5-million, from 2007 to 2012.
What commenters on GreatNonprofits say
“I haven’t donated to Finca since I saw a financial statement several years ago. Finca’s administration appears to be quite fat. I’d prefer to have my donations more efficiently leveraged in a leaner organization.”
“While I totally agree with their goals, I have a problem with internal costs. There are other charities that perform similar work that are far more efficient.”
(Average rating of 10 reviewers: 3.9 stars)
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United Service Organizations
Mission
To provide services to boost the morale and welfare of military service members and their families through a worldwide network of centers
What it tells donors
“90% of USO’s expenses are directed to support our troops and their families.”
What it spends on programs, according to its 2011 Form 990
71.5 percent ($81.7-million out of $114.3-million)
What it spends on programs, according to charity watchdogs
Charity Navigator: 72.2 percent
CharityWatch: 63 percent or 70 percent, depending on what is included. The higher number counts spending on fundraising materials that have a dual purpose of educating potential donors—an accounting method that the IRS allows but that CharityWatch discounts when awarding its grade.
Reason for the disparity
USO gets the 90-percent figure from its 2011 audited financial statement, which counts as program expenses $228.5-million in donated “materials, facilities, and services.” Those include celebrity entertainment, public-service advertising, and free rent on military bases and airports. That boosts program spending to $300.5-million, or almost 90 percent of total expenses of $334-million. The IRS does not allow charities to count such donated items as either revenue or expenses on their tax forms, but USO says it makes sense to include them as program costs because they free up money that the group can spend on programs.
What commenters on GreatNonprofits say
“The info they sent me stated that their fundraising+admin expense was 10%. But when I double checked on Charity Navigator it showed that the USO spends 28% on fundraising+admin.”
“When USO actually gets its program efficiency up to 90% (not the 72.4% they actually show) and are actually in need of my financial support, I will resume donating.”
(Average rating of 28 reviewers: 2.68 stars)
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International Rescue Committee
Mission
To provide global humanitarian relief and development
What it tells donors
“93% of funds are spent on programs and services.”
What it spends on programs, according to its 2011 Form 990
92.3 percent ($356.9-million out of $386.5-million)
What it spends on programs, according to charity watchdogs
Charity Navigator: 92.3 percent
CharityWatch: 91 percent
What commenters on GreatNonprofits say
“With an overhead of less than 10 percent we know all of our donations are going to help those in need.”
“I have implicit trust in the IRC to provide outstanding service to people in need and to use my donation in a fiscally efficient manner.”
(Average rating of 80 reviewers: 4.7 stars)
