The Breast Cancer Society was created in 2007 to fill what it viewed as a gap in the work other charities were doing to help breast-cancer patients.
“While research and education are both vital,” its Web site says, breast-cancer victims “also require direct assistance today so they and their families can meet the challenges of this disease.”
The charity raised about $16.6-million from private sources in 2008.
Last year, that number shot up to $51.9-million, earning the group the No. 377 spot on The Chronicle’s list of the 400 charities that raise the most money from private sources.
That meteoric rise gave the young nonprofit a higher ranking than longstanding charities with complex operations, like the Salk Institute for Biological Studies (No. 382) and NPR (No. 393).
Its secret? Nearly $38-million of the private contributions the charity reported receiving last year, or 73 percent, came in the form of noncash contributions—namely, medicines, medical supplies, and hygiene items, almost all of which it reported shipping overseas.
Valuing Gifts
The Breast Cancer Society is not alone. More than 40 organizations on this year’s Philanthropy 400 list derive more than half of their revenue from noncash contributions. Distributing such items can provide much-needed help to sick or hungry people and put surplus materials to good use.
But the way nonprofits value and report these contributions has come under increasing scrutiny by regulators, charity watchdogs, and journalists.
Some charities have been accused of inflating the value of their goods, using them to mask high fundraising costs and offering murky accounts of where overseas shipments go.
In February, the Internal Revenue Service fined Food for the Hungry, saying the aid group deliberately deceived the public when it purchased medicines and counted them as donations worth hundreds of times their purchase price.
Food for the Hungry, which fell off The Chronicle’s 400 list two years ago after it adopted a more-conservative approach to valuing its pharmaceuticals, is challenging the IRS’s claims.
Groups have an incentive to make it look like they are spending as much on programs as possible because many of the watchdogs that advise donors give low marks to groups with high fundraising and administrative costs.
Shipping Overseas
The Breast Cancer Society’s financial records offer a window into the way charities can count product gifts in a manner that could mislead donors about how their money is being spent.
The group’s Web site briefly mentions its work in “international medical aid” but emphasizes its programs to help women in the United States through emergency financial assistance, in-home caregivers, scholarship funds, and other efforts.
It actually spent relatively little on domestic programs in 2011, according to its Form 990 tax filing—less than $2.4-million, including $1.3-million worth of donated “personal care” products.
Meanwhile, it said it shipped $36.3-million in medicines and medical supplies to Central America, Southeast Asia, and Western Africa.
The charity’s chief executive, James Reynolds II, says the international program is an important part of the group’s mission, providing medicines to treat the side effects of cancer treatment in regions where “medical care is strained to meet the need and women are often left helpless.”
“I believe everyone would agree that sending a few thousand dollars of cash to these recipients would not provide the fraction of relief millions of dollars in supplies and equipment do,” he said in response to e-mailed questions from The Chronicle.
Diverging Views
He says the goods come from U.S. pharmaceutical companies but declined to give details about exactly where they went, how the charity arranged to receive them, or how they were processed, explaining he wants to “protect the propriety” of the group’s relationships with suppliers and recipients.
The Internal Revenue Service does not require charities to provide details about which groups receive any aid they ship overseas.
But by counting the value that it assigns to product donations, the Breast Cancer Society can tell donors it devoted 76 percent of its expenses to program services last year.
The picture looks very different, however, if only the contributions that it raised from the public are considered.
The charity said on its tax form that it hired eight fundraising firms last year and raised about $14-million, mainly through telemarketing campaigns.
But it reported spending just under $338,000 of that on direct services, mostly in the form of financial aid to patients and grants to other charities. Most of the rest of the cash paid for fundraising costs ($11.7-million) and compensation for 16 employees (more than $1-million).
Mr. Reynolds received $261,609 in compensation, a figure he says was determined partly by the size of the group’s revenues. (His compensation fell from $315,829 in 2010, however, in what Mr. Reynolds calls a voluntary pay cut. He says he took a similar cut this year. )
If product gifts are removed from the equation, the amount that the charity spent on program services last year—even including the administrative costs that can legally be counted in that category—is more like 9.4 percent.
The Breast Cancer Society counted as revenue $22.8-million in goods that it said it received from World Help (No. 77), a Christian charity that also claimed that donation on last year’s Form 990 as part of its $227-million in noncash contributions. World Help says it issued two letters assigning the goods to the breast-cancer group and that the items were eventually shipped to Guatemala.
The transaction highlights the way multiple charities sometimes handle the same goods and all record them as revenue.
Mr. Reynolds defends his group’s claim that it spends 76 percent on programs. “To state the good being done by our donors’ contributions in this way is not fancy accounting,” he says, “but simply the most accurate and appropriate way of determining the total good being done with each dollar given to the organization.”
High Salaries
Were it not for the revenue they count from donated goods, spending by some other groups on The Chronicle’s list might also seem high.
Soles4Souls (No. 325), which distributes shoes, clothes, and other items abroad, last year recorded $62-million in private contributions and paid its chief executive $514,362. That’s close to the median salary ($444,276) of groups with revenues of more than $50-million, according to a recent GuideStar study.
But that figure looks larger if only the group’s cash fundraising, $2.1-million last year, is considered. Male chief executives for groups that raised $2.5-million to $5-million earned a median of $127,982, according to GuideStar. (In addition to its cash fundraising, Soles4Souls received $3.5-million in program-service revenue.)
The National Cancer Coalition, No. 156 on The Chronicle’s list, raised $138-million last year, 97 percent of it in donated medicines. Of the $4.5-million in cash it raised and received in other income, the charity spent $2.6-million, or nearly 59 percent, on fundraising. But because of its noncash contributions, the group’s fundraising expenses appear to be 2.3 percent.
Both groups say they are cutting costs.
Soles4Souls’ chief executive, Wayne Elsey, left this year, and its future leader will be paid less, says Keith Woodley, chief development officer.
Robert Landry, the National Cancer Coalition’s president, says the group, which last year introduced a new methodology for valuing its noncash goods, is paring back on fundraising. He says that the charity is focused on sending life-saving medicines to people in need, adding, “Nothing that we do has anything to do with trying to achieve a better bottom line.”
The way that charities value their donated goods can be opaque.
“There are a lot of judgment calls permitted by both the Internal Revenue Code and by generally accepted accounting principles,” says Marcus Owens, a lawyer who formerly headed the IRS’s nonprofit unit, adding that that tempts some charities to use “aggressively high valuations.”
Spurred by new accounting guidance, some charities have adopted new ways to value goods that have had a sharp impact on their financial pictures.
Blessings International (No. 342), for example, recorded $58-million in contributions last year. But the majority of that revenue came from purchased medicines, says David Harder, its communications director.
This year, the group will no longer count those medicines toward its donation totals on its Form 990, causing its reported revenue to drop by over 90 percent, to roughly $4-million.
Islamic Relief USA saw its revenue drop last year from $182.5-million to $63.7-million after it revised the way it records medicines, prompting it to fall from No. 107 on The Chronicle’s list to No. 317.
Public in the Dark
If more charities continue to follow suit, The Chronicle’s Philanthropy 400 list could start looking quite different.
That would please state officials who regulate charity solicitations.
Elizabeth Korsmo, an assistant attorney general in New Mexico who monitors the state’s nonprofits, says donors are often left in the dark about the way nonprofit organizations use donated goods to look more efficient.
“Regulators are looking at it, charities are looking at it,” she says. “But the last people who are going to find out about it, unfortunately, is the public.”
Doug Donovan contributed to this article.
