Give $100 to charity in Nashville, and as much as $100or as little as nothingmay be going where you think.
Give a $100 check to the Tennessee Environmental Council, and $95 of it will actually be spent on lobbying and community education about the environment. Give $100 to the Springhouse Golf Classic, the golf tournament run, for the most part, by the Gaylord Corp., and about $3 goes to charity.
This week the Nashville Scene looks at 285 of Nashville’s not-for-profit organizations. Topping the list, which begins on Page 28, are the not-for-profit organizations that spend most of their money on “program expenses”feeding children, putting on ballets, caring for babies, teaching adults to read, saving elephants, or advocating for various causes. At the bottom of the list are the groups that spend most of their money in other waysfund-raising, maintaining big bank balances, paying staff salaries, or mounting elaborate special events.
The ranking does not mean that the organizations listed at the top are outstanding in every way. Neither does it indicate that none of the organizations near the bottom do good work. “Charity financial reporting is inconsistent, unclear, and often incorrect,” the American Institute of Philanthropy (AIP), a Bethesda, Md.-based charity watchdog, warns.
With that in mind, the Scene examined the IRS returns and the audits of every not-for-profit that has a charitable solicitations permit from Metro. We also looked at 100 other organizations that do not have fund-raising permits from Metro.
Neither Metro government nor the state Charitable Solicitations Board regulates how a not-for-profit agency spends its money. It is legal to take in $100 and spend zero on charity. But national watchdog groups caution that knowing how much is going to program expensesas opposed to administrative expensesis a useful tool in determining good management.
For an agency to get a passing grade from the National Charities Information Bureau (NCIB), a New York-based watchdog group, it must “devote a bare minimum of 60 percent of expenses to program services or charity activities,” says NCIB spokesman Dan Langan. Of the 300 national charities rated by NCIB, program expenses average 75 percent of total expenses. That level “is the sign of a charity doing its job,” Langan says.
In fiscal year 1996, MANNA, a local anti-hunger group, spent $1.8 million on a federally funded daycare food program, $22,000 to help people sign up for food stamps, $13,000 on community hunger outreach, $5,000 on management, and $2,000 on fund-raising. Using NCIB’s guidelines, MANNA rates high99.6 percent of expenses spent on programs.
AIP sets a benchmark of 60 percent of total expenses spent on program activities.
The Council of Better Business Bureaus (CBBB) looks at program expenditures as a percentage of “total income”all the dollars an agency gets from gifts, grants, events, interest, dividends, program fees, and other sources. The CBBB is also concerned about fund-raising costs. Its guidelines state: “Total fund-raising cost will not exceed 35 percent of total contributions. Of total fund-raising and administrative costs together, we hope that combined total will not exceed 50 percent of total income.”
More than 180 of the Nashville agencies examined by the Scene meet these national standards. Many far exceed the 60-percent standard.
The MR Foundation of Tennessee, an arm of the Knights of Columbus, raises funds for programs that serve people with mental retardation. The MR Foundation takes in $250,000 a year from Tootsie Roll sales and other events. Of that amount, they give $167,000 to charity, spend $41,000 on management, and $647 on fund-raising (not including the cost of the Tootsie Rolls, which are paid for by area Knights of Columbus chapters).
Using the NCIB method, MR Foundation spends 80 percent on programs. But because the group also put $42,000 in the bank, the CBBB would score them a much lower, but still acceptable, 66 percent.
On the other hand, the Nashville Fire Fighters Association contracts with a professional solicitations company, the Gehl Corporation of Florida, to put on a show and telemarket the tickets. In fiscal year 1996 the event brought in $842,111 at a cost of $658,733. After including all other revenue, which consists primarily of membership dues, fund-raising costs were 47.8 percent of income. To meet CBBB standards, 50 percent of donations received from a fund-raising campaign should go to the program mentioned in the letter or phone call.
