Can I Buy My Staff Popsicles?
One of my readers asked me earlier this week for my thoughts on "how you think nonprofits should treat their hard-working employees while still using donated funds wisely and accountably?" Specifically, he or she wanted to know if I thought it was acceptable to spend donor funds on a cocktail reception for staff every once in a while, or even bring in an ice cream truck during the summer.
So, on a slow summer day, I do as requested, and offer up a quick take. I'm just another yodeler, taking requests and singing for my supper.
Basically, and this may surprise some of you, I think it's just fine. The strength of the non-profit sector is our people, and if we don't make them feel valued and respected, we'll lose them in the long run, and that's just bad business. The psychic pay from doing good work only gets us so far. We need to keep our good people, and keep them happy, so if a little ice cream every once in a while helps in that endeavor, I firmly believe that your employees' job satisfaction has a positive effect on the bottom line and subsequently helps the people who depend on your charity.
Now, there are of course two major caveats to this: 1) Your event has to pass the smell test. A cheap wine and cheese and cracker reception on company property is one thing. Taking your staff to Key West for golf, steaks, and booze cruises on the charity's dime (and time) is another. 2) Donor intent matters. The best case scenario is to get a board member or key funder to specifically foot the bill for your staff outing. Failing that, you must utilize general use funds, preferably generated from sources other than donations. You absolutely cannot use funds that you received as a result of a fundraising campaign in which you promised to spend the money that you raised on charitable recipients.
Here at Charity Navigator, we do all we can to keep our costs under control, but we do have a holiday dinner for staff, board, and significant others, and a smaller luncheon for staff only on Charity Navigator's birthday. And we get a specific board member to fund these activities. I'm sure my staff would appreciate (and they definitely deserve) a lot more, but that's about all I'm comfortable with, given our role as a charity watchdog.
So, on a slow summer day, I do as requested, and offer up a quick take. I'm just another yodeler, taking requests and singing for my supper.
Basically, and this may surprise some of you, I think it's just fine. The strength of the non-profit sector is our people, and if we don't make them feel valued and respected, we'll lose them in the long run, and that's just bad business. The psychic pay from doing good work only gets us so far. We need to keep our good people, and keep them happy, so if a little ice cream every once in a while helps in that endeavor, I firmly believe that your employees' job satisfaction has a positive effect on the bottom line and subsequently helps the people who depend on your charity.
Now, there are of course two major caveats to this: 1) Your event has to pass the smell test. A cheap wine and cheese and cracker reception on company property is one thing. Taking your staff to Key West for golf, steaks, and booze cruises on the charity's dime (and time) is another. 2) Donor intent matters. The best case scenario is to get a board member or key funder to specifically foot the bill for your staff outing. Failing that, you must utilize general use funds, preferably generated from sources other than donations. You absolutely cannot use funds that you received as a result of a fundraising campaign in which you promised to spend the money that you raised on charitable recipients.
Here at Charity Navigator, we do all we can to keep our costs under control, but we do have a holiday dinner for staff, board, and significant others, and a smaller luncheon for staff only on Charity Navigator's birthday. And we get a specific board member to fund these activities. I'm sure my staff would appreciate (and they definitely deserve) a lot more, but that's about all I'm comfortable with, given our role as a charity watchdog.
Labels: boy scouts, cocktail receptions, donor intent, ice cream trucks, Key West
posted by Trent Stamp at 1:41 PM
10 Comments:
A quick comment about board members footing the bill: This is an excellent idea, as long as the donor doesn't use it as a tax deduction. I have paid for some goodies for the staff of non-profits I deal with, but I don't use that as a tax writeoff.
- larry
Am really glad to view your site, comments and work. Well done! I'd be interested to see how you would value the various UN Agencies who surely must also be considered as charity organisations since their given aims and goals are the same as the others on your list, and since they use also donors' money.
Trent:
You wrote
"Donor intent matters. The best case scenario is to get a board member or key funder to specifically foot the bill for your staff outing. Failing that, you must utilize general use funds, preferably generated from sources other than donations. You absolutely cannot use funds that you received as a result of a fundraising campaign in which you promised to spend the money that you raised on charitable recipients."
Yes, you're right that donor intent matters. But the use of funds received as a result of a fundraising campaign for something other than charitable activities is one of the most common forms of fraud committed by non-profits. (Some non-profits are veritably built upon this sort of thing.) You of all people should know that. Rather than simply disapprove of it in your blog, maybe you should “out” the non-profits that you already know engage in this practice.
