MONEY FOR NOTHING SCRIPPS HOWARD NEWS SERVICE

SPRING 2012

WHEN NONPROFITS MISLEAD

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SCRIPPS HOWARD NEWS SERVICE

About the Money for Nothing special report

Nonprofit organizations operate under special rules because they are supposed to do good work that would not get done otherwise. The most special rule is that they dont pay taxes. In exchange, these charities are required to report all of their income and expenses, so we know how our donations are being used. Thats how it is supposed to work, but when Scripps Howard News Service reporter Thomas Hargrove and special correspondent Waqas Naeem looked at every single large charity in the United States, they found that an astounding number of these organizations have a problem explaining just where the money goes. The problem shows up in a column of figures in the annual IRS Form 990 required of all nonprofits. Tax-exempt organizations must declare, in detail, how much they spend on fundraising. This is a sensitive topic because a charity that supports the homeless, for example, wants donors to think that more money goes to food and shelter than to telemarketers and letters asking for money. But the Scripps team found that almost half of all charities with $1 million or more in revenue reported spending nothing on fundraising. Anybody who has ever tried to raise money knows that it is impossible to get big money without spending some. When we shared our findings with experts in tax law and charities, they almost fell out of their chairs laughing. This is not a laughing matter, however, and charities should be making an extra effort to show where our donations go: Its the law, it will help them do a better job in the long run, and its the right thing to do. When contacted by our reporters, several charities promised to report their fundraising expenses more accurately. State officials also should be on guard, because we found that states with better supervision of charities have more accurate reporting of fundraising expenses. The nonprofit sector has grown into a huge piece of the economy. If charities are going to continue to operate tax-free, they must improve how they report their expenses -- every penny.

Sincerely, Peter Copeland Editor & General Manager Scripps Howard News Service

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Contents
About the Money for Nothing special report Thousands of nonprofits misreport fundraising costs
Thousands of nonprofit organizations in the United States misreport how they solicit billions of dollars in donations, making it impossible for Americans to know how their gifts are used, according to a Scripps Howard News Service analysis of the financial records of nearly 38,000 major nonprofits.

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Contributors
Reporters Thomas Hargrove Waqas Naeem Editorial writer Dale McFeatters Lead editor Lisa Hoffman Editors Carolyn Cerbin Peter Copeland Carol Guensburg Bob Jones David Nielsen Photo editor Sheila Person Multimedia editor Danielle Alberti

Government rarely prosecutes nonprofits for false information

The federal government rarely prosecutes nonprofit groups for filing false information on their annual reports to the Internal Revenue Service, even though all such reports are made under threat of perjury.

Without state oversight, charities disclose scant fundraising costs

In states that perform little oversight, charitable groups are more likely to make the claim -- called ridiculous by charity watchdogs -- that they raised billions of dollars at no cost, according to the Scripps analysis.

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With nearly 1.5 million nonprofit organizations across the nation, the sector has become an important part of the U.S. economy and a burgeoning source of jobs. Harvard University, long at the pinnacle of U.S. college institutions, also has the distinction of running a nonprofit that leads the nation in raising the most money without spending a dime on public fundraising.

Nonprofit groups are a growing source of jobs

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Harvard nonprofit leads nation in most fundraising at no cost

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Multimedia reporter Kristin Volk

Making news across America Editorial: Americans deserve fundraising facts from nonprofits
All generous Americans ask is that their charitable contributions go to help the cause, not the overhead. Sloppy reporting by nonprofits of the money they spend on fundraising threatens to turn off contributors.

