Investigating Nonprofits by Chris Roush

Investigating NonprofitsJan. 24, 2012

Chris [email protected]

Choosing the nonprofit to investigate

Developing a story from a news tip, often from someone who has been close to the nonprofit and who may or may not have something to gain.

Developing a story from another news item or a press release.

Developing a story by checking Watchdog reports or 990s.

The test In about an hour, you can usually get a pretty

good idea of whether the nonprofit is worth investigating, based largely on information gleaned from a variety of sources.

Is  the charity a member of a strong local United Way campaign?  (Often, an indication of a good charity)

How is  the charity viewed by national and local charity watchdog groups?

How much does it reveal on its website? How transparent is it?

The United Way Many charities, particularly local charities,

have to open  their records and themselves to get access to United Way dollars. 

If  the local United Way is strong with a strong program review committee, its charities often are legitimate and above-board.

The watchdog groups Each of these has specific strengths and

weaknesses. Charity Navigator at  www.charitynavigator.org (largely deals with a nonprofit’s financials)

The American Institute of Philanthropy’s  www.charitywatch.org site

(again, largely deals with financial information)

The national Better Business Bureau’s Wise Giving Alliance at  www.give.org

(monitors a variety of areas include transparency, board

involvement, administrative and other areas)

Local Better Business Bureau

Charity NavigatorStrengths: Has many of the larger nonprofits and an easy to

read guide of its financials.  Offers a comparison to other, similar, nonprofits.

Weaknesses: Does not have the ability to look at programs. No way of checking the accuracy of the

information It simply accepts what is given to the IRS in its

990.

National Marrow Donor Program Here is what Charity Navigator said

about this Minneapolis organization: Overall Rating           (43.33) Organizational Efficiency       Program Expenses 58.3%     Administrative Expenses 31.2%     Fundraising Expenses 10.4%     Fundraising Efficiency $0.04     Efficiency Rating           (23.33) Organizational Capacity       Primary Revenue Growth 34.8%     Program Expenses Growth -10.5%     Working Capital Ratio (years) 2.90        

National Marrow Donor Program How does it compare to similar

organizations? Be The Match Foundation - MN 43.33 Michael J. Fox Foundation for Parkinson's Research - NY

66.32 http://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=7597

American College of Rheumatology Research and Education Foundation - GA 69.16 http://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=6291

Citizens United for Research in Epilepsy - IL 69.24 http://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=11088

Food Allergy Initiative - NY 63.40 http://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=9375

National Marrow Donor Program Accountability and Transparency? Charity Navigator notes that it does not

have an independent board, and does not provide copy of Form 990 to organization's governing body.

Also notes that its website does not include audited financials or the Form 990.

American Institute of Philanthropy

Strengths: Information both online and in printed booklet format Easy to read and understand Perhaps the toughest of all watchdog groups, particularly

on groups with high fundraising costs or large amount of noncash, gifts in kind, program expenditures.

Weaknesses: Limited number of charities, so the one you are looking for

may not be there. It’s toughness on groups that deal with large amounts of

gifts in kind make some argue that it is not a fair assessment of a charity’s work.

AIP rankings Health organizations Alzheimer's Foundation of America        A American Brain Tumor Association        A– American Kidney Fund        A+ American Liver Foundation        A– American Lung Association/Christmas Seals – N.O.        B+

American Parkinson Disease Association        B+ City of Hope/Beckman Research Institute        A– Crohn's & Colitis Foundation of America        A– Cystic Fibrosis Foundation        A– Diabetes Action Research and Education Foundation        A

National Better Business BureauStrengths: Large number of national charities listed The one watchdog groups that goes beyond financials and

specifically asks charities to supply them with additional information regarding their operations

The 20 “Standards of Accountability” cover more area than either the AIP or Charity Navigator.

 Weakness:  Many charities find it either too time consuming or expensive to

provide information and thus the Better Business Bureau cannot grade them.

Again, the BBB largely accepts information from charities as true.

BBB accepts payment from member charities for the charities to be able to use a BBB Seal.

Scholarship America

This Minneapolis-based foundation is reviewed by the Wise Giving Alliance.

Says “Scholarship America meets the 20 Standards for Charity Accountability.”

Scholarship America Gives nice breakdown of finances:

Uses of Funds as a % of Total Expenses Programs: 94%  Fund Raising: 2%  Administrative: 4%  Total income   $96,122,776   Program expenses $109,893,054   Fund raising expenses 1,921,630   Administrative expenses 4,318,178

National Marrow Donor Program So, what does Wise Giving Alliance say about

the National Marrow Donor Program, which we looked at earlier?~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

“Despite written BBB Wise Giving Alliance requests in the past year, this organization either has not responded to Alliance requests for information or has declined to be evaluated in relation to the Alliance’s Standards for Charity Accountability. While participation in the Alliance’s charity review efforts is voluntary, the Alliance believes that failure to participate may demonstrate a lack of commitment to transparency (continued…)”

National Marrow Donor Program

“…Without the requested information, the Alliance cannot determine if this charity adheres to the Standards for Charity Accountability. A charity's willing disclosure of information beyond that typically included in its financial statements and government filings is, in the Alliance's view, an expression of openness that strengthens public trust in the charitable sector.”

Local Better Business BureausStrengths: Only public monitoring of non-

national charities, other than some attorney general’s offices that show fundraising costs. 

 Weaknesses: Limited staffs locally mean limited

amount of information usually available

Many charities not included

So, what does this mean? Simply because a nonprofit rates good or

bad with one or another of these groups usually doesn’t mean a lot.

Several charities get high marks from one watchdog group and low marks from another.

But if a charity gets all good or all bad marks, often it is an indication that it could have problems.

A nonprofit’s website A good nonprofit has web

links to its 990s, its audit reports and its annual reports.  It WANTS you to know about it and feels the more you know, the more likely it is you will contribute.

Also has contact information and urges you to contact someone with the charity for answers to additional questions.

A nonprofit’s website A bad nonprofit often has very

little information on its website other than a couple of photos, a self-serving statement of what it does and a way to contribute money.

Seldom has links to additional financial information such as audit reports, annual reports or 990s.

The transparency question How transparent is the nonprofit? The good nonprofits often have a lot of

publicity, send out a lot of press releases.  When you approach them with a question,

they do all they can to come up with an answer as quickly as possible. 

They readily offer their latest 990 and audit reports.

The board of directors Too few or too

many can signal a potential problem.

Look for relationships among board members.

Related party or conflict of interest transactions

Often nonprofits mark there is no

related party transaction when

there is.

If there is a related party transaction, it should be detailed.

Going to the source

Test of transparency is asking a nonprofit for specific information.

Ask them to walk you through its financial information or the Form 990 itself.

Other tools Former board members or executives. Other nonprofits that do the same kind of

work. Neighbors of executives and others in

neighborhood of charity. Go to the charity-- see what is on its door,

who owns the building, etc.

Getting the Form 990

www.guidestar.org

Foundation Center at http://foundationcenter.org/

Ask the nonprofit for its most recent 990.

Required to produce it immediately.

Getting the Form 990

What about asking the IRS?

Can request it from IRS, but it often takes several weeks or months to receive the information.

Key points under Part VI Is the

organization related to another nonprofit or for profit organization?

Political and lobbying expenses.

Other things to look for The Form 990 also includes compensation of

five highest paid employees (other than officers or directors).

It also includes the compensation of the five highest paid independent contractors.

Look for relationships between contractors and board members.

Questions?