When the Tennessee Highway Patrol Retired Officers Association calls, the phone solicitor poignantly describes the teddy bears given to children after accidents or arrests. In reality, 85 percent of the money raised by phone solicitation stays with Telcom, an Alabama-based telemarketing company. Of the money received by the retired officers association, a portion is spent on insurance and other member benefits, and a portion is spent on gifts to local child-abuse prevention programs. Little goes to teddy bears. Nor are donations to the THP Retired Officers Association tax-deductible. The group is a fraternal organization, not a charity.
Calls like these are not illegal, and their purpose is not even a secret. Ask the right questions, and Telcom tells the truth.
But asking the right questions and getting meaningful answers is the tricky part. “If you are not leveling with the public, you are abusing the public trust,” says Bennett Weiner, a vice president at CBBB. According to NCIB’s Dan Langan, “Public trust is the backbone of philanthropy.”
Not-for-profits are “not selling products,” Langan says. Instead, they are “selling people the idea that you have a better way of coping with a problem, an illness, advancing a cause. And when people believe you and they contribute, even then it’s not your money. You are merely the stewards of the contributors’ money, and it is up to the charity to be totally accountable.”
Before making a contribution, Langan suggests reading, at the very least, the annual report of the organization, including a summary of the audit. If the annual report has only unaudited numbers or no numbersas is the case with the report distributed by the United Way of Middle TennesseeLangan says the potential giver should demand a statement, an audit, or other authoritative documents that show how the agency spends its money.
Those reports should also contain a clear description of the actual programs. “If it says ‘overseas missions,’ ask what are they doing and where,” Langan suggests.
Reputable agencies are happy to share audits, budgets, and copies of their IRS Form 990 (the not-for-profit tax return equivalent of an individual’s Form 1040.) The 990 is a public document, and not-for-profits have a legal obligation to share it with donors or anyone else who asks.
Religious organizations do not have to file a tax return or register with the state or county to solicit donations. But Father Charles Strobel, co-director of the Campus for Human Development, says, “We feel obligated to full disclosure, not because the law requires it but because the community has embraced this agency and expects us to be accountable.” The Campus, which operates Room in the Inn, Guest House, and other programs for homeless Nashvillians, is largely supported by Nashville’s religious community.
“If we depend on the community to support us, we have an obligation to tell the community what we are doing,” Strobel says. The Campus scores near the top of the Scene list, spending 84.8 percent of total revenue, or 87.9 percent of total expenses, on programs.
Not every good group can boast so high a percentage. There are many fuzzy areas when it comes to determining what is a program expense and what isn’t.
Court Appointed Special Advocates (CASA) has a solid record of helping abused and neglected children, but it shows up at the 56-percent mark on the Scene chart. Lani Wilkeson, who has received national recognition for her work as CASA’s executive director, points out that CASA doesn’t spend much money to hire staff people to advocate for children. Instead, the hands-on work is all done by trained CASA volunteers. “The service would not be provided if we had to pay for it,” Wilkeson says, noting that 75 volunteers have spent thousands of hours serving nearly 300 children.
Instead, CASA spends a large chunk of its money on administration and volunteer training. And those dollars don’t show up as program services.
Some agencies can count volunteer time as part of their budgets. The IRS allows for counting volunteer hours from professionals who are volunteering their professional services. Operation Smile, which provides facial surgery to indigent children, would get an 83-percent grade on the Scene chart if it figured in the $20.8 million in donated medical equipment and medical volunteer time donated from doctors, nurses, and other medical personnel. On a cash basis only, the percentage is 38 percent.
Counting donated items can be even more complicated. Nashville’s Table picks up surplus prepared food from restaurants and large commercial kitchens and delivers it to the poor, but the agency does not include the $742,000 value of those meals in its budget.
Meanwhile, Second Harvest Food Bank collects mostly nonperishable foods to provide emergency food boxes to 35,000 families each year. It also donates food to 400 local organizations. Second Harvest’s budget includes $6.5 million in donated food and shows up on the Scene’s list at 91 percent of total budget.
