Following the nonprofit money trail: How to investigate where your donation is going
When I worked nights at the Journal Star in Peoria, Illinois, I would sometimes browse through online tax returns of local nonprofits during slow times.
I was doing this one night when some numbers on a tax return caught my attention. Crime Stoppers, the nonprofit that raised money for rewards to help police solve crime, spent more than half its annual expenses on fundraising. The people who called in the tips that led to arrests accounted for about 13 percent of the expenses.
I pitched a story on the Greater Peoria Area Crime Stoppers to Sally McKee, the editor who oversaw our Sunday papers. She greenlighted it, and I delved into the online tax records and other documents.
During my reporting, I would find that what was spent on fundraising was more than what the BBB Wise Giving Alliance recommended. I also learned that one of the people making the calls to raise money for Crime Stoppers had a criminal record himself.
The articles I wrote looked at how much money went to fundraising compared to the actual purpose of the nonprofit – rewards for catching criminals – and at potential conflicts of interest for some of the Crime Stoppers board members. Those board members were tied to companies that did business with Crime Stoppers.
Crime Stoppers stopped using a professional fundraiser after my stories ran in 2002, but fundraising by nonprofits is a rich source of investigative stories. The Tampa Bay Times and The Center for Investigative Reporting looked at fundraising records in 2013 to help compile the 50 worst charities in the United States.
Reporters who want to examine their local nonprofits in the United States should start by looking at the tax returns for nonprofits, called 990s. I used GuideStar, a website that collects information about nonprofits registered with the Internal Revenue Service in the United States.
GuideStar also has contact information for nonprofits, annual reports, and listings of CEOs and board members. Users can access parts of GuideStar for free.
Reporters can also use the free 990 Finder at the Foundation Center.
I also looked at standards established for charities by the BBB Wise Giving Alliance, a nonprofit based In Arlington, Virginia. These guidelines provide that no more than 35 percent of related contributions should be spent on fundraising.
The 20 standards also include a recommendation to avoid accumulating money that could be used for current activities and a guideline that at least 65 percent of total expenses be spent on program activities.
I talked to the president of the local Better Business Bureau, an organization that fields complaints about businesses and nonprofits, and an official with the Illinois attorney general.
“It’s kind of shocking, isn’t it?” Floyd Perkins, then the chief of the charitable trusts and solicitations bureau for the Illinois attorney general, commented.
Professional fundraisers such as the one Crime Stoppers used, M. Werner Lundquist & Associates in Champaign, Illinois, file reports each year with the Illinois attorney general. California, Florida and New York are the biggest states that require nonprofits to file these kind of reports on professional fundraising campaigns.
The Illinois reports list all the nonprofits that the fundraiser raises money for, the total amount of money raised for each charity, the expenses and what percentage goes to the nonprofits.
The most recent report for Lundquist & Associates, filed in April, lists eight nonprofits that hired the fundraiser in 2015. None of the fundraisers met the BBB standard.
The percentage of money that went to fundraising expenses ranged from 58 percent, or $17,804, for the Mattoon Police Benevolent to about 71 percent, or $69,697, for the Illinois Police Benevolent in Springfield, Illinois.
The Illinois reports also list what the expenses were. The $17,803.52 it took to raise the $12,667.48 that went to the Mattoon Police Benevolent for its annual support drive included a professional fundraiser fee of $4,222.50, compensation of $7,347.41, and other expenses including salaries, printing, postage and telephone.
Lundquist told me recently that the figures on the Illinois attorney general form don’t accurately describe expenses because the form doesn’t use “joint cost allocation”, an accounting term that refers to costs, such as postage, that may benefit more than one activity, not just fundraising.
Lundquist said about 11 to 13 percent of every donated dollar goes to his organization. He said the article in the Journal Star misinterpreted expenses.
“I was not happy,” he said.
Kathleen Kelly, then a professor at the University of Louisiana, told me that police organizations were heavy users of professional fundraisers.
“I find it extremely unethical,” Kelly, now a professor at the University of Florida, said in 2002. “They have a right to have most of their donations go to stopping crime, not to paying the fees, salaries and expenses of a solicitation firm.''
Kelly said recently that not much has changed in the world of professional fundraising. Two of the ten worst charities ranked by The Tampa Bay Times and The Center for Investigative Reporting were law enforcement charities.
I was still reporting the Crime Stoppers article when one of the nonprofit’s paid fundraisers called me at home to ask me to donate money. I took notes.
Neil McMullen, who was registered with the state as a professional solicitor working for Lundquist, told me that he didn't work for a professional fundraising organization. He also said at least 75 percent of the money raised went to Crime Stoppers.
Lundquist, whose contract with Crime Stoppers called for Crime Stoppers to receive 75 percent of the ''gross receipts'' after expenses, said McMullen probably was referring to that number.
I also checked the paid fundraisers to see if they had been charged with any crimes.
Harry Rogers of Peoria, who said in a form submitted to the Illinois Attorney General's Office that he had never been convicted of a crime involving the misuse or theft of money, was sentenced in 1994 to 90 days' periodic imprisonment and two years' probation for misdemeanor theft. According to Peoria County court records, he admitted stealing about $144 in coins from an unlocked car with another man.
Illinois law barred felons from registering as professional fundraisers and barred people convicted of a misdemeanor involving money for five years in most cases. But Perkins said then that the law didn't apply to the telephone solicitors.
Lundquist, who also signed Rogers' registration with the attorney general, said then that he didn't know about the criminal record.
Stephen Knobeloch, a board member for Crime Stoppers, said the nonprofit stopped using Lundquist & Associates after the article in the Journal Star. He said the nonprofit now raises money with a sports memorabilia auction. The most recent report Crime Stoppers filed with the Illinois attorney general, in January, shows about 46 percent, or $16,628 of the $36,401 raised, went toward expenses, still higher than what charity watchdogs recommend.
“It’s gotten to be pretty popular,” Knobeloch said of the auction. “It’s our sole source of income.”
Crime Stoppers may have continued relying on a paid fundraiser if the Journal Star hadn’t raised questions about the nonprofit’s fundraising practices. U.S. law doesn’t place limits on how much paid fundraisers can collect in fundraising profits. That’s why it’s important for reporters to look at how much money actually goes to charity and how much goes to the paid fundraiser. Sometimes that attention gets results.
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