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Contact
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Money for nothing Web app

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SCRIPPS HOWARD NEWS SERVICE

WHEN NONPROFITS MISLEAD

Thousands of nonprofits misreport fundraising costs
By THOMAS HARGROVE and WAQAS NAEEM Scripps Howard News Service

Thousands of nonprofit organizations in the United States misreport how they solicit billions of dollars in donations, making it impossible for Americans to know how their gifts are used. Forty-one percent of all 37,987 charities and other nonprofit groups that collected at least $1 million according to their most recent reports to the Internal Revenue Service made what experts agree is a ridiculous claim: They raised significant amounts of money without spending a dime to do so. On their annual tax forms, these 15,389 nonprofits said they spent nothing for advertising, telephone solicitations, mailed donation appeals, professionally prepared grant applications or staff time for face-toface pleas for contributions. Even so, these groups reported that they managed to raise a total of $116.7 billion while reporting zero

fundraising expenses, according to a study of federal tax records by Scripps Howard News Service. By law, nonprofits do not owe federal taxes on any funds they raise. Robert Ottenhoff, president and CEO of the nonprofit oversight group GuideStar, which provided the financial data for the Scripps study, laughed when told of the finding. It is ridiculous to think an organization could raise significant amounts of money without spending money to do it, said Ottenhoff, former chief operating officer at the Public Broadcasting Service for nine years. I must be doing something wrong. Ive never seen it growing on trees. Ottenhoff and other watchdogs say an accurate statement of fundraising expenses is critical to understanding how much of any donation actually goes to

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SHNS photo courtesy Goodwill Industries/Manasota

Goodwill Industries operates more than 2,600 retail stores, like this one in Sarasota, Fla., where leaders are rethinking how they report overhead costs to the Internal Revenue Service and the American public following an investigation by Scripps Howard News Service. If our practice needs to be changed, then weve got to change the practice, said the Rev. Donald Roberts, president and CEO of the Goodwill Industries-Manasota, the nonprofit groups affiliate in Sarasota. The affiliate in 2010 reported raising $32 million at no cost.

the nonprofits officially stated purpose. The Scripps study found that 22,598 nonprofit groups did report fundraising expenses that totaled $14.3 billion, or about 7 cents for every dollar they raised. Some experts express indignation that major charities would claim to spend nothing on raising money. This is just outrageous, said Marion FremontSmith, senior research fellow at Harvard Universitys Hauser Center for Nonprofit Organizations. If they say zero -- and it cannot be zero -- then that is a misreported tax form. And there are penalties for that.

Chief executives of nonprofits sign their annual Form 990s to the IRS promising under penalties of perjury that the information provided is true, correct and complete. However, legal action for a false filing is extremely rare. I am concerned when organizations do not file correctly, Lois Lerner, director of the IRS Exempt Organizations Division, said in an interview. Lerner declined to speak directly about large nonprofits that report zero fundraising expenses. But she pointed to a multi-year IRS study she began in 2010 to review how charities raise and use donations to ac-

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NONPROFIT EXPENSES REPORTED

Major nonpro t groups, by state, that collected $1 million or more in contributions according to their latest reports to the Internal Revenue Service; how many reported zero fundraising expenses; and the percent reporting zero among all major nonpro ts. 0 to 36% 36.1 to 45% 45.1 to 54% 54.1 to 64%

D.C. USA

Note: Major is de ned as those nonpro ts that raised $1 million or more in contributions in their most recent report to the IRS.
Source: Scripps Howard News Service analysis of data provided by GuideStar.

