Administrative expenses are a part of any non-profit’s overall operating expenses and though donors generally give to charity with the hope that their contributions will help fulfill the organization’s mission as opposed to cover SG&A, Charity Navigator has a top ten of the worst offenders when it comes to admin expenses. Let’s take a look, shall we?
10: Center for Individual Rights 46.1%
9: Changed Lives 47.4%
8: Vision New England 48.7%
7: Charleston Area Medical Center Foundation 48.8%
6: National Museum of Racing and Hall of Fame 55.1%
5: Cherokee National Historical Society 58.2%
4: Union Rescue Mission Little Rock 62.1%
3: National Council of Negro Women 64%
2: Boys Choir of Harlem 66.3%
1: American Tract Society 68%
For its last available income statement through Charity Navigator, the American Tract Society brought in $2,194,730 and spent $1,615,847 on administrative expenses, compared to $711,854 in program expenses and $47,210 in fundraising expenses. This is twice what the charity spent the year previous on admin expenses.
The American Tract Society’s mission is to distribute religious literature to spread its message. Well actually its mission is officially “to make Jesus Christ known in His redeeming grace and to promote the interests of vital godliness and sound morality, by the circulation of Religious Tracts, calculated to receive the approbation of all Evangelical Christians. The mission of ATS is to provide relevant tools for presenting the gospel.”
Perhaps someone needs to say a prayer to St Matthew asking for a little accounting help.
By comparison, similar charity Bibles for the World, based in Colorado, spent only 6.4% of its $4,215,202 in revenue on administrative expenses in the same period.
The second worst offenders on the list, the Boys Choir of Harlem, spent $140,787 out of $299,729 in total revenue on administrative expenses in 2007. At that point, the charity was nearly $4 million in the red and has since ended. The group spent 30 years bringing the joy of music to at-risk inner-city youth and the choir had performed for sitting presidents since Lyndon Johnson.
Would-be donors are welcome to peruse Charity Navigator for detailed information on just about every charity in the country before making donations, lest that $100 feel good gift end up paying mostly for secretaries and prime office space.
The Head Start Program, under the Department of Health and Human Services, provides child development services to mostly low-income families and their children. Up to 10% of Head Start-enrolled families can be over-income, with an income 130% above the poverty line.
Of course, things don’t always work out as they are supposed to and the GAO has discovered problems with about half of the centers it examined through the investigation, just a small sample of the 1,600 nonprofit centers running 3,000 Head Start programs.
GAO received allegations of fraud and abuse involving two Head Start nonprofit grantees in the Midwest and Texas. Allegations include manipulating recorded income to make over-income applicants appear under-income, encouraging families to report that they were homeless when they were not, enrolling more than 10 percent of over-income children, and counting children as enrolled in more than one center at a time. GAO confirmed that one grantee operated several centers with more than 10 percent over-income students, and the other grantee manipulated enrollment data to over-report the number of children enrolled. GAO is still investigating the other allegations reported. Realizing that these fraud schemes could be perpetrated at other Head Start programs, GAO attempted to register fictitious children as part of 15 undercover test scenarios at centers in six states and the District of Columbia. In 8 instances staff at these centers fraudulently misrepresented information, including disregarding part of the families’ income to register over-income children into under-income slots. The undercover tests revealed that 7 Head Start employees lied about applicants’ employment status or misrepresented their earnings.
GAO managing director for special investigations Gregory Kutz told a House education committee last month that “the system is vulnerable to fraud.” No kidding.
While unable to determine the motivation of Head Start employees to commit fraud by adjusting income levels on applications, Kutz theorized that management of nonprofit agencies receiving Head Start funds pressured staff to fudge, fiddle with, or straight up fake figures on applications in order to keep federal funds coming in.
Head Start has served over 25 million children since 1965 and there are currently over 1 million children enrolled in Head Start programs.
In a show of understanding for nonprofits who may have been completely unaware of the Form 990 requirement in place for the last three years, IRS commissioner Doug Shulman sent out a really sweet letter encouraging smaller NFPs to go ahead and file anyway even though the deadline has come and gone.
Now that the May 17 filing deadline has passed, it appears that many small tax-exempt organizations have not filed the required information return in time. These organizations are vital to communities across the United States, and I understand their concerns about possibly losing their tax-exempt status.
