Investigating Nonprofits

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Chris Roush presented "Investigating Nonprofits" at the Donald W. Reynolds National Center of Business Journalism's free workshop, "Investigating Private Companies and Nonprofits."

For more information about free training for business journalists, please visit businessjournalism.org.

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Investigating Nonprofits

  1. 1. Investigating Non-Profits Feb. 23, 2011 Chris Roush [email_address]
  2. 2. Choosing the non-profit to investigate <ul><li>Developing a story from a news tip, often from someone who has been close to the nonprofit and who may or may not have something to gain. </li></ul><ul><li>Developing a story from another news item or a press release. </li></ul><ul><li>Developing a story by checking Watchdog reports or 990s. </li></ul>
  3. 3. The test <ul><li>In about an hour, you can usually get a pretty good idea of whether the nonprofit is worth investigating, based largely on information gleaned from a variety of sources. </li></ul><ul><li>Is  the charity a member of a strong local United Way campaign?  (Often, an indication of a good charity) </li></ul><ul><li>How is  the charity viewed by national and local charity watchdog groups? </li></ul><ul><li>How much does it reveal on its website? </li></ul><ul><li>How transparent is it? </li></ul>
  4. 4. The United Way <ul><li>Many charities, particularly local charities, have to open  their records and themselves to get access to United Way dollars.  </li></ul><ul><li>If  the local United Way is strong with a strong program review committee, its charities often are legitimate and above-board. </li></ul>
  5. 5. The watchdog groups <ul><li>Each of these has specific strengths and weaknesses. </li></ul><ul><li>Charity Navigator at  www.charitynavigator.org (largely deals with a nonprofit’s financials) </li></ul><ul><li>The American Institute of Philanthropy’s  www.charitywatch.org site (again, largely deals with financial information) </li></ul><ul><li>The national Better Business Bureau’s Wise Giving Alliance at  www.give.org (monitors a variety of areas include transparency, board involvement, administrative and other areas) </li></ul><ul><li>Local Better Business Bureau </li></ul>
  6. 6. Charity Navigator <ul><li>Strengths: </li></ul><ul><li>Has many of the larger nonprofits and an easy to read guide of its financials.  </li></ul><ul><li>Offers a comparison to other, similar, nonprofits. </li></ul><ul><li>Weaknesses: </li></ul><ul><li>Does not have the ability to look at programs. </li></ul><ul><li>No way of checking the accuracy of the information </li></ul><ul><li>It simply accepts what is given to the IRS in its 990. </li></ul>
  7. 7. American Institute of Philanthropy <ul><li>Strengths: </li></ul><ul><li>Information both online and in printed booklet format </li></ul><ul><li>Easy to read and understand </li></ul><ul><li>Perhaps the toughest of all watchdog groups, particularly on groups with high fundraising costs or large amount of noncash, gifts in kind, program expenditures. </li></ul><ul><li>  </li></ul><ul><li>Weaknesses: </li></ul><ul><li>Limited number of charities, so the one you are looking for may not be there. </li></ul><ul><li>It’s toughness on groups that deal with large amounts of gifts in kind make some argue that it is not a fair assessment of a charity’s work. </li></ul>
  8. 8. National Better Business Bureau <ul><li>Strengths: </li></ul><ul><li>Large number of national charities listed </li></ul><ul><li>The one watchdog groups that goes beyond financials and specifically asks charities to supply them with additional information regarding their operations </li></ul><ul><li>The 20 “Standards of Accountability” cover more area than either the AIP or Charity Navigator. </li></ul><ul><li>  </li></ul><ul><li>Weakness:  </li></ul><ul><li>Many charities find it either too time consuming or expensive to provide information and thus the Better Business Bureau cannot grade them. </li></ul><ul><li>Again, the BBB largely accepts information from charities as true. </li></ul><ul><li>BBB accepts payment from member charities for the charities to be able to use a BBB Seal. </li></ul>
  9. 9. Local Better Business Bureaus <ul><li>Strengths: </li></ul><ul><li>Only public monitoring of non-national charities, other than some attorney general’s offices that show fundraising costs.  </li></ul><ul><li>  </li></ul><ul><li>Weaknesses: </li></ul><ul><li>Limited staffs locally mean limited amount of information usually available </li></ul><ul><li>Many charities not included </li></ul>
  10. 10. So, what does this mean? <ul><li>Simply because a nonprofit rates good or bad with one or another of these groups usually doesn’t mean a lot. </li></ul><ul><li>Several charities get high marks from one watchdog group and low marks from another. </li></ul><ul><li>But if a charity gets all good or all bad marks, often is an indication that it could have problems. </li></ul>