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complish their stated charitable purposes. What I can tell you is that I have a Charitable Spending Initiative that looks at fundraising costs, along with other indicators of potential noncompliance with the tax rules. We are very, very interested in that, Lerner said. Several nonprofit groups said they will examine their reporting practices as a result of the Scripps study. When informed that 48 of Goodwill Industries 127 major affiliates reported raising $387 million at no cost, Goodwill Industries International President and CEO Jim Gibbons said the charity will rethink how it calculates its overhead costs in reports to the federal government and the public. We are going to have a dialogue within the Goodwill network so that each Goodwill and the boards of directors can become very aware of this issue, said Gibbons, who was paid $463,000 in 2010 by the Rockville, Md.-based organization. It is important to be clear and transparent. If this is even perceived as misleading, well, thats not what the Goodwill brand stands for. Nonprofit groups are under enormous pressure to report low overhead costs -- the total they spend on administration and fundraising -- in the often-fierce competition for donations. Some charitable groups, like United Way, recommend against contributing to nonprofit organizations that report overhead expenses greater than 25 percent of donations. They are fudging the numbers, and there is great incentive to fudge the numbers, said Christine Manor, a certified public accountant from Rockville, Md., who advises GuideStar and other nonprofits in how to report to the IRS. Why does anyone think we are so stupid? Yet the problem has been known for many years, at least since the mid-1990s, when the IRS began compiling and publicly releasing data from the Form 990 income-tax statements that most large nonprofits are required by law to file annually. This has been a long-standing area of concern, said Washington, D.C., attorney Marcus Owens, who was director of the IRS Exempt Organizations Division for 10 years. It may be that, in some places, money falls from the sky. But personally, Ive never witnessed that. There are enormous pressures on charities to minimize expenses. The rate of zero-expense reporting by nonprofits was studied by scholars at the Washington-based National Center for Charitable Statistics and the Center on Philanthropy at Indiana University, which concluded in 2004 that under-reporting of fundraising is a major concern in the nonprofit sector. But their findings received little attention from the press or public. In retrospect, we probably should have been more press savvy to mobilize concern about the problem, said Tom Pollak, head of the National Center for Charitable Statistics, which also made its data available to Scripps. Scripps reporters around the nation contacted nonprofit groups, asking chief executives to explain why they listed no fundraising expenses. When pressed, it was common for those leaders to quickly concede that they may have failed to follow the reporting rules. Right, right, right. I see what you are saying, said the Rev. Donald Roberts, president of the Goodwill Industries affiliate in Sarasota, Fla. If our practice needs to be changed, then weve got to change the practice. His Goodwill affiliate raised $32 million in donated goods that were sold at the groups retail stores in 2010. The affiliate reported no fundraising spending costs, although Roberts admits he and his staff spend considerable time asking people to donate goods and money and to make Goodwill a recipient in their wills. Our traditional donated-goods operation is a business paradigm. We dont see it as a fundraising effort. In our minds, weve segregated the two, said Roberts, who was paid $334,000 in 2010. This is a great issue to raise, and I appreciate you doing it. Other, smaller nonprofits are also quick to concede on the question of inaccurate reporting. We certainly are doing fundraising. I think it is more in how it (the cost) has been categorized, said Sharon Conard-Wells, who was paid $93,600 in 2010 as executive director of the West Elmwood Housing Development Corp. in Providence, R.I., which reported $1.4 million in revenue in 2010 to provide quality housing for disadvantaged people.

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Officials at Washington, D.C.-based International Relief and Development defended their IRS reports documenting their work in more than 40 countries to help reduce the suffering in impoverished and, in many cases, dangerous locations. The group reported no expenses tied to raising the $13.9 million collected by IRD-US, and just $14,300 in expenses for the $706 million raised by IRD Inc. in 2010. Thats primarily grants or contracts with government groups like organizations at the United Nations, said IRD-US senior SHNS photo by Kristin Volk adviser and former chief financial It is ridiculous to think an organization could raise significant amounts of officer Sandy Owens. These are money without spending money to do it, said Robert Ottenhoff, president not fundraising efforts with the and CEO of the nonprofit oversight group GuideStar, which provided data for general public. the Scripps Howard News Service study of major nonprofit organizations. Owens said none of the work She admits to being uncomfortably aware how by IRD-US staffers to prepare much attention is paid to a nonprofits reported overgrant requests or to seek contracts from governments head. around the world should be reported as fundraising. Thats why I didnt want certain things included It is a business development expense, he said. as overhead, as administrative, that my accountant IRD-USs 401-person staff has an Advancement told me were, Conard-Wells said. I was very cogDepartment that produces online fundraising tips nizant that nobody wants to see more than a certain advising people how to host neighborhood events percentage, that people want to see that their money to assist in disaster relief. The groups Business Dewent to program. velopment Department works to identify funding The Julie Rogers Gift of Life program in Beauopportunities from national and multilateral donors, mont, Texas, two years ago changed how it reports according to spokeswoman Melissa Price. fundraising after claiming zero expenses for years. The But Price declined to identify how many people cancer screening and awareness program reported for work in the Business Development Department or the the first time in 2010 that $119,000 of its $1.6 milsize of its budget. lion revenue went to fundraising after realizing IRS Even though Owens defended his outfits reporting reporting requirements. as accurate, Price said it is important for nonprofits to No, it wasnt zero, executive director Norma clearly report expenses. Sampson said of her organizations fundraising expensWe absolutely think this is an important issue es in previous years. We just didnt break it (fundraisand one well worth your time and effort, Price said. ing costs) out. We now have a clearer understanding. When it comes to regulations, all regulations, IRD is We want to do due diligence on this. very concerned with compliance. Not all nonprofits concede to underreporting funNot all of the nonprofits that report zero fundraisdraising expenses, however. ing expenses are in noncompliance with federal report-