The IRS has conducted an unprecedented outreach effort in the tax-exempt sector on the 2006 law’s new filing requirements, but many of these smaller organizations are just now learning of the May 17 deadline. I want to reassure these small organizations that the IRS will do what it can to help them avoid losing their tax-exempt status.
The IRS will be providing additional guidance in the near future on how it will help these organizations maintain their important tax-exempt status — even if they missed the May 17 deadline. The guidance will offer relief to these small organizations and provide them with the opportunity to keep their critical tax-exempt status intact.
So I urge these organizations to go ahead and file — even though the May 17 deadline has passed.
The Service assures us that the 990 e-Postcard is simple and easy to fill out, no need to drag your CPA into this mess.
Though the IRS sent friendly reminders to 600,000 charities over the 3 years this new rule has been effect, up to 215,000 charities may have missed the May 17th deadline. Seriously, it isn’t too late. Someone get on that.
There were complaints that the IRS was swamped with last-minute 990 filers (go figure) rushing to meet last week’s deadline so we’re going to guess that when Shulman says it’s okay to send those forms in anyway, he kind of means it. And perhaps that will teach everyone to file on time next year.
In a test run to see if expenses can get covered at the end of the day, Panera Bread has opened a unique new location in Clayton, MO that combines the benefits of nonprofit status with the fundamental principle of the free market system: let the market determine what an item is worth. But it adds a unique qualifier to the traditional concept of the need determining price: human nature.
The menu is exactly the same as other Panera locations (sick foodies can check that out here if they aren’t familiar with Panera’s offerings) but instead of charging a fixed price for each item, this special little spot will ask only what customers can afford. “Take what you need, leave your fair share,” says the sign at their entrance, just in case one is confused by such a foreign transaction model. No prices? Do we even know how to value items independently any more?
Panera is hopeful that the “Cares Cafe” model will thrive and grow to a series of donation-based stores that rely more on empathy than capitalism. “Hopefully we’ll be able to open them across the country, but our original St. Louis location must succeed first!” tweeted the fine folks behind Panera’s official Twitter account.
Can someone confirm Missouri rules on sales taxes related to the sale of food? And is it a sale if the exchange is really a donation? I’m really confused.
Anyway, not everyone is thrilled about this concept. Though it is obviously well-intentioned, the donation model may not necessarily transfer outside of St Louis. Trends consultant Marian Salzman reality-checked USAToday saying “while young people are very much attuned to helping out and making a difference, if they find themselves sitting next to other customers with whom they don’t feel comfortable, they’re not coming back.” You know, as in the possibility of homeless and otherwise destitute individuals (of which our country has plenty nowadays) lounging around with the nerve to eat a cheap meal.
Hedging against operating losses, this particular location has one slight difference from other Panera stores: its bread (except for sandwich bread) is really day old product from other locations around the St Louis metro. Hey, nothing wrong with getting the most out of inventory with a horrible turnover rate.
In the end, it’s hard to say whether this nonprofit experiment will float but if it does, Panera wants to open two more within six months. Good luck with that.
Nonprofits don’t need the reminder but we’re going to remind them anyway: May 17th is the new deadline to file your Form 990s (it would have been the 15th but that happens to fall on a weekend, consider yourselves fortunate, procrastinators).
The Boys and Girls Clubs and Goodwills of America have probably already filed their 990s but what about the tiny, grassroots organizations that didn’t get the memo when Service rules changed to require even small non profits under $25,000 to file 990s?
The guess is that up to 1/4 of all non profits could inadvertently lose their tax exempt status by missing the May 17th deadline without even realizing they were supposed to file anything at all. It costs $750 to refile after losing said status, so blowing it could be a costly alternative to hiring a professional to get the 990 in order for a small, simple nonprofit.
This isn’t merely busywork presented to nonprofits for shits and giggles, as we all know the Service would never EVER waste anyone’s time with bureaucracy and paperwork just for kicks. The IRS is seeking to clean up tax exempt status claims to exclude agencies that exist in name only or simply for the tax break. In its view, leaving NFP organizations that take in less than $25,000 a year largely unchecked left the fraud door swinging wide open. And as we all know, the Service has a duty to the taxpayer to collect everyone’s fair share.
