“At United Way of King County, 97 cents of every donated dollar goes to meet community needs.” This statement is prominently displayed on the website of the country’s largest United Way unit by gifts received. The claim of sky-high financial efficiency presumably is intended to impress donors in the increasing heated competition for charitable contributions.
It looks good. Too good, to my practiced eye as a journalist New To Seattle who has written about charities for a long time.
As I read the UWKC audited financial statement–downloadable from the website–only 83% of donations received in the fiscal year ending June 30, 2011, really was spent on those “community needs.” The rest was spent on fundraising, management and overhead (which for simplicity I’ll just call overhead), or accumulated as an unspent surplus for future use.
How did my 83% become the UWKC’s 97% (or even higher, as you will see)? I’d say largely thanks to a little accounting magic. In its calculations, UWKC simply ignored the 10 cents or so of every donated dollar that went unspent and therefore met no “community needs.” Then this: UWKC received $5.6 million of incoming money from a separate Bill and Melinda Gates Foundation-established endowment earmarked for UWKC. But instead of including the $5.6 million as a donation, or even as investment income, UWKC just subtracted the money from its overhead costs before calculating the charitable commitment ratio. The ploy made the donations look a little lower–but the “bad” expenses a lot lower and the efficiency ratio a lot higher.
Such netting can be the province of dubious charities. Ten days ago I wrote here about one of them, Cancer Fund of America, soliciting in Seattle and laundering much of its outrageously high overhead through a little-noticed affiliate using a similar netting procedure.
Now, I don’t think UWKC is a dubious charity at all. It funds good works and good deeds, is run by respectable people and certainly does not have outrageously high overhead. Moreover, the accounting treatment is clearly spelled out in the financial statement–if you know what you’re looking at and read far enough.
But to me it’s still questionable how UWKC presents its financial efficiency to the Seattle public. And I may not be alone in this thinking. It’s my understand there’s been a buzz about this for years among some Seattle-area charity watchdogs. The calculation was attached to the end of the financial statement as “supplemental information” and only after UWKC auditor Moss Adams LLP wrote this, “Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion or other forms of assurance on it.”
I think that’s accountant talk for, “You’re on your own, buddy.”
Anyway, using round figures, I’m going to detail how I assessed the numbers and then how UWKC did the same. You be the judge. Feel free to add your comment below the story. Continue reading
Share on Facebook