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ing requirements, the Scripps study found. Some made a compelling defense that zero was the right thing to report because unpaid volunteers raise funds. One of the ways is that I work virtually seven days a week and I get paid for two days work, said Geoffrey Gee, executive director of the Institute for Myeloma and Bone Cancer Research in West Hollywood, Calif. Thats one way we limit costs. The group reported raising $1.3 million in 2009 at no cost. The contributions we receive are mostly generated by our (unpaid) board members. We dont have a large gift-giving base, said Cheryl Cross, director of new research development at the institute. Yet the Scripps study -- based upon the most recently available IRS reports, which documented nonprofit expenditures in 2010, 2009 or 2008 -- generally found that most nonprofits have a hard time defending the absence of fundraising expenses. And Ottenhoff, chief of the watchdog group GuideStar, warned that nonprofit organizations are in danger of breaking their social contract with Americas donors and with the government that grants them a special status. In return for not paying income taxes, getting the tax-exempt status, they have an obligation to tell their donors how they are spending their money, to be transparent about it, to be accountable, Ottenhoff said.

Government rarely prosecutes nonprofits for false information

By THOMAS HARGROVE Scripps Howard News Service

The federal government rarely prosecutes nonprofit groups for filing false information on their annual reports to the Internal Revenue Service, even though all such reports are made under threat of perjury. Historically, prosecution has been very rare or nonexistent, said Washington, D.C., attorney Marcus Owens, who served 10 years as director of the IRS Exempt Organizations Division. The four cases government prosecutors have made in recent years for false information found on Form 990 charity reports focused on broader issues for law enforcement -- cases against groups with Middle Eastern connections, prominent politicians or individuals making improper political contributions. The important point is that willful and knowing filing of incorrect 990s is clearly a law enforcement prosecution tool, Owens said. Prosecution occurs through the (U.S.) Department of Justice, so it never has an administrative goal such as encouraging more accurate 990 reporting. The four court cases, according to Owens, that cited inaccurate information found in the 990s were:

U.S. v Muhamed Mubayyid, Emadeddin Z. Muntasser and Samir Al-Monla, a 2008 conviction for the defendants attempt to conceal that their nonprofit group Care International was supporting and promoting Islamic holy war. U.S. v Pirouz Sedaghaty, the 2010 conviction against the Iranian-born member of the Al-Haramain Islamic Foundation for making false statements about the value of a building on its Form 990, and for failing to disclose contributions earmarked for religious extremist militants in Chechnya. U.S. v Vincent Fumo, a 2009 prosecution against a former Pennsylvania state senator and three other persons charged with filing a false Form 990 for the nonprofit group Citizens Alliance that failed to disclose certain compensation and political expenditures. U.S. v Natalie Wisneski, a 2011 indictment that has resulted in guilty pleas for making false statements on Form 990s about Fiesta Bowl employees who were reimbursed for political-campaign contributions.