The Pension Protection Act of 2006 mandates that all nonprofits must file a 990 for three consecutive years, making 2009 (and thus May 17th) the 3rd year. Orgs that have not filed 990s will automatically lose federal tax exempt status.
The good news is that if you are trying to claim a tax deduction for a donation to one of these little bitty nonprofits that will be losing their exemption, you can still do so up until the date the Service notifies the charity that it can no longer claim tax exempt status.
All is not lost, of course, as those familiar with IRS tactics presume that “offenders” will be offered a chance to redeem themselves (after steep penalties and late fees, of course).
More on the 990 Filing Deadline:
When a Tax Time Bomb Goes Off: Repurcussions Await Some Small Nonprofits
Using a foundation to fuel your for-profit business is never nice, especially when there is an extensive collection of BDSM memorabilia involved.
New York’s Museum of Sex does not claim to be a non-profit but it has obtained over 1,000 items donated through its tax-exempt Muse Foundation for tax deductions. Well? You wouldn’t donate your old brushed-steel bondage machine to Goodwill for the deduction now would you?
Want to help by bequeathing your great-grandma’s old pasties? There’s a handy donation link on their website that explains this bizarre relationship between for-profit museum and non-profit foundation:
The Muse Foundation of New York is a fully registered private foundation affiliated with The Museum of Sex. Its mission is to work with The Museum of Sex to preserve and make available a comprehensive collection of materials relating to the history, evolution and cultural significance of human sexuality.
That’s awesome but does the Treasury realize taxpayers can get fat deductions for contributing to this effort?
Museum founder Daniel Gluck claims that his lawyers allowed this relationship (plenty of for-profit companies have non-profit foundations that share their name) and the Museum would love for its Foundation to be, erm, profitable enough to serve its stated goal of providing underwriting art grants but that plan just hasn’t quite worked out. Yet. After more than a decade of operation. “The Muse Foundation is completely its own separate entity,” he said. “We can’t take money from the foundation and we don’t plan to. We aim to build it up into a foundation whose interests are aligned with the museum.”
Gluck told the NYT that the museum earns 70% of its income from admissions fees – nearly $17 a pop – and the remainder by selling cute Sex Museum tchotchkes in the gift shop (perhaps your dog is sexually frustrated and desperately needs a modern and arty $650 toy to hump?)
Before you ask, no the $300 bunny bondage hood is not tax deductible. But hold onto it long enough and you might just be able to get one for donating it back to the museum if Treasury still hasn’t caught on to this unique foundation/corporation relationship.
Tax Break for Erotica? A Museum Favors It [NY Times]
Nonprofits doing business with government agencies take note, the days of bloated compensation structures may be over.
Starting July 1st, 1200 nonprofit social service agencies contracted by the state of New Jersey’s Department of Human Services with budgets above $20 million will be subject to a salary cap of $141,000 for its top executives. Executives of NFP agencies with budgets from $10 to $20 million will be limited to salaries and compensation of $126,900; those with budgets of $5 – $10 million will be capped at $119,850 and agencies coming in under $5 million will be limited to $105,750.
The limit would affect at least 30 executives who received compensation packages in excess of what is allowed by the new rules.
The state would save about $5 million by paying less money in CEO salaries, as well as cutting back on travel, education, severance, and vehicle expenses for all nonprofit employees, said Nicole Brossoie, a rep from the state’s Human Services office.
“In light of the state’s fiscal challenges, the department has been exploring cost efficiencies in every part of our budget,” Brossoie said. “The department’s continued goal is to ensure that state dollars are being spent in the most efficient ways.”
While that’s an admirable goal, the proposed changes would also impact organizations that do not feature over-paid executives or frivolous waste of precious funding. One CEO of an NJ nonprofit is worried that her organization may be barred from rewarding staff with cheap gifts (think $5 Starbucks cards) under the new rules – though she is not compensated enough to be impacted by any new restrictions on executive salaries.
State may limit pay for top leaders of New Jersey non-profit social service agencies [Press of Atlantic City]
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If you’re a non-profit leader and free on April 12th, why not head to Washington and listen to Mike Oxley (yes, that Oxley, without whom SOX would still be the property of a certain Chicago baseball team and not the bane of accounting’s existence) speak about transparency and accountability for non-profits?
