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, for a total of $325.7 billion, a sum larger than the GDPs of all but 39 countries.
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 fund-raising 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 10.7 million 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 SHNS reporters Hargrove and Naeem suggest that some, maybe many, of these favored organizations are not holding up their end of the bargain.