Nonprofit Fundraising Expenses, or Lack of Them, Questioned
May 21, 2012 Nearly three out of 10 Massachusetts nonprofits that reported raising at least $1 million in their most recent annual accounting to the Internal Revenue Service claim they did it without incurring any cost, suggesting that they misreport how they solicit and use funds, a new study has found.
The report, based on a Scripps Howard News Service analysis of data provided by GuideStar, found that 349 of 1,171 Massachusetts nonprofitsor 29.8%that raised $1 million or more in contributions in their most recent report to the Internal Revenue Service (IRS) reported "zero" fundraising expenses.
Nationally, the study, released this past weekend, found that 40.5% of all nonprofits that raised at least $1 million in its most recent reporting year said they did so without incurring fundraising expenses.
Except for nonprofits based in Washington, D.C., the percentage of nonprofits reporting no fundraising expenses was higher for every other state.
A listing of nonprofits that reported no fundraising expenses was not provided.
Marion Fremont-Smith, senior research fellow at Harvard University's Hauser Center for Nonprofit Organizations
quoted in the Scripps Howard report, said, This is just outrageous. If they say zeroand it cannot be zerothen that is a misreported tax form. And there are penalties for that."
The report said 15,389 nonprofits said they raised a total of $116.7 billion, but spent nothing for advertising, telephone solicitations, mailed donation appeals, professionally prepared grant applications or staff time for face-to- face pleas for contributions.
Robert Ottenhoff, president and CEO of GuideStar, a private database service that provides information on nonprofits connects nonprofits with grantmakers and donors, told of the findings, reportedly said, "It is ridiculous to think an organization could raise significant amounts of money without spending money to do it."
Last December, the Massachusetts attorney generals office released a report that said charities in the state that engaged professional solicitors to raise funds in 2010 received 45 cents out of every dollar raised this way, suggesting they spent 55 cents of every dollar raised by professional fundraisers for their help.
The Scripps study found that nationally 22,598 nonprofit groups reported fundraising expenses totaling $14.3 billion, or about seven cents for every dollar they raised.
Lois Lerner, director of the IRS' Exempt Organizations Division, quoted by Scripps Howard, said, "I am concerned when organizations do not file correctly and referenced a Charitable Spending Initiative underway that is examining fundraising costs and other indicators of potential noncompliance with the tax rules.
Lisa Chabot, senior advancement director at Advocates
, a Framingham nonprofit that works with people with disabilities, elders, and those with other challenges to overcome personal obstacles, said, "There are no industry standards about what should and should not be reported as fundraising expenses.
She noted that many nonprofits feel pressured to show donors that they spend as little as possible on fundraising efforts: This creates an unleveled playing field as those nonprofits that work to be transparent about fundraising costs are portrayed as poorly managed or not a good investment.
This is not to excuse this practice in anyway. Nonprofits need to be honest and held accountable. But we also need clear instructions as to what constitutes fundraising costs as well as what counts as fundraising income. It may seem straight forward, but as any accountant will tell you, it is not.