Not All Charities Created Equal

June 25, 2013 - 3 minute read

Investigating CharityThe 21st Century has seen increasing pressures on non-profit organizations.  Following an unprecedented year-long investigation of public federal and state tax filings over a period of ten years, the Tampa Bay Times and the Center for Investigative Reporting compiled a list of the “50 Worst Charities.”  The list was based on the ratio between the amount a charity raises through fundraising and the amount paid to benefit the individuals whom the charity claims to benefit.  An overarching pattern among the 50 Worst Charities is the exorbitant percentages paid to for-profit solicitors compared to the extremely low percentages paid to those in need. Six of the listed charities gave nothing at all in direct cash aid to the individuals they claim to benefit. Many of these worst charities’ names are very similar to well-known, trusted charities.  To disguise the small amount of money actually paid to those in need, others use accounting tricks and inflate the value of cheap items donated to those in need.

In New York, a state court judge recently found that a sham charity, named Coalition Against Breast Cancer, was paying its professional solicitor, Campaign Center Inc., $3.9 million out of the $4.9 million the company raised over a period of six years.  Judge Emily Pines ordered Campaign Center and its principal to pay restitution in the amount of $3.1 million.  Coalition Against Breast Cancer was shut down in April, and its former directors have agreed to pay $1.6 million in restitution and to never run a charity in the state again.

Every charity has costs related to salaries, overhead and fundraising.  So what is the mark of a trustworthy or well-run charity?  As a rule of thumb, several watchdog organizations suggest that charities spend no more than 35% of the money they raise on fundraising costs. Several organizations have published best practices for non-profit organizations in a rapidly changing legal and regulatory environment.

Rodney & Etter, LLC believes in strengthening nonprofits by applying sound business principles including commercial merger and acquisition techniques.  Roy J. Rodney, Jr. serves as Chair of the National Bar Association’s Ad Hoc Committee on Nonprofits and as an active member of the ABA Business Law Section Subcommittee on Nonprofits and the Texas Association of Non-profits.

Tags: , , , ,