Employee Fraud: What Can Nonprofits Do?
The Charities Review Council's Communication Specialist, Jamie Millard, shares her response and reaction to the KONY 2012 campaign through the lens of an informed giver.
It didn’t take me too long to realize something was happening. My Twitter steam was blowing up with the hashtag #stopkony and Facebook friends from distant high-school buddies to fellow nonprofit colleagues were sharing a Kony 2012 video with a call to support the organization Invisible Children. After watching the thirty minute video and trolling the comments of my Facebook friends and Twitter feed, it was obvious that our country was experiencing a very strong emotional response to a deeply complicated issue.
Working for the Charities Review Council, I was immediately interested in finding out more about this organization’s accountability—i.e. does it pass the “smell test." (I mean, we are called Smart Givers for a reason!) Inspired to do some digging, I thought “now what would we do at the Charities Review Council to find out more information about a nonprofit that hadn’t been through our own, in-depth review?”
Quick Research You Can Do Before Responding to an Emotional Appeal:
Check out the organization’s website. What’s their mission? Does the mission align with the appeal you’re responding to? Do they share annual reports and financials (990s, public audits)?
Check out their GuideStar profile. Couldn’t find their 990 on their website? You should be able to download it here under their financials.
Do they have a report with Charity Navigator?
Do they have a report with the Better Business Bureau’s Wise Giving Alliance? If not, has the Wise Giving Alliance requested a review?
Below, we dive into these questions for the organization Invisible Children. Yes, this KONY 2012 campaign is based on an emotional appeal and controversial issue. And while it’s okay for an appeal to have an emotional response—in fact, you should feel emotionally connected to a cause you support—it’s important to take a breath, take a step back and do some critical thinking. The information below is a lot to take in. As an individual donor, I have a lot of information not only about accountability, but mission alignment to consider before deciding whether or not I would support a campaign like KONY 2012.
Other interesting links about KONY 2012 and Invisible Children:
Using this quick guide, Jenna Salinas, the Charities Review Council’s Nonprofit Services Specialist, did some research on Invisible Children. Follow along:
1. Check out the organization’s website.
Substantial Public Disclosure information available. I was able to easily find Annual Reports, Public Audits, and IRS Form 990’s for the past 6 years, including 2011. One can learn a lot about an organization with these documents.
What these documents mean:
Annual Report: Mission, service area, programs, impact, detailed income and expense information, including the cost of each of their major programs, and a list of their board of directors. It’s important for the public to have access to this information in order to learn about the organization.
Audit: It is helpful to know that the organization has had an audit. An audit firm is a third party that verifies the organizations financial statements and assures that they are presented accurately. The auditing firm also issues an opinion indicating if they found any issues. Invisible Children received a clean or “unqualified” opinion, which means that the auditors didn’t find any deficiencies in how the information is being presented.
IRS Form 990: Even though nonprofit organizations are tax-exempt, they are required to file with the IRS to maintain their exempt status. Like an audit, you can view financial information for the organizations, but a 990 also provides information about the board of directors, policies, and practices of the organization.
Quickly making sense of a 990:
Board of Directors: Part VII, Section A lists all the directors of the board, the CEO and any employees that receive more than $100,000 in compensation. From this chart you can usually discern who serves as board chair, treasurer, and how much individuals are paid. From the information provided in Invisible Children’s Form 990 for fiscal year 2010-2011, there are a couple of things to note:
The founders of the organization appear to be paid staff as well as voting members of the board, which doesn’t make for a very independent governing body.
Part VII doesn’t specify who serves as the board chair or the treasurer. It wouldn't be appropriate if the board chair/treasurer was one of the compensated members or if the same person held both positions. (The website does list the board chair as Scot Wolfe – an uncompensated director- but I still don’t know who serves as treasurer to ensure there is proper separation of roles.)
Use of Funds: Part IX, shows the functional expenses of the organization (totals are listed on line 25). Looking at the 3 most recent IRS Form 990’s it looks like the average program expense is 83%, Management 13% and Fundraising is 4% of annual expenses. The details of these expenses can be gleaned from the 990 as well as the audit and annual report.
Financial Health: Part X shows the organization’s balance sheet (which can also be found in the audit). Looking at the balance of unrestricted net assets (line 27) you can determine if the organization lost or gained money in that year. Looking at 2008-2011, the 2 most recent years have seen significant gains, so they appear to be doing well bringing in money to carry out their programs. If they had had consecutive years of losses, that would have raised a red flag with regards to financial health.
Looking at the organization’s fundraising page on its website, you can note that it is a secure site (by the https: in the web address line), so your data is secure on the site. They also make sure you are aware that your gift is tax deductible. However, a couple things seemed to be missing:
1. If I donate, how will they use my money?
2. What is the organization’s contact information if I want more information or have a question? I only found an email address, but no phone number or address.
Once you login (for free), you can view a summary of the organization, as well as access the most recent 990’s (which were also on their website). If the organization doesn’t have the GuidestarExchange seal, it just means that they haven’t provided all of the information requested by GuideStar. This is not required of charities, it’s just an opportunity for organizations to voluntarily provide information to stakeholders. You can also read through personal reviews of the organization from other individuals. Invisible Children had a recent 990 and personal reviews to read through.
3. Charity Navigator
Invisible Children received an overall 3 out of 4 stars (4 out of 4 for Financial and 2 out of 4 for Accountability & Transparency)
4. Better Business Bureau
Not a particularly good sign that the BBB requested to conduct a review of Invisible Children in March of 2011 and the organization either didn’t respond or declined to be reviewed. These reviews are also not required and are completely voluntary.
While this is a lot of information, there is plenty more. At the end of the day, each individual is responsible for gathering as much information as they can and then also evaluating if a cause aligns with his/her philanthropic goals as well.
P.S. If an organization doesn't have a review with the Charities Review Council, you can always encourage your favorite organization to undergo one!