Tea Time With Jesse

Six of One, Half Dozen the Other

Charity Fail – Updated

Posted by middlerage on November 19, 2012

[updated. Go to end for update]

So I’m standing in line at the grocery store, and the on top of all the Tic Tacs, gum, and candy bars, is a box full of fridge magnets celebrating the Wounded Warrior Project. I’ve vaguely heard of Wounded Warrior and I think it might be a good outfit to help support Iraq/Afghanistan vets with injuries. Then I see some tiny fine print on the display that says “Through November 2012, 10% of each sale will go to Wounded Warrior.” The magnets cost $1. Wow. The magnanimity. The largesse. I guess after this month you can proudly display a WWP magnet in which not even ten lousy cents goes to vets. Fail.

So I went home to do a little bit of research. Many years ago I had heard of an outfit called GuideStar.org that meant to advise donors about how efficient various charities are with their money. So I surfed on over to GuideStar and saw that premium members (i.e. people who are willing to pay for information) can look up all sorts of details about various charities. Fail.

However, there is basic info available for free, and I did a search on Wounded Warrior. The good news is that it tells me Wounded Warrior Project, Inc. is registered with the IRS and submits a Form 990 (whatever that is). WWP is a legitimate organization…but I already knew that. The bad news is that the info most important to me – how well do they use donations to support their mission – is covered in an unexplained blurb that lists revenues and expenses. For the last fiscal year, WWP had $124m in revenue and $108m in expenses. But what does that mean??

Is “revenue” donations? Are “expenses” outgoing finances to support wounded vets? Or is expenses what they spent on marketing and officer salaries? I can’t tell! Definite Guidestar fail and potential WWP fail.

So I decided to look up the Red Cross as a “known/respectable” entity and see what their revenue/expense ratio is. Their ratio is similar: $3.5bil revenue to $3.4bil expense. Does that give me confidence that “expenses” really means “support”? I decide not, because Guidestar is just not explaining things well enough to me. Fail.

I’ll admit a personal fail (that I realize as I’m writing this post), I have not yet gone to WWP’s own website for research…

—————–

…okay, I’m back. They look pretty cool. But again, thanks to GuideStar I have no idea if a mere 13% of donations are going to the mission. And the fridge magnets are a joke. As with pink labeled products in October, I think it is better to just donate directly to breast cancer research than buy yogurt. Likewise with WWP. You can donate directly (if you want) on their site – I will post link below. Some of my friends have executive/economic knowledge, and if they (you) feel like pink labels and fridge magnets are actually economically efficient then I invite your analysis.

Anyhoo… Wounded Warrior Project mission statement (with links to home page and donate page).

UPDATE: Mark L. recommends charitynavigator.org which provides a far better summary. It still looks to me like an awful lot of donation money is going to overhead and not to vets.

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8 Responses to “Charity Fail – Updated”

  1. Mark Leisher said

    The site at http://www.charitynavigator.org seems to have a bit more data available. I’ve got a request for recommendations in with my sister-in-law, who has many years of experience in this area.

  2. fatman said

    I remember when yellow ribbon magnets first appeared, there was a lot of stories that questioned where the money goes. I agree that it is probably to donate directly to an established charity. I even make direct donations to the schools when I get asked to buy candles or wrapping paper, I do eat the Girl Scout cookies and candy

  3. Dahveed said

    Revenues and expense have specific meanings under generally accepted accounting principles. A reputable charity has to follow those definitions, principles, and processes (and be able to prove it in an audit) or they risk losing their charitable org status, fines, and penalties. I’m not an accountant, but if this works similarly to the biz world, I think the short answer to your question is that expenses do not include donations. I’m pretty sure that outgoing donations are what normal businesses call profit. Instead of going to shareholders, its distributed to the causes of choice. In fact, that’s the principle difference between a non-profit and regular business — where the profits go.