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Without state oversight, charities disclose scant fundraising costs

By THOMAS HARGROVE and WAQAS NAEEM Scripps Howard News Service

Nonprofit organizations are much more likely to report fundraising costs in states that carefully monitor how charities raise money. But in states that perform little oversight, charitable groups are more likely to make the claim -- called ridiculous by charity watchdogs -- that they raised billions of dollars at no cost, according to a Scripps Howard News Service study. The study, which examined financial records of 37,987 major nonprofit groups provided by the watchdog group GuideStar, found an enormous variation by state in the rate at which charities fail to report their fundraising expenses. Sixty-four percent of the nonprofit organizations in Idaho, for example, reported zero fundraising expenses compared to just 30 percent of the nonprofits in Massachusetts. Overall, about 41 percent of all nonprofit groups

that raised at least $1 million in their last Form 990 reports to the Internal Revenue Service said they did so at zero cost. It really varies. Some states are fairly aggressive about reviewing the financial data provided by nonprofit groups, said Marcus Owens, former director of the IRS Exempt Organizations Division. Other states take the reports and throw them away. They do nothing. The IRS requires nonprofit groups to report fundraising expenses -- critical information if donors are to know how much of their money actually goes to doing good and how much goes to overhead costs. Chief executives, under penalty of perjury, promise the federal government that their reporting is true, correct and complete. Lois Lerner, current director of the IRS Exempt Organizations Division, said in an interview that shes

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concerned when organizations do not file correctly. Lerner declined to speak directly about large nonprofits that report zero fundraising expenses. But she pointed to a multi-year study she began in 2010 at the IRS to review how charities raise and use donations to accomplish their stated charitable purposes. What I can tell you is that I have a Charitable Spending Initiative that looks at fundraising costs, along with other indicators of potential noncompliance with the tax rules. We are very, very interested in that, Lerner said. The IRS did not reply to questions posed in midMarch by Scripps about the level of scrutiny -- if any -- the agency gives to major charities reporting no fundraising costs. The Scripps study found that a majority of nonprofits in nine states reported to the IRS that they had zero fundraising expenses. The worst was Idaho, where 79 of its 124 largest nonprofit organizations reported raising a total of $319 million at zero cost. State officials are frank that oversight of charities is scant. Our answer is pretty simple: Idaho doesnt require charities to register or file reports with the state authorities, said Bob Cooper, spokesman for the office of Idaho Attorney General. The Scripps study found that correlation holds true in other states. Where tax-free groups are not required to register or file annual reports, nonprofits are more likely to claim zero fundraising costs, including Indiana (44 percent) and South Dakota (50 percent). It bothers me that some of these people are reporting zero fundraising. That really insults the public. Money doesnt just drop out of heaven, said Mike Patterson, director of the Pennsylvania Bureau of Charitable Organizations. Pennsylvania nonprofits have one of the lowest rates in the nation of reporting no fundraising spending. About 37 percent of 1,743 major nonprofit groups in the Keystone State claim zero fundraising costs even though they raised $4.7 billion, according to the Scripps study. Patterson said state auditors sometimes reject a charitys annual report if they suspect inaccurate information about fundraising costs. He said hed like Pennsylvania to become even more aggressive in challenging reports from nonprofits. Unless you have some benefactor who just writes you checks for millions of dollars, you are going to have costs. Thats just the fact, Patterson said. If they are not being honest about their fundraising, well, what else are they not being honest about? But even in some states that require annual reporting from nonprofits, the Scripps study found a high rate of charities saying they spend nothing on fundraising. Sixty percent of the 253 large nonprofits in Mississippi, for example, reported raising $878 million in donations without shelling out a dime for fundraising -- even though Mississippi requires registration and annual reporting that are supposed to be reviewed by the Secretary of States Securities and Charities Division. But the staff that reviews charitable financial reporting in Mississippi does not examine how much, if anything, each nonprofit reports for fundraising expenses. To our knowledge, this has not been a concern for Mississippi charities, said Pamela Weaver, spokeswoman for the Mississippi Secretary of States office. No, the division does not review fundraising expenses of a charity. Some states aggressively review nonprofit groups and even will warn the public not to make donations to groups that appear to have high operating costs or fail to follow commonly accepted practices. Only 34 percent of nonprofits claimed zero fundraising expenses in states such as Massachusetts, Oregon and Colorado that issue so-called Do Not Give lists. Massachusetts has the nations lowest rate of zero reporting. Slightly less than 30 percent of its 1,171 major nonprofit groups reported raising $8 billion at no cost. The state issues an annual report that details how much charitable money is used to pay for professional fundraisers. While there is no legally required minimum percentage of funds raised that must go to the charity, it is important for consumers to be aware that a substantial amount may stay with the solicitor, said Emalie Gainey, spokeswoman for Massachusetts Attorney General Martha Coakley.

