Non-Reporting of Fundraising Expenses Widespread - US Report

Thousands of Not for Profit organisations in the United States misreport how they solicit billions of dollars in donations, making it impossible for Americans to know how their gifts are used, according to a Scripps Howard News Service analysis.

The Scripps analysis found that forty-one per cent of all 37,987 charities and other Not for Profit groups that collected at least $1 million according to their most recent report to the Internal Revenue Service made what experts agree is a ridiculous claim: They raised significant amounts of money without spending a dime to do so.

Even so, these groups reported that they managed to raise a total of $116.7 billion while reporting zero fundraising expenses, according to the study of federal tax records by Scripps Howard News Service.

Scripps says that on their annual tax forms, these 15,389 NFPs 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.

By law, US Not for Profits do not owe federal taxes on any funds they raise.

Robert Ottenhoff, president and chief executive of the Not for Profit oversight group GuideStar, which provided the financial data for the Scripps study, laughed when told of the finding.

"It is ridiculous to think an organisation 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 Not for Profits’ officially stated purpose.

The Scripps study found that 22,598 NFP groups did report fundraising expenses that totaled $14.3 billion, or about 7 cents for every dollar they raised.

Not all of the Not for Profits that report zero fundraising expenses are in noncompliance with federal reporting requirements, the Scripps study found. Some made a compelling defense that "zero" was the right thing to report because unpaid volunteers raise funds.

Yet the Scripps study – which was based upon the most recently available IRS report which documented NFP expenditures in 2010, 2009 or 2008 – generally found that most NFPs have a hard time defending the absence of fundraising expenses.

And Ottenhoff, chief of the watchdog group GuideStar, warned that organisations are in danger of breaking their "social contract" with America's donors and with the government that grants them a special status.

"In return for not paying income taxes, getting the tax-exempt status, they have an obligation to tell their donors how they are spending their money, to be transparent about it, to be accountable," Ottenhoff said.

In Australia a range of reforms proposing a consistent national approach to fundraising regulation and reporting for Australian charities is being investigated as part of the Not for Profit reform process.

A discussion paper, Charitable fundraising regulation reform, examines proposals for a new, nationally-consistent approach to the laws that govern charitable fundraising and seeks the community's views on a range of issues, including any potential exemptions for smaller charities, regulation of the conduct of fundraisers, the use of internet fundraising and fundraising by third parties on behalf of charities.

Assistant Treasurer David Bradbury said in February 2012 that charities would face less red tape when fundraising and people would have more certainty about how the money they donate is being spent under the new regulations.

"Almost every state and territory has a law regulating fundraising by charities," Bradbury said.

"These differences create a compliance burden for those charities that raise funds in more than one state or territory.

"Under the proposals, charities would only need to comply with one law, no matter where in Australia they conduct their fundraising activities."