The Community Resource Center coordinates donations of office supplies, furniture, and other assorted materials and distributes them to 363 local agencies. For every dollar the Resource Center collects, $4 worth of supplies is distributed to the community. But because the Resource Center seldom actually sees the donated itemsthe agency simply makes the matchesthe Center cannot show the $474,000 in goods. Thus, on the Scene list it appears to be spending about 60 percent on programs.
Other groups may welcome the confusion in reporting methods. The AIP warns that some groups include fund-raising costs as program services. Oklahoma-based Feed the Children, which maintains an office and a warehouse in Nashville, includes most of the cost of producing and airing its television commercials as program expenses. President Larry Jones has said in a past interview that his commercials, primarily shot on a soundstage in Oklahoma, help educate the public about hunger in America.
Tennessee Special Olympics defends the concept of allocating a portion of the cost of fund-raising letters to program expenses. “When you are doing fund-raising, it gives you a wonderful opportunity to make a lot of contacts all over the state, to tell the story of your program and your mission, to expose people to what Special Olympics is,” says the agency’s executive director, Alan Bolick.
“Fund-raising in a sense to me is a necessary evil, something necessary for us to provide our programs. We’d just be fools not to put in volunteer appeals, and to tell true stories of athletes and success.”
Bolick admits it is difficult to figure what percentage of costs should be allocated to fund-raising and may rightfully be deemed program expense. But, he insists, Special Olympics counts line by line, paragraph by paragraph, to determine a ratio.
The AIP grading system “assumes that all direct mail, telemarketing, and solicitation costs are separate fund-raising expenses and should not be included with direct program service costs.”
In dozens of Nashville souvenir shops, tourists can buy a guitar-shaped Nashville key chain, an Elvis ashtray, or a Parthenon snow globe. The store then pays taxes on the income from the sale. Move that item to a gift shop inside a historic home, a museum, or a botanical garden, slap on a picture of the building or an “educational” message about the not-for-profit, andvoilà!no taxes.
Travellers Rest, Belle Meade Plantation, Cheekwood, and other organizations say money spent to stock and run their gift shops and restaurants is a program expense. That kind of budgeting is totally legal, according to David DeMarco, a CPA with Byrd, Proctor and Mills, P.C. When the gift shops sell items directly related to the mission of the not-for-profit, the expenses can and should be shown as program costs, says DeMarco, who audits 10 local not-for-profits a year, including some of Nashville’s larger charities.
DeMarco says a bookstore is vital to students, and art reproductions and cards can spread an art museum’s educational message. The Garden Club of Nashville counts as program expenses the cost of garden benches sold to the public. “If their mission is to promote gardening to the public, then the cost of seeds, gardening books, and garden tools sold to the public all might be considered program expenses,” DeMarco says.
Legal, but questionable, according to Daniel Borochoff of the American Institute of Philanthropy. “If they are doing research and doing their own photography and writing and creating of the material, and if the mission of the organization is to create educational materials that aren’t offered elsewhere, that could be considered a program,” he says, commenting on the general practice, not on any specific Nashville group.
“But merely to be reselling existing material that can be purchased in many other places, it is hard to see what the public benefit would be to justify their tax status. They may be able to get away with it with the IRS, but I don’t see why a charitable donor would be interested in funding something readily available outside the not-for-profit sector.”
Borochoff also warns of groups that store up many years of reserves in bank accounts and stocks. “We start to criticize when they have over three years’ assets in reserve,” he says.
Most not-for-profits are healthiest when they keep a cushion of a year or two in reserve, Borochoff explains. But there are lots of exceptions.
Some HIV/AIDS groups believe any reserve exceeding about three months of budget is too much. That’s because many programs have long lines of people needing help living with a disease that doesn’t allow them to wait for the stockpiling of an endowment fund.
Many groups spend years on capital campaigns before beginning an expansion, renovation, or other major construction project. WPLN-FM, Cheekwood, Renewal House, League for the Hearing Impaired, Elephant Sanctuary, and many other agencies are now in the middle of capital campaigns. Their percentages of program expenses may look very low as a result.
Next year, after these groups start spending their reserves on new buildings and programs, the budget outlays will look substantially different.