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Nonprofit groups are a growing source of jobs

By WAQAS NAEEM Scripps Howard News Service

With nearly 1.5 million nonprofit organizations across the nation, the sector has become an important part of the U.S. economy. Nonprofits accounted for 9 percent of all wages and salaries in 2009, according to the Urban Institutes National Center for Charitable Statistics. They contributed 5.4 percent of the countrys gross domestic product that year, and they held an eye-popping total of $4.3 trillion in assets, up from $2.4 trillion in 1999 -- a 39 percent increase after adjusting for inflation. They also have become a burgeoning source of jobs. Undeterred by the recession, nonprofit employment increased at an average rate of 1.9 percent from 2007 to 2009, according to a recent study by the Center for Civil Society Studies at Johns Hopkins University. Overall, the nonprofit sector employed around 10.7 million paid workers in 2010, making it the third-largest U.S. workforce after retail trade and manufacturing. Internal Revenue Service annual reports show the number of tax-exempt organizations increased by almost 42 percent from 1991 to 2011. The rise in the number of nonprofits might be due to the relative ease with which they can be created, according to Tom Pollak, director of the National Center for Charitable Statistics. One possible interpretation is, if you look at the numbers, it is easy to start a nonprofit, but hard to kill them, Pollak said. I can keep my nonprofit going indefinitely even though I have no income. Although the IRS has more than 30 categories of taxexempt organizations, public charities -- or organizations that fall under the Internal Revenue Code section 501(c)(3)

-- make up the largest group. According to the IRS distinctions, public charities are tax-exempt organizations that mainly receive contributions from the general public and government grants. Religious organizations, hospitals, museums, educational institutions and research facilities are some common examples. Private foundations also fall under the 501(c)(3) category, but are different from public charities. Foundations usually rely on an endowment or a gift from a family or a corporation, and mostly provide grants to other organizations instead of providing charitable services directly. A study by Scripps Howard News Service found that 41 percent of all charities and other nonprofit groups that raised at least $1 million in contributions also reported zero fundraising expenses. These zero-reporting charities collectively raised a total of $116.7 billion, according to the charities most recent filings with the IRS. The Scripps study, based on data provided by charity watchdog group GuideStar, did not include private foundations in its analysis. The increase in the number of public charities and foundations in the past decade -- a jump of 25 percent from 2001 to 2011 -- would have been greater had it not been for a 2006 law passed by Congress. A clause in the Pension Protection Act of 2006 required the IRS to cancel the tax-exempt status of all charities that had not filed Form 990 returns for three consecutive years. As a result, last year, the IRS revoked the tax-exempt status of approximately 275,000 organizations, which had failed to satisfy the filing requirement, causing a 16 percent reduction in the number of public charities and foundations from 2010.

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Harvard nonprofit leads nation in most fundraising at no cost

By WAQAS NAEEM Scripps Howard News Service

Harvard University, long at the pinnacle of U.S. college institutions, also has the distinction of running a nonprofit that leads the nation in raising the most money without spending a dime on public fundraising. The universitys Management Private Equity Corp. reported raising $1.6 billion in contributions in 2009 -- the largest amount of any of the 6,711 nonprofit groups in America that also reported zero fundraising expenses, while receiving most of their contributions from non-government sources, in their most recently available reports to the Internal Revenue Service. The corporation doesnt raise money directly from Harvard alumni or from the general public. Its contributions, instead, come from a related nonprofit organization, the Harvard Management Co. The Harvard Management Co. only invests on behalf of the university, said university spokesman John Longbrake said in a statement. Fundraising is done by the university. Harvard operates the worlds largest endowment, currently worth $32 billion. The complicated and lucrative transfers between Harvards nonprofits offer a window into the high-flying finances of the nations largest tax-exempt organizations. According to a statement posted on Harvard Management Co.s website, the company manages Harvard Universitys endowment and related financial assets. The total value of Harvards U.S-traded stocks managed directly by the company stands at $1.05 billion, according to a disclosure report filed by the company with the U.S. Securities and Exchange Commission in February. Harvard holds shares in 91 securities publicly traded in the