Colin, perhaps you haven't been reading this blog very long. Trent does out charities that waste their donors' money on outrageous staff perks, frequently and scathingly.
Well said Trent!
And personal to Larry: Why don't you claim this on your taxes? If I, or my company, donate to the American Red Cross it is 100% deductible on my taxes no matter what the charity does with the money. And trust me, any "charity" that pays it's operating officers upwards of $500,000 per year is spending our donations on "questionable" activities. With the government waste and stupidity that is reality, we the taxpayers deserve every LEGAL tax break we can get. Just my two cents... Teresa
Thanks, Trent! I asked the question originally and am glad to hear that you think modest employee perks such as inexpensive quarterly receptions are okay. The charity I work for (which has been awarded 4 stars by you!) *does* keep a few jugs of wine in its closet - bought, I think, in bulk from Cosco to save money - in reserve for those wine-and-cheese receptions, and I was concerned that you might wag your finger at that. Thanks for responding, and I'll see if I can come up with any more quarters to put in the jukebox.
Connie --
I wasn't talking about outing charities that spend money on staff perks, I was talking about outing charities that deliberately mislead people about how they spend their money at the most fundamental level.
Take Goodwill Industries, for example. Everyone probably believes that by donating merchandise to, and by purchasing merchandise from, Goodwill’s thrift stores that you’re helping Goodwill help the handicapped and disabled, i.e., the money Goodwill earns from its thrift stores funds the services it provides to the handicapped and disabled. At least that’s what Goodwill wants you to believe. But, unfortunately, it isn’t true. The money that Goodwill affiliates around the country use to fund the services they provide to the handicapped and disabled comes from Government contracts and the like – the money they make from their thrift stores is simply money they keep for themselves.
And, to the best of my knowledge, that’s a subject on which Trent has been conspicuously silent.
For anyone who reads this blog and wants to know more about Goodwill Industries and the various forms of fraud in which they’re engaged, contact me directly at colinpoakes@hotmail.com. After all, this is Trent’s blog, not mine. But, for the benefit of those who want to know what I meant when I claimed that affiliates of Goodwill Industries do not spend the money they earn from their thrift stores on their program services, consider the following:
Lines 10a through 10c of Part I of IRS Form 990 are, in the IRS’s own words (in Instructions for Form 990 and Form 990EZ), for “gross profit or loss from sales of inventory.” Specifically, “sales of inventory items reportable on line 10 are sales of those items the organization makes to sell to others or buys for resale.” So, the IRS instructs those filling out Form 990 “on line 10a, report gross sales revenue from sales of inventory items,” and “on line 10b report the cost of goods sold related to the sales of such inventory.” Line 10c, then, is simply the amount on line 10b subtracted from the amount of line 10a.
Let’s reiterate: lines 10a through 10c are for reporting gross profit or loss from SALES OF THOSE ITEMS AN ORGANIZATION MAKES TO SELL TO OTHERS OR BUYS FOR RESALE. Given that, it wouldn’t make much sense for a Goodwill affiliate to use lines 10a through 10c to report gross profit or loss from the merchandise sold in its thrift stores. After all, a Goodwill affiliate does not make the merchandise that it sells in its thrift stores, nor does it buy such merchandise. Such merchandise is DONATED.
Yet, this is exactly what many, many Goodwill affiliates do.
Let me use the following Goodwill affiliate as an example:
• Goodwill Industries, Inc., 553 Fairview Ave. North, St. Paul, MN 55104.
If you go to Guidestar and examine Goodwill of St. Paul’s Form 990 for the year 2005 (listed as 2006 by Guidestar) you’ll find a total of $117,283,516 is reported on line 10a, and a total of $12,226.352 is reported on line 10b. The $ 17,283,516 reported on line 10a is an awful lot of money, especially when you stop to consider that Goodwill of St. Paul’s total gross revenue for 2006 was only $28,764,689 In fact, $17,283,516 represents approximately 60% of Goodwill of St. Paul’s total gross revenue for the year — a considerable percentage.
Moreover, the $12,226,352 reported on line 10b is an awful lot of money, as well. It represents an expense equaling 42.5% of Goodwill of St. Paul’s total gross revenue for the year — a considerable percentage.
Yet, by reporting this expense on line 10b Goodwill of St. Paul is claiming $ as an expense for ‘sales of those items the organization makes to sell to others or buys for resale.’ After all, that’s what the IRS’s own instructions explicitly say line 10b is for. And, indeed, this is what Goodwill of St. Paul is claiming: underneath the entries on lines 10a and 10b you’ll find entered “STMT 2,” which is basically an instruction to look ahead to the attachment titled “Statement 2.” So, looking ahead to this attachment we find that $12,226,352 is reported as “cost of goods sold,” and that out of this total a subtotal of $12,142,441 is reported as an expense for “merchandise purchased.”
