Charity with murky financials trolls in Seattle

charity with murky financialsThe charities that cold-call the New To Seattle world headquarters asking for money generally are pretty easy to figure out once I end the call and look at their documents and filings. It turns out most of the funds collected go to outside paid fundraisers, with relatively little making it to what I consider to be a proper charitable purpose.

The Multiple Sclerosis Foundation, a charity that I never had heard of but which called me out of the blue the other day, seems to operate a little differently. Yes, on the West Coast it does use outside paid fundraisers–like the pleasant person who called me–and they seem to rake off more than 70% of the take (charity watchdogs say that cut overall should be no higher than 35%). But unusual for the world of charity, MSF, based in Fort Lauderdale, also has a large corps of inside fundraisers–actual employees whose job it is to raise funds.

Now, there’s nothing illegal or even wrong about having staff members raise money. But this can make it a lot easier for a charity to call its fundraising expenses something else, like education or public awareness, and spruce up its financial efficiencies. And it makes it somewhat harder for someone like me to figure out with exactitude what’s really going on.

The situation also flummoxed the sober Better Business Bureau Wise Giving Alliance, one of the pillars of charitable evaluation. In a current report the BBB said it was “unable to verify” whether the MSF was accurately reporting its expenses, especially those related to fundraising.

This is quite a warning signal.

But after reviewing paperwork, I can see why.

There are, to put it mildly, some breathtaking discrepancies and eyebrow-raisers on MSF’s audited financial statement and the IRS Form 990. The BBB was commenting on MSF’s fiscal year ending December 31, 2012, while I was looking at the results for the year ending December 31, 2013, but the holes are the same.

–On its 990, MSF said it raised $8 million in contributions. But on its financial statement, MSF said it took in gifts of just $6.5 million–19% less. On the financial statement–but not the 990–MSF said it received $1.6 million in “other revenue,” which are not contributions. For what? “MSF provides certain services to unrelated organizations which promote awareness of Multiple Sclerosis and provide education services to individuals touched by the disease,” a footnote stated. To me it’s clear that revenue from providing a defined service to third parties is not a charitable gift coming in but simple business income. Listing that as a contribution on the 990, though makes certain financial efficiency ratios look better.

–In a footnote to the financial statement, MSF said that it took $1.6 million of $2.5 million spent in direct mail and other fundraising activities and classified that as program services–direct furtherance of the charitable mission. The notion of joint cost allocation is sanctioned by accounting rules, although charity watchdogs say it is frequently abused. And reclassifying 64%, as was done here, is quite a leap. On the 990, which is consulted by would-be donors far more often than financial statements, there’s also a section for joint costs and their allocations. How much did MSF list on the 990 for joint costs? Zero.

–A quarterly magazine that the MSF sends out, MSFocus, with a claimed readership of 130,000, is chock full of what looks to me like ads for multiple sclerosis drugs and other medical items and services. (You can see a recent edition here.) Yet neither the 990 or the financial statements lists any advertising revenue.

–The financial statement said nothing about outside paid fundraisers. The 990 said that Jadent Inc., a fundraising outfit based in Salem, Ore., operated MSF’s “West Coast Campaign Center.” (The person who called me said she was in Salem, so I assume she worked for Jadent.) According to the 990, Jadent took in $943,000, kept $666,000 for itself and gave MSF $277,000. That’s a fundraising efficiency–the amount of gifts after subtracting the cost of raising them–of just 29%, which is pretty poor if you’re the donor. If you’re making a gift, would you want 71% to go elsewhere?

–The 990 stated that MSF had a total of 589 paid employees at some point during 2013. For a modestly sized charity with just one office and $8 million in revenue, this is a huge number. How huge? The latest 990 for the parent unit of the far-better-known National Multiple Sclerosis Society listed just 256 paid employees–and, with $106 million in total revenue, 12 times the income, and much higher financial efficiencies.

My suspicion is that a lot of these MSF employees were fundraisers who helped generate much of the $6 million or so not produced by Jadent. What’s my basis? The charity brags about it on its website! MSF declares it has a “national campaign center” that is “one of the few outbound fundraising and public awareness call centers in the national directly owned and managed by a charitable organization.”

I’ll say.

What do I make of all this? On its filing with Washington State, MSF claimed a charitable commitment (share of total expenses spent in direct furtherance of the charitable mission, excluding fundraising and certain overhead) of 71%. But according to both its 990 and financial statement, MSF made a mere $821,000 in grants. So one way of looking at this is that only 11% of what was spent went out in tangible gifts to those in need.

Another way is to examine the list of expenses and reclassify items labeled as program support that look to me more like fundraising, promotion and marketing. This is somewhat of a judgment call by me, since MSF does staff service hotlines and the like, a valid charitable endeavor. But to me it seems pretty clear that less than 50%–and quite possibly a lot less–of total expenses went for program support as I might define it. BBB guidelines say 65% should be the minimum for charitable commitment.

Similarly, it’s also hard for me to see how the true overall fundraising efficiency–including the efforts of both inside and outside fundraisers–is much above 40%.

I should point out that I emailed MSF a few days ago with some detailed questions about its accounting and dissing by the BBB. So far, I have heard back nothing, but I’ll update this post if I do.

According to the Guidestar nonprofit database, there are hundreds of charities across the country with multiple sclerosis in their name. So it’s easy to get confused. But as MSF demonstrates, they don’t all operate alike.

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