Long before becoming New To Seattle, I wrote about charities. And since becoming New To Seattle I still write about charities. Those of you who regularly visit this page know that from time to time I describe charities seeking money in Seattle that don’t pass what I would call the sniff test. Many of my subjects are extremely dubious. That’s usually because they spend little of what they raise in good works. In the memorable case of Vietnam Veterans of Washington State, absolutely nothing. In another, Cancer Fund of America, 0.4% (40 cents of every $100), which is pretty close to absolutely nothing. In yet a third, Washington AmVets, a better but still lousy 22%.
The list goes on: Kids Wish Network and United States Armed Forces Association, both 25%. Then there is the squirrly fundraising in the name of the King County Police Union, which doesn’t even exist. The KCPU is a name fronting for a really questionable for-profit enterprise of Public Safety Employees Union 519, which represents precious few police officers.
At the other extreme are charities that admirably devote almost everything they gather to good works, spending little on themselves or the salaries of their leaders. But they, too, can get in a little over their heads, especially when it comes to getting the paperwork right.
One such case is Operation Compassion, a Tennessee faith-based group (founded by the pentecostal Church of God) that over the past decade has become one of the country’s largest charities. Operation Compassion deals in gift-in-kind, or GIK, meaning it takes donations of noncash goods and routes them to needy parties or disaster zones both domestically and abroad.
Now, you are probably asking, what the heck does a Tennessee church charity have to do with famously unchurched Seattle? Well, read on.
In the four years from 2008 to 2011, Operation Compassion booked more than $900 million in GIK donations, mainly household goods and necessities for the poor and disaster-ravaged. Its long-time head, a minister named David Lorency, was paid all of $89,000–chump change by big-charity standards.
This afternoon, I posted a long story on Forbes.com about Operation Compassion, which you can read here. In the wake of a valuation scandal involving another charity, I had started hard asking questions about paperwork discrepencies between what Operation Compassion said it got from and gave to other charities, and what other charities said they got from and gave to Operation Compassion.
Here’s the gist: Operation Compassion’s valuations were way too high, mainly because it grew too fast without the appropriate back-office infrastructure. So high that the charity now says it will restate four years of what it says it brought in by as much as $250 million–more than a quarter of what it swore to under oath on tax returns. As I wrote at Forbes.com, “The epic restatement downward would rank among the biggest ever by a single charity and is the latest chapter in a festering controversy over the way some nonprofits value and account for noncash donations.”
And it’s that festering GIK controversy that brings me back to Seattle.
For in late 2011, I wrote a story for Forbes about charities that took GIK deworming medicine easily purchased on world markets for 2 cents a pill and said it was worth as much as $16.25–an 81,000% mark-up. The effect was to make some charities seem bigger and more financially efficient than they really were–a lure to would-be cash donors. One major offender cited in the story was Crista Ministries, in the Seattle suburb of Shoreline. Crista wrote up many of its pills by 53,000%. After marking the deworming pills to their true market value, Forbes took Crista and one other charity off its annual list of the country’s largest nonprofits.
Crista didn’t restate past statements, but going forward it cleaned up its act–somewhat. For its fiscal year ending June 2012, it marked up the pills by only 6,400% (and, after a shaming post here, also reduced its financial efficiency claim.) Nor was Crista alone among Seattle-area charities in the deworming markup game. World Vision, the big faith-based charity in Federal Way, also once had 53,000%-markup pills but wised up a year sooner than Crista. Another charity, Pilgrim Africa, listing an office in Seattle, once booked those 2-cent pills at $3.27–a 16,000% mark-up.
But unlike these and other Seattle charities, Operation Compassion does no public fundraising, seeks no publicity and thus doesn’t benefit much from the pumped-up valuations, inexcusable as they are. Indeed, in many ways Operation Compassion is a pure charitable act, trying to do good with the limited resources at hand and by my reckoning spending almost nothing on itself–a miniscule one-fifth of 1%. So despite its serious, serious accounting problems, Operation Compassion passes my sniff test. Especially here in Seattle.