That’s right: “merchandise purchased.” That is not a misprint. That is not a misquotation. Goodwill of St. Paul literally claims to have spent $12,142,441 to ‘purchase merchandise.’
Now, you know, and I know — everybody knows — what the verb ‘to purchase’ means. And you know, and I know — everybody knows — that Goodwill of St. Paul does not purchase the merchandise its sells in its thrift stores. What Goodwill of St. Paul has done, to put it bluntly, is falsify its Form 990.
Now, I was able to obtain a copy of Goodwill of St. Paul’s Independent Auditors’ Report for the year in question from the Office of the Attorney General for the State of Minnesota. So, I know that the revenue reported on line 10a is really the revenue from Goodwill of St. Paul’s thrift stores, and the expenses reported on line 10b is really the functional expenses of those thrift stores. Moreover, Goodwill of St. Paul themselves confirmed this fact when I contacted them directly. (Other Goodwill affiliates have confirmed the same.)
So, Goodwill of St. Paul has peculiarly reported the revenue and functional expenses of its thrift stores on its Form 990 for the year 2006. And 2006 is simply one year out of many — Goodwill of St. Paul makes reports on its Form 990 in this peculiar manner every year.
And, of course, Goodwill of St. Paul is simply an example of one Goodwill affiliate that peculiarly reports the revenue and functional expenses of its thrift stores on its Form 990 in this manner. Other Goodwill affiliates that routinely report the revenue and functional expenses of their thrift stores on their Form 990 in this peculiar manner include, but are not limited to:
• Goodwill Industries of Acadiana;
• Goodwill Industries of Arkansas;
• Goodwill Industries of Ashtabula;
• Goodwill Industries of Central Texas;
• Goodwill Industries of Colorado Springs;
• Goodwill Industries of Corpus Christi;
• Goodwill Industries of Danville Area;
• Davis Memorial Goodwill Industries;
• Goodwill Industries of Dayton;
• Goodwill Industries of Fort Worth;
• Goodwill Industries of Kentucky;
• Goodwill Industries of Long Beach and South Bay;
• Goodwill Industries of Lower South Carolina;
• Goodwill Industries of Central North Carolina;
• Goodwill Industries of North West North Carolina;
• Goodwill Industries of Orange County;
• Goodwill Industries of The Redwood Empire;
• Goodwill Industries of San Joaquin Valley;
• Goodwill Industries of Santa Clara County;
• Goodwill Industries of Southeastern Louisiana;
• Goodwill Industries of Southern New Jersey;
• Goodwill Industries of Tenneva Area.
(All the 990s of these Goodwill affiliates are available on Guidestar.)
So, needless to say, reporting the revenue and functional expenses of thrift stores on IRS Form 990 in the peculiar manner described above is a rather common occurrence among Goodwill affiliates. The immediate question, of course, is why Goodwill affiliates report the revenue and functional expenses of their thrift stores in this manner.
Well, the most immediate answer to that question arises when you stop to consider what these goodwill affiliates are actually saying when they do this. They’re NOT reporting the revenue from their thrift stores as program service revenue, and their NOT reporting the expenses of their thrift stores as program service expenses … BECAUSE THE OPERATION OF THEIR THRIFT STORES IS NOT PART OF THEIR PROGRAM SERVICES. They’re reporting the revenue and functional expenses of their thrift stores in this peculiar manner because they cannot in all good conscience report said revenue as program service revenue, and they cannot report said expenses as program service expenses.
So, there you have it. That’s what I meant when I claimed that affiliates of Goodwill Industries do not spend the money they earn from their thrift stores on their program services. In fact, I have further evidence to back up that claim — but like I said, you’ll have to contact me directly at colinpoakes@hotmail.com if you want to know more.
But, maybe you don’t agree with my analysis of the above. Nonetheless, if you take the time to examine the 990s of the Goodwill affiliates listed above, then you must agree that there’s something very, very peculiar — nay, wrong — with how these Goodwill affiliates report the revenue and expenses of their thrift stores. Anyone — even a child — can see that.
Showing appreciation doesn't need to break the bank. If a board member feels like footing the bill is fine as long as it doesn't become expected. Many organziations require a donation from their board members, in which case they should reconsider tony cocktail parties as way of saying thanks to their volunteers.
Post a Comment
<< Home