    Looks like I’m going to play devil’s advocate again… I can’t say whether 10% is a reasonable amount to actually go to a cause. But, I can say that a lot of people have a warped view of reasonable business overhead by only considering cost of materials (not that you’re doing this J, but it’s common), which is usually a pittance compared to everything else required to run a successful business. Developing channels, sales, marketing, administration, finance, fulfillment — all that stuff costs way more than the magnets and are far more essential to success. The reason we’ve all heard of Wounded Warrior is because of good marketing, not because of refrigerator magnets. Getting the magnets prime shelf space near the point-of-sale in a grocery store takes talent (which must be paid) because grocery stores give up serious margin by doing so. And so on. Most of the cost is probably in wages and a non-profit doesn’t get a break on that because it’s a non-profit either. They have to have to pay their employees reasonable wages or lose them to the for-profit world. Feeling good about working for a non-profit only goes so far.

    Is 10% worth it for the non-profit? Dunno, but I’ll bet it is. They probably get a lot of donations they wouldn’t otherwise receive as a result of these low margin campaigns, as opposed to relying solely on direct donations. But for givers, it’s not such a hot deal from a bang-for-the-buck point of view.

    All that said, I don’t deny there are non-profits that are nothing more than covers for their managers to embezzle.

    • middlerage said

      Awesome. Thanks for the insight.
      If 10% is the total profit on the magnet, then it makes me feel better. But the ‘ends in november’ is worrisome. As the donor I “feel” like some middleman is riding my emotions to make a buck. Same issue with school cookie dough.
      Also, a lot of folks get worked up about CEO salaries, but for instance, the Red Cross is a huge enterprise. I don’t have a problem with their CEO making a big executive salary. (within reason.)
      But it is tough – no matter how much reality I face – to swallow that 87cents of every donor dollar goes to running the machine. Your insight is most welcome, and I feel a bit better thinking that 13% of a huge pie is better than 50% of a small pie.

      • Dahveed said

        It *is* tough to swallow, and like I said, I don’t know if 10% is reasonable or not. Here’s something interesting tangent (to me, anyway): HP’s margin (at least when I was there) was about 5.75% on computers (they would have killed for 10%). Some markets are just that competitive. Interestingly, while the rest of the computer market gets between 4.5 and 6 percent, Apple makes about 28%! That’s because they don’t play by the same rules. They’re not a computer vendor as much as they are a prestige consumer electronics vendor. Their products aren’t judged by consumers in the same way that other technology products are (performance for the dollar). Their product launches are media events, and people don’t talk much about chip speed and hard drive capacity. Apple products are status items, like a BMW and Dom Perignon, for which people will stand in line for a day to buy and gladly pay a premium price over competitor products. Nice work if you can get it!

        • Jerry said

          Yes it is… especially when you have your own employees in the line because they don’t want to wait a few weeks until they can buy the gizmo at a discount.

          Meanwhile, when looking at this page for the Red Cross, that “Program Expenses” actually include the part where they help people. Admin and marketing are broken out separately. That makes them way more efficient than 10%. Part of the reason they can turn out performance so much better than a regular company is tax-favored status, and part is the huge reliance on volunteers during major crises. I expect that Program Expences also involves the salaries of all non-admin employees, but at least that part of the payroll is going to people who are on the ground and (hopefully) doing some good.

          So I think with a little care in your selecting, you can get pretty good bang for your donated buck.

  4. switbo said

    I worked for a nonprofit environmental lobbying organization in college for a while. In my experience, what Jerry discovered about the Red Cross is the way that it works. “Expenses” does include the monies that are actually spent on the mission, which makes the website you originally looked at Jess, pretty useless in determining whether or not Wounded Warrior actually spends a good percentage of its income on the actual vets. You would need more detail to know whether those “expenses” are being spent on the vets or on “overhead” associated with raising/distributing donations.

    On the subject of the magnets themselves, I think that the best thing about the Pink products, Wounded Warrior magnets, etc; is that it gets people thinking about the organization in question and probably drives more cash donations. That said, In the case of the Pink products specifically, I would guess that the sheer volume sold probably does result in a pretty good revenue stream for Susan G. Komen. Especially since they are not selling the products themselves, just going along for the ride on already established brands who want to get a little publicity and get a marketing edge on competing brands.

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