  11. 11. A non-profit’s website <ul><li>A good nonprofit has web links to its 990s, its audit reports and its annual reports.  It WANTS you to know about it and feels the more you know, the more likely it is you will contribute. </li></ul><ul><li>Also has contact information and urges you to contact someone with the charity for answers to additional questions. </li></ul><ul><li>A bad nonprofit often has very little information on its website other than a couple of photos, a self-serving statement of what it does and a way to contribute money. </li></ul><ul><li>Seldom has links to additional financial information such as audit reports, annual reports or 990s. </li></ul>
  12. 12. The transparency question <ul><li>How transparent is the non-profit? </li></ul><ul><li>The good nonprofits often have a lot of publicity, send out a lot of press releases.  </li></ul><ul><li>When you approach them with a question, they do all they can to come up with an answer as quickly as possible.  </li></ul><ul><li>They readily offer their latest 990 and audit reports. </li></ul>
  13. 13. Accessing the Form 990 <ul><li>www.guidestar.org </li></ul><ul><li>Foundation Center at http://foundationcenter.org/ </li></ul><ul><li>Ask the nonprofit for their most recent 990. </li></ul><ul><li>Required to produce it immediately. </li></ul>
  14. 14. Accessing the Form 990 <ul><li>What about asking the IRS? </li></ul><ul><li>Can request it from IRS, but it often takes several weeks or months to receive the information. </li></ul>
  15. 15. Dissecting the 990 <ul><li>Almost everything can be a lead to a story. </li></ul><ul><li>But remember, this information is supplied by the charity itself. </li></ul><ul><li>So, the information is the information that  it chooses to release to meet requirements under tax laws. </li></ul>
  16. 16. Quick checks <ul><li>Check the phone number.  Does it list to another business or nonprofit? </li></ul><ul><li>Check the listed address.  Is it a legitimate business address or a private residence? </li></ul><ul><li>Check to see whether it is a 501 C-3, the most common type of nonprofit, or another kind of nonprofit  that does not allow a tax exemption (a fraternal group for instance). </li></ul>
  17. 17. Page 1 of the 990 <ul><li>Check to see how much it received in cash and non-cash contributions. Although much of non-cash revenue can be legitimate, some nonprofits have used non-cash items to inflate their program expenses, making it look like they are spending more for programs than they actually are.  </li></ul><ul><li>Look closely at its end of the year net assets. Unusually high can indicate hoarding of money.  </li></ul><ul><li>A negative balance can indicate problems, especially if that number has been growing over the years.  </li></ul><ul><li>Fundraising  and management expenses:  An indication of how much is spent for fundraising and management (more detail inside) </li></ul>
  18. 18. Page 2 of the 990 <ul><li>This is the expense breakdown page, one of my favorites. </li></ul><ul><li>Compensation of officers and directors (too high or too low a problem).   </li></ul><ul><li>Legal fees, accounting fees, travel and phone costs. (Look for unusually high amounts here) </li></ul><ul><li>Professional fundraising fees can be hiding under printing and publications, postage and shipping. </li></ul><ul><li>Look closely at other expenses and how they break down. </li></ul>
  19. 19. Other things to look for <ul><li>The Form 990 also includes compensation of five highest paid employees (other than officers or directors). </li></ul><ul><li>It also includes the compensation of the five highest paid independent contractors. </li></ul><ul><li>Look for relationships between contractors and board members. </li></ul>
  20. 20. The board of directors <ul><li>Too few or too many can signal a potential problem. </li></ul><ul><li>Look for relationships among board members. </li></ul>
  21. 21. Key points under Part VI <ul><li>Is the organization related to another nonprofit or for profit organization? </li></ul><ul><li>Political and lobbying expenses. </li></ul>
  22. 22. Related party or conflict of interest transactions <ul><li>Often nonprofits mark there is no related party transaction when there is. </li></ul><ul><li>If there is a related party transaction, it should be detailed. </li></ul>
  23. 23. Going to the source <ul><li>Test of transparency is asking a nonprofit for specific information. </li></ul><ul><li>  </li></ul><ul><li>Ask them to walk you through its financial information or the Form 990 itself. </li></ul>
  24. 24. Other tools <ul><li>Former board members or executives. </li></ul><ul><li>Other nonprofits that do the same kind of work. </li></ul><ul><li>Neighbors of executives and others in neighborhood of charity. </li></ul><ul><li>Go to the charity-- see what is on its door, who owns the building, etc. </li></ul>
  25. 25. Questions?

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