United States. Harvards largest investment, both in terms of market value and the number of shares held, is in iShares Brazil, an exchange-traded fund that tracks the performance of the Brazilian market. Other investments include similar funds tracking the emerging markets in China, South Korea and Chile, as well as shares of the Pebblebrook Hotel Trust -- a real estate investment trust -- and aerospace supplier Goodrich Corporation. Harvard Management Co. told the Internal Revenue Service that it was established to promote the educational purposes of the President and Fellows of Harvard College, a nonprofit institution for higher education, by providing investment research, advice, counsel and management to and for the benefit of President and Fellows of Harvard College. The management company said it is paid by the President and Fellows of Harvard College group to provide these services. The Private Equity Corp. is not the only nonprofit run by Harvard Management. The company also oversees Harvard Private Capital Realty, Inc., and Harvard Private Capital Holdings, Inc. In 2010, the realty and capital-holdings nonprofits reported receiving $795.8 million and $160 million, respectively, as contributions from the management company. Of all five of these Harvard-related nonprofit organizations, only the President and Fellows group reported any fundraising expenses. It told the IRS that it spent almost $88 million in 2009 to raise funds for Harvard.

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Editorial: Americans deserve fundraising facts from nonprofits

By DALE MCFEATTERS Scripps Howard News Service

Americans are famously generous charitable givers. According to a new Scripps Howard News Service study of the most recent reports to the Internal Revenue Service, 37,987 charities and nonprofits raised at least $1 million each. All the donors ask in return is some assurance that the money is spent on the worthwhile projects they have been asked to give to. Yet 15,389 nonprofits made the implausible -- experts say, ridiculous -- claim that they did so without spending a dime on raising those funds. That means no spending on advertising, telephone solicitations, direct mail or staff time to prepare grant applications. Watchdog groups and charity professionals say it is impossible to raise money without spending money. And the 22,598 nonprofits that did report fundraising expenses said they spent about 7 cents for every dollar raised, another claim that strains credulity, according to information developed by Scripps Howard News Service reporters Thomas Hargrove and Waqas Naeem. The reporters found that charities are under enormous pressure to minimize their operating costs -- the total they spend on overhead, administration and fundraising. Many charities do so by simply failing to report them, confident that the IRS and state agencies will overlook the omissions. More often than not, they are right. And state regulation seems a hit-or-miss affair. Sixty-four percent of Idaho nonprofits reported zero

fundraising expenses; in Massachusetts, slightly less than 30 percent did so. Some states are fairly aggressive about reviewing the financial data provided, said Marcus Owens, former director of the IRS Exempt Organizations Division. Other states take the reports and throw them away. Some small charities do have zero fundraising expenses because they are all-volunteer organizations, but these are a small part of the whole. As the size of the nonprofit sector grows, the problem of incomplete, and thus misleading, reporting becomes more than just sloppy or incomplete paperwork. The nonprofit sector employed about10.7 million paid workers in 2010, behind only retail trade and manufacturing in size of workforce. These charities and nonprofits held $4.3 trillion in assets. Charities and nonprofits enjoy a special status because Americans and their lawmakers value the work they do. But it is, said Robert Ottenhoff, president of the nonprofit watchdog group GuideStar, a social contract. In return for not paying taxes and loose regulatory oversight, he said, they have an obligation to tell their donors how they are spending their money, to be transparent about it, to be accountable. The data analyzed by Hargrove and Naeem suggest that some, maybe many, of these favored organizations are not holding up their end of the bargain.

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