Thousands of nonprofit organizations across Indiana and the country are misreporting how they solicit billions of dollars in donations, according a study of tax returns, making it difficult for Hoosiers to know how their gifts are being used.
Forty-one percent of the 37,987 charities and other nonprofit groups nationwide that collected at least $1 million according to their most recent report to the Internal Revenue Service claim they did so without spending anything, according to a study of federal tax records by Scripps Howard News Service.
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On their annual tax forms, these 15,389 nonprofits said they spent nothing for advertising, telephone solicitations, mailed donation appeals, professionally prepared grant applications or staff time for face-to-face pleas for contributions, but these groups reported that they managed to raise a total of $116.7 billion.
By law, nonprofits do not owe federal taxes on any funds they raise.
Robert Ottenhoff, president and CEO of the nonprofit oversight group GuideStar, which provided the financial data for the Scripps study, laughed when told of the finding.
"It is ridiculous to think an organization could raise significant amounts of money without spending money to do it," said Ottenhoff, former chief operating officer at the Public Broadcasting Service for nine years. "I must be doing something wrong. I've never seen it growing on trees."
Ottenhoff and other watchdogs say an accurate statement of fundraising expenses is critical to understanding how much of any donation actually goes to the nonprofit's officially stated purpose.
Of the 722 nonprofits in Indiana that collect $1 million or more each year, 45 percent reported zero fundraising expenses according to their most recent IRS reports, a number slightly higher than the national average of 41 percent, Call 6 Investigator Kara Kenney reported.
Patrick Rooney, the executive director of the Center on Philanthropy at Indiana University, is skeptical of charities that claim to spend nothing on raising money.
"It's a huge concern because it's a matter of misleading the public, misleading donors and misleading the government," he said. "I think it's a red flag the charity is probably not being honest."
Bridge Community Services in Muncie reported zero fundraising expenses to the IRS despite bringing in $1.5 million, some in cash donations from individuals and businesses.
The organization, which provides housing services for homeless families, has 14 paid employees.
Executive Director Susie Kemp said it's her responsibility to solicit donations and grants, but said she doesn't believe the organization's IRS report is misleading.
"I'd say to the critics, it's not a black and white area. It's a gray area," she said.
The Good Samaritan Network of Hamilton County also reported zero fundraising costs despite bringing in $2.8 million worth of donations, including cash and canned goods.
"Ours isn't misleading. Ours is actually zero. We did not solicit funds," said Executive Director Nancy Chance. "It's all donations from different events where people just know about us and we've been around for so long."
Chance said the organization has more than 4,000 unpaid volunteers who do fundraising work for free.
Rooney said those kind of nonprofits are the exception to the rule.
"In the nonprofit sector, you have to spend money through fundraising to make money," he said.
Chief executives of nonprofits sign their annual Form 990s to the IRS promising "under penalties of perjury" that the information provided is "true, correct and complete." However, legal action for a false filing is extremely rare.
"I am concerned when organizations do not file correctly," Lois Lerner, director of the IRS' Exempt Organizations Division, said in an interview.
Lerner declined to speak directly about large nonprofits that report zero fundraising expenses. But she pointed to a multi-year study she began in 2010 at IRS to review how charities raise and use donations to accomplish their stated charitable purposes.
"What I can tell you is that I have a Charitable Spending Initiative that looks at fundraising costs, along with other indicators of potential noncompliance with the tax rules. We are very, very interested in that," Lerner said.
Several nonprofit groups said they will examine their reporting practices as a result of the Scripps study, which was based upon the most recently available IRS report which documented nonprofit expenditures in 2010, 2009 or 2008.
When informed that 48 of Goodwill Industries' 127 major affiliates reported raising $387 million at no cost, Goodwill Industries International President and CEO Jim Gibbons said the charity will rethink how it calculates its overhead costs in reports to the federal government and the public.
"We are going to have a dialogue within the Goodwill network so that each Goodwill and the boards of directors can become very aware of this issue," said Jim Gibbons, who was paid $463,000 in 2010 by the Rockville, Md., organization. "It is important to be clear and transparent. If this is even perceived as misleading, well, that's not what the Goodwill brand stands for."
Nonprofit groups are under enormous pressure to report low overhead costs -- the total they spend on administration and fundraising -- in the often-fierce competition for donations.
The Scripps study found that 22,598 nonprofit groups did report fundraising expenses that totaled $14.3 billion, or about 7 cents for every dollar they raised.
Some charitable groups, like United Way, recommend against contributing to nonprofit organizations that report overhead expenses greater than 25 percent of donations.
But Indiana tax returns show the Indiana State Fraternal Order of Police spent 75 percent on fundraising costs, including mailings and a call center in Muncie.
FOP President Tim Downs told RTV6 that the group's fundraising costs arent ideal, but pointed out that the Muncie call center is employing 55 people.
Dogs Against Drugs, Dogs Against Crime spent 85 percent of contributions on fundraising, including paying a call center in Tennessee.
Kenney found that the charity has since folded.
Former Anderson Police Chief Darron Sparks, who helped start the group, said they ran out of money.
"The telemarketer we used just went out of business. We didn't receive any donations after that, and if we did, we mailed them back," he said.
Rooney stressed that potential donors need to check into a charity before opening the checkbooks.
"If donors ask tough questions, that's going to turn the tables and make them more responsive and transparent about what they're spending and how they're spending it," he said.
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