U.S. government agency misleading federal employees and soldiers on charitable donations
The government program long considered the “Good Housekeeping Seal of Approval” for charitable organizations, is letting down those who have come to rely on them for making sound decisions when contributing to charitable organizations.
The Combined Federal Campaign (CFC) operates under the direction of the U.S. Office of Personnel Management (OPM), the independent government agency that oversees the interests of the two million plus civil service employees working for the federal government. The CFC has long served to advise and assist federal employees in making good choices when it comes to their charitable contributions and to stage campaigns to inspire federal employees and those stationed on our military bases to contribute to causes that the CFC deems acceptable.
However, due to an inadequate system of determining a charity’s actual overhead, the CFC is failing our federal employees and military personnel who have come to rely on them to weed out the good charities from the bad.
In a recent series of stories written here on the Policy Page, I took a look at Freedom Alliance, a charity whose honorary co-chairman is Col. Oliver North and whose primary spokesman is Sean Hannity. Significant questions have been raised with regard to Hannity’s involvement with the charitable organization and whether or not he has wasted large sums of money intended by its benefactors to aid seriously injured soldiers and provide scholarships the children of our fallen warriors.
In responding to one of these articles, a reader noted that the CFC’s report on Freedom Alliance listed them as having an overhead of just 11.1% – a low overhead to contributions ratio that would be indicative of a very well run charity where most of the money collected gets to the desired beneficiaries.The reader involved is a member of the military and feels that the CFC has done good work in its annual campaign to raises money on military bases for worthy charities.
Indeed, the CFC does show Freedom Alliance’s overhead to be a very respectable 11.1%. The problem is, this number is simply false and completely misleading.
While the CFC has refused to comment for this story, they have responded to a series of emails seeking to determine how they arrived at their overhead calculation.
Writes Curtis Rumbaugh of the Office of CFC Operations-
The administrative and fundraising rate that appeared in the 2009 CFC Charity List for the Freedom Alliance was based on the IRS Form 990 for the fiscal period ended December 31, 2007. The rate was calculated by adding lines 14 (management and general expenses) and 15 (fundraising expenses, and dividing the sum by line 12 (total revenue).
While the methodology of adding the ‘management and general expenses’ to the ‘fundraising expenses’ to determine overhead might, on the surface, appear to be completely appropriate, this is far from the case.
On each tax filling (Form 990) for tax-exempt charities, there is an additional category of expenses entitled “program services”. This category is inexplicably omitted from the CFC’s calculation to determine the actual expenses of a charitable organization resulting – at least in the case of Freedom Alliance – in a wholly incomplete picture.
‘Program services’ expenses are those incurred to carry out the organization’s mission. One could look at program service expenditures and be pleased that the charity is spending their money to deliver on the promise of the charitable intent rather than using it to pay employees larger salaries and benefits.
But what happens when a charity ‘loads up’ their costs into the program services category, thereby masking the fact that they are spending far too much of the money that is being donated on things like salaries, consultancy fees, etc?
Freedom Alliance would certainly appear to be ‘loading up’ in this way – and the CFC doesn’t seem to find much value in a closer examination so as to accomplish their stated purpose of delivering meaningful information to the federal employees who reply upon the CFC to steer them in the right direction.
As noted in Mr. Rumbaugh’s email, the overhead percentage currently listed on the CFC report for Freedom Alliance is based on the charity’s 2007 tax filing.
The following is the section of that tax filing focusing of compensation paid to the charity’s employees.
Thomas Kilgannon is the president of Freedom Alliance. Note that his total salary, as stated in Column A, was $179,250. Now look at how that salary is allocated. Only $10,661 was placed in Column C, the management and general expense category, with $32,944 placed in the “Fundraising” category found in Column D. These are the only expense categories used by the CFC to determine a charity’s overhead.
Yet, a full 75% of Mr. Kilgannon’s salary was put into Column B, the Program Services category and, therefore, not taken into consideration by the CFC in determining overhead.
There is simply no rational basis to suggest that a CEO’s salary, in any circumstances, is not an item of an organization’s overhead. And yet, the government agency responsible to advice on charitable organizations is willing to ignore 75% of this amount when calculating how much the charity is spending in relation to how much they are bringing in.
Here is another example:
This is the statement of ‘other expenses’ of the organization. Once again, 75% of the charity’s expenses are placed in the ‘program services’ category and, therefore, not considered an expense and part of overhead by the CFC.
On top of all of this, the CFC chooses not to take into consideration that Freedom Alliance lost $146,995 of contributor’s money in the investments made by the charity in the year 2007.
As I’ve noted in the earlier pieces on this, 2007 was actually a good year for the charity’s operations when compared to 2008 where the expenses were even higher and even more money was lost by the charity through investments of trust account money.
I asked (via email) the CFC representative if he found it odd that in the very year CFC was willing to give Freedom Alliance such a favorable report, the independent watchdog agency, The Institute of Philanthropy, gave Freedom Alliance their worst possible rating for the year 2007 – an ‘F’ on a grading scale of ‘A’ to ‘F’. CFC was unwilling to respond to this question.
While the CFC reports an overhead of 11.1% – a very respectable number for a charitable organization- the true overhead, based on the 2007 tax return, is a very different story.
Here are the real numbers;
As you can see, the organization had total revenue of $12,459,317 and total expenses of $7,461.350. That would put their overhead at 60% of revenue –far above the 25% deemed acceptable for credible charities and explaining why the charitable watchdog agency rated the Freedom Alliance so poorly.
The CFC does some good work – but they have to do better. The agency has a responsibility to provide information that is based on reality – not some formula that is easily skirted by charities and misleading to those who depend upon them. There are soldiers on bases all over the world who have been led to believe that a donation to Freedom Alliance means that almost 90% of their money will reach badly injured soldiers and the families of those who have died in battle, when this is simply not the truth. When our federal employees and soldiers are willing to contribute money on good causes, they should not be misled by the very agency whose responsibility it is to provide these people with truthful and valuable information.
They deserve much better than that.