But others seem to have less justification for big bank balances. Nationally, the Shriners Hospital for Crippled Children has a fund balance of $6.1 billion, a cushion that could last them 15.2 years. So when the local Al Menah Temple holds its annual sale, the $850,000 it sends to the hospitals may not be used for 16 years.
Because the Shriners are so efficient at raising and spending money, the AIP gives them an A-plus letter grade but then lowers that grade to an F because of the high fund balance.
Trying to compare the $31 million-a-year YMCA to the $10,000-a-year Bring Urban Recycling to Nashville Today (BURNT) is like comparing apples to orangutans. And that’s the way it is when comparing almost any two Nashville not-for-profits.
The United Way of Middle Tennessee, for example, feels it differs from all other local groups and should be looked at using different standards. “United Way raises funds in the community in a variety of different ways, and distributes funds in a variety of different ways, so its Form 990 is more detailed than most not-for-profit organizations,” United Way spokesman Phil Martin says.
For example, he notes, United Way administers the Combined Federal Campaign (CFC), the payroll campaign for federal employees. “Because the CFC is audited separately, those dollars do not appear on the United Way’s Form 990,” Martin says.
The Scene places the United Way at 69 percent of total income spent on program services. Martin says including the CFC and excluding the fund balance increase gives a clearer picture of United Way expenditures and would put them at 81 percent.
The Scene chart may also be tough on some smaller agencies. No matter the size of an organization, it needs a director, someone to answer phones, a phone to answer, and someone to handle money and paperwork. If an agency has a multimillion-dollar budget, those costs as a percentage are insignificant, says Rusty Lawrence, executive director of the Council of Community Services and vice chairman of the Metropolitan Charitable Solicitations Board.
“Smaller agencies appear to spend proportionally a larger amount on management and fund-raising because of the small volume of their revenues,” Lawrence says.
The Council of Community Services chooses to show all general costsphone, rent, supplies, insurance, copies, audit costs, community relations, staff supervision, and the likeas management expenses rather than allocating a portion to each of its programs. At the other extreme, the Dede Wallace Center shows $1 million in general administration expenses but considers an additional $2 million in “clinical administration” (rent, clerical support staff and benefits, supplies, and salaries and benefits for clinical supervisors who oversee staff in more than one program) to be program costs.
Program cost percentages may even be affected by the way individuals view themselves. Janet Jernigan, executive director of Senior Citizens Inc., considers all of her salary to be management and general expense, even though she spends part of every day with staff, volunteers, board members, and the older Nashvillians served by her programs. “It’s a very conservative approach,” Jernigan admits. “What we consider to be program expenses are those that are hands-on with the participants.”
Mike Hammer, state adjutant of the American Legion, argues that 100 percent of expenses at the American Legion directly benefit veterans of foreign wars, and so nothingnot his time, occupancy expenses, secretarial staff, or any other costshould be considered management or general expenses.
However donors look at the numbers, the fact remains that not-for-profit agencies fill vital gaps where government services and the corporate world fear to tread.
When one child enters the not-for-profit sector, life for the whole community can be improved, explains Joyce Searcy, executive director of Bethlehem Center. “If I have a child here who is in my care, who we found out is being abused, the family may also have other problems. We may call the Rape and Sexual Abuse Center to bring services to the child, Family and Children’s Services for family counseling, Second Harvest Food Bank for emergency food.
“The American Red Cross can get them emergency services in times of disaster. We could get the parents into literacy services, get mentors for the child from Buddies of Nashville. We can get the child into Girl Scouts or Boy Scouts. We might call Senior Citizens to get them a foster grandparent so that child can have another role model.”
It is donations from the community that make possible all the services Searcy names. And all are provided either free or on a sliding scale based on income. “Youth services, emergency services, dealing with familiesyou can’t put a cost on those things,” she says.
See the best and worst of local charities. http://www.nashscene.com/charity.html
Wendy Kurland is a freelance writer. She has worked in non-profit management for various agencies, including some included on this article.
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