Make sure the ‘charity’ isn’t a scam. Having ‘non-profit’ status means nothing except they filed forms. In order to be considered a public charity an organization must receive a substantial part of its support from a ‘government unit’ or from general public support. There’s the first part of the scam, many charities are just a front to launder grant money which for some idiotic reason is considered ‘public support’ even though nobody in the public has any control over this money. Feeding at the public trough does not make for a good charity.
So how do you do a ‘background check’ on a charity? Easy, non-profit organizations tax returns are public information. They are fairly easy to find, I used to use guidestar however they’ve gone to a subscription only format so currently the easiest free site is Foundation Center. Decoding 990’s isn’t very fun, however it’s the only way to get facts. I’ll try to walk you through an example. For the purposes of this article I’m using the 2014 990-EZ for Project Great Outdoors, if you want to follow along here it is: 943368163_201412_990EZ
The gross abuse of the system is pretty easy to see, look for the sections that cover compensation for employees and independent contractors. Often you’ll find that the majority of income ends up in private individuals hands, sometimes you’ll find the ‘officers’ are getting a small income and claiming a handful of hours. If you poke around into other charities often you’ll find the same people working 10 hours a week for $10k a year on the board of a dozen or more ‘charities’. In our example Part IV shows no compensation for ‘officers’ and Part VI shows no employees or contractors making over $100k (understandable as the charity doesn’t pull in that much). Good there.
Start with a look at Part I. You’ll see they pulled in $42,034 in gross revenue and $22,873 in total expenses, leaving $19,161 in profit. What.. PROFIT! Yes, the form calls it ‘excess’ however it is in fact profit. You’ll further find that the organization is sitting on 30k in assets at the end of the year.
Part III claims their purpose is “the primary purpose of the great outdoors projects is to provide outdoor, out of city, recreational activities for disadvantaged youth”. They further claim that $22,873 in expenses supported that purpose. Okay, so at first look about 50% of their income goes to program services. That’s not bad, not great. However the devil is in the details.
That amount is broken down to $1,739 for ‘occupancy, rent, utilities and maintenance’ and $21,134 ‘other expenses’. What are those other expenses? To see that we have Schedule ‘O’.
Schedule ‘O’ provides the good stuff
- $1,739 – Depreciation (occupancy, rent, utilities and maintenance above).
- $4,105 – Program Expenses
- $642 – Print and Reproduction
- $10,597 – Training Expense
- $286 – Bank and merchant fee
- $205 – Equipment
- $3,796 – Insurance
- $300 – Website/Email maintenance
- $806 – Volunteer recognition
- $105 – licenses and permits
- $128 – postage and delivery
- $164 – Telephone
You can clearly see that nearly half of the other expenses was for ‘training’, they only spent $4,105 on program expenses (which would be the program they are claiming is their purpose!). I wonder who’s getting trained for what? Is someone using this ‘charity’ to fund their personal education? The actual program services receive slightly less than 10% of the money collected.
For some further fun, this organization has a huge ‘fundraiser’ every year called Backwash. Take a deeper look at expense, Schedule G “Supplemental Information Regarding Fundraising or Gaming Activities”. This is another great place to launder money:
- Gross receipts: 24,419
- Less Contributions: 6,925
- Gross Income: 17,494
- Other direct expenses: 14,746
So they collected $24,419 at the event, of that $6,925 were straight up donations (removed from this as the IRS doesn’t consider those related to the event at all). The event COST $14,746 to put on, meaning the net income from this event was $2,748. 15% of the money collected as a result of this event ends up in the charities hands and of that only 10% will go directly to the purpose they claim to exist for.
As best I can tell this ‘charity’ is building more assets than spending money on program services. Maybe the ‘training’ is to train volunteers, however nowhere do I see any money going to actually getting kids out in the woods for a hike or anything that would actually support the stated purpose. And how do they define ‘disadvantaged’? I would never support this charity, it’s ineffective at best and a scam at worst.