The ironic part, of course, is that non-profits don’t really have to suffer with the legislation named after Oxley but he’d like to see a little more, well, Oxley in NFP, even if it isn’t necessarily required by law.
[Oxley] will speak about the importance for nonprofit organizations to be transparent and ensure greater accountability with their financial standards to build on and preserve donor trust, strengthen the reputations of nonprofit organizations and associations, and enhance the overall nonprofit sector.
Attendees will include thought leaders from foremost nonprofits, trade associations and key congressional staff members. Both the House and Senate Ethics committee’s staff have deemed this a “widely attended event.”
My feelings on Sarbanes-Oxley have been expressed more than once here on Going Concern but I can sum them up thusly: more useful things could be done to “protect” the investor interest besides arcane SOX compliance and the PCAOB including but not limited to random auditor cavity searches, TSA-style interrogation of management, and waterboarding the internal audit team. Is Oxley trying to imply that non-profits should follow suit but only voluntarily and out of obligation to donors instead of investors?
Surely his plan is not that sinister.
Only because non-profits already have their own version of SOX in the Form 990 (which I have complained about before as well) that has all of their bases covered. The only SOX carry-overs are strengthened whistleblower protection and retention of documents in lawsuits, perhaps because non-profits may have been where Mike Oxley got his ideas.
SOX compliance costs averaged $2.9 million during fiscal year 2006, actually down 23% from the fiscal year previous according to FEI. Do you know many nonprofits who have that sort of cash lying around?
I think it might be better to get some advice from the guy who wrote the bill and start tightening up the ship just in case.
Recommended reading by April 11th if you’re checking out Oxley’s “I just want to be helpful” presentation: The Sarbanes-Oxley Act and Implications for Nonprofit Organizations (last updated January 2006). Bring a notepad.
Former Congressman Mike Oxley to Speak at Nonprofit Summit [Council for Non-Profit Accountability]
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What is in the water up in America’s Dairyland? We’ve been going on and on about the internal control failures at Koss in Milwaukee but now there’s more of it at a non-profit organization just up the road. Let’s hope everyone at UW Madison is taking notes.
The latest tale of non-profit fraud stars 56 year-old Leonard V. Lauth of Beaver Dam.
Wings Over Wisconsin bills itself as a conservation organization dedicated to natural resource preservation and education through youth and community involvement. Spelling errors and obvious lack of updates since 2006 on its website aside, WOW manages nearly 1,300 acres of land and provides mostly young hunter education to the future gun-toting blue-stater babes in Wisconsin.
While it prides preservation of Wisconsin’s precious wetlands, internal controls do not appear to be high on WOW’s priority list. Hopefully this changes that.
It’s a textbook fraud case, starting with the mounting medical bills and the poor internal controls that allowed its Treasurer to lift $16,875 since 2005. Lauth’s advanced methods of fraud include writing checks to himself labeled “office supplies” in the books and taking home banquet funds after the event insisting he’d deposit them at the bank in the morning.
While typically WOW practice to require two signatures, Lauth had been with the organization for 24 years, leaving the “trust” issue totally taken care of. Opportunity, motive, what else do we need?
Rationalization, of course! Lauth told Beaver Dam Police Lt. Joel Kiesow he thought he’d taken $788 from the organization in the four year period in which he executed his fraud. When informed it was more like $17,000, Lauth was shocked. I guess he didn’t realize how expensive “office supplies” can be these days.
“Maybe I was robbing Peter to pay Paul on different things,” said Lauth in regards to using WOW funds to pay off family medical bills. Actually, he was robbing the little Dustins and Bobbys with their baby shotguns and wildlife of Wisconsin who counted on the funds to which he so sloppily helped himself. Shame shame.
Let this be a lesson to all you non-profits: cash management and financial literacy (including fraud prevention measures) are not only best practices for public companies and private industry. If anything, non-profits need sharper internal controls – without shareholders to answer to, money can easily slip into the fraud vacuum undetected for years, as in the case of Mr Lauth and WOW.
Calls to WOW left after business hours were not returned.
Man accused of taking funds from non profit [Beaver Dam Daily Citizen]