Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, December 19, 1993 TAG: 9312170308
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: JOSHUA MILLS THE NEW YORK TIMES
DATELINE: LENGTH: Long
Many groups find a receptive audience, for charitable impulses run deep through the American culture. Donations totaled more than $124 billion in 1992, with the vast majority of them from individuals, according to the American Association of Fund-Raising Counsel Inc.
In a recent survey of 1,007 families by Louis Harris & Associates for the Lutheran Brotherhood, 81 percent of the respondents said charitable giving was a value they tried to pass on to their children.
Eighty percent of the responding households with more than $50,000 in annual income said they contributed to their churches or synagogues, and 94 percent of them gave to other charities.
Yet few donors pay much attention to how charities spend their money, regulators and watchdog groups say. Now and then, an ugly incident provides a reminder of the potential for abuse.
A charity pays its staff high salaries and passes little money to the needy, or a scandal erupts like the one last year at the United Way.
Fraud and scandal aside, donors would do well to scrutinize how groups parcel out their money. Before making a donation, particularly a sizable one, they might ask an organization what portion of its expenditures are left after fund raising and overhead to support its mission. An organization should be willing to provide its audit and annual report.
Many people in philanthropies say at least 60 percent of spending should go to charitable programs. Some organizations do much better. The Child Welfare League of America devotes 91 percent of its budget to helping children; the National Hispanic Scholarship Fund spends 95 percent on student aid; the American Red Cross spends 92 percent on services.
No one has challenged those numbers, but several watchdog groups and state regulators say many groups' figures deserve a second look.
Until 1987, most charities counted money spent for fund raising in a separate category from money used to feed the hungry, support medical research or other activities known as program services. So it was relatively easy to see what portion of a charity's budget went to service.
Then, in response to lobbying from some charitable groups, the American Institute of Certified Public Accountants began allowing groups to count part of their fund-raising costs as program services - if the solicitations contained educational material intended to motivate some action.
"We find that most people do not want to pay for this type of activity," said Daniel Borochoff, who founded the American Institute of Philanthropy earlier this year.
If a group you support counts some mailing costs as program services, does it trouble you? Look at the material you received. Did you learn from it, and share that information with neighbors or children? Were you motivated to do something - write a legislator, perhaps, or read a recommended article?
"We say our mailings have an educational purpose, and we comply with Internal Revenue Service guidelines," said Helen Neuborne, executive director of the NOW Legal Defense and Education Fund, which was criticized by two watchdog groups for counting mailing costs as program expenses.
"We get a lot of calls, about 5,000 a year, from people - women and men - who receive our mailings and want help or information."
The fund, not legally related to the National Organization for Women, received an F from the American Institute of Philanthropy and an N (does not meet standard) from the National Charities Information Bureau.
Neuborne said that in 1991, the year analyzed for the ratings, her organization undertook a major membership drive that almost doubled its size.
"I wanted to build to get a broader base, and that's quite expensive," she said. The ratings, she added, are "simply not fair or a long-term measure of what we do."
Dan Langan, a spokesman for the National Charities Information Bureau, responded: "We are willing to listen to excuses, and if we agree with a plan, we factor it into our ratings. In this case, we did not."
Many nonprofit groups with a social or political agenda - such as Public Citizen, or Amnesty International - say they have a harder time raising money, and incur greater costs, than groups that support medical research or that help disaster victims.
Mailings are not the only point of contention. In developing ratings, the watchdog groups throw out the value of donated services, fearful that the services will distort the group's financial practices.
They point to such groups as the Children's Wish Foundation, in Atlanta, which Connecticut Attorney General Richard Blumenthal has accused of grossly overvaluing donated goods.
The group, created to fulfill the wishes of critically ill children, said it had received books valued at $800,000 and donated them to hospitals in Romania. The attorney general's office said the books, all in English, included 3,375 copies of "Principles of Accounting" and 1,525 "Bulbs for Summer."
Earlier this month, Blumenthal said, "Children's Wish Foundation has indicated a willingness to pay a substantial sum to settle the case." The group's leaders were traveling and unavailable for comment.
But eliminating donated services hurts the NOW Legal Defense and Education Fund, which uses a number of lawyers who donate their time for research and litigation. And that demonstrates a major flaw of report cards - they are flashy and make good headlines but sometimes oversimplify complex situations.
"Pro bono legal services are a good use of community skills," said Neuborne of the NOW Legal Defense and Education Fund. "And by not measuring them, you leave false impressions."
Borochoff of the American Institute of Philanthropy acknowledged that his method penalized the group, and said the public should look beyond grades to reports and audits.
A rating practice that irks many charities is penalizing large reserves. Borochoff gives an F to any group whose reserves equal more than two years' expenses. Although more than 94 percent of its spending goes to programs, the Shriners Hospital for Crippled Children receives an F from Borochoff because it has a $4.4 billion reserve, representing 13.5 years of work.
Lewis Molnar, executive vice president of the Shriners Hospitals, said, "We keep fund raising to provide enough growth in the endowment fund to keep pace with inflation and expand our services."
On this and other issues, donors need to set their own priorities, and perhaps the best advice is to give thoughtfully, not impulsively.
\ GUIDELINES FOR GIVING
Give to organizations you're familiar with. Check on the ones you've never heard of or whose names sound similar to well-known charities.
Obtain information of national charities by sending a self-addressed, stamped envelope to National Charities Information Bureau, Dept. 308, 19 Union Square West, New York, N.Y. 10003-3395.
If you're not familiar with an organization, ask for a copy of its annual report or financial statement (IRS Form 990). If the organization is unwilling to supply the information, be suspicious.
Make checks for donations payable only to the organization, never to an individual who claims to represent the group.
If you receive unsolicited merchandise, you're entitled to keep it and are not obligated to send a donation.
Do not give your credit card number unless you are sure that you're dealing with a legitimate organization.
Report any suspicious mail solicitation to the local postmaster.
by CNB