OPINION:
If you’ve ever been on the internet, you’ve probably seen an ad boasting one easy trick to lose weight. On reflection, we know it’s not so simple.
It is that simple, however, if you run a charity and want to mislead the public into thinking you do more good work than you actually deliver. There’s a trick for that, and it’s perfectly legal. Here’s how it works.
Imagine you run a large charity that claims to help animals. It’s a good cause, but instead of volunteering your time, you’re also doing it for a big payday. You know, lots of people open their wallets to help animals. You raise millions on the promise to help animals from coast to coast.
But raising money isn’t cheap. After considering all your fundraising costs — and your hefty salary as CEO — only about half of your budget is actually going to programs that help animals.
Spending half your money on overhead doesn’t look good. So there’s a trick that will let you say you tell donors that you spend 75% or more of your budget on programs.
It’s called joint cost accounting. And it’s being used by many charities across the country.
The ASPCA, the American Society for the Prevention of Cruelty to Animals, raises over $300 million from the public through ads featuring cats and dogs. Recently, the ASPCA came under fire from its former CEO, who says the group isn’t doing enough to help pet shelters. According to him, the ASPCA spends only about 2% of its budget on financial grants to pet shelters. (Despite what many assume, the ASPCA is not affiliated with the many local SPCAs and humane societies.)
The ASPCA responded by saying that “76 cents of every dollar spent by the ASPCA goes toward programmatic services.”
It’s a deceptive response.
According to CharityWatch, a leading nonprofit evaluator, the real number is closer to 50 cents of every dollar. The difference is explained by joint cost accounting.
How does it work? Let’s say a charity sends out a fundraising letter. The letter might include a basic call to action such as “get screened for cancer.” A charity can then claim that some of the costs of the fundraising campaign should be allocated to program spending because of this “educational” message.
Simply put, your donations are paying for direct mail instead of real charitable programs.
And this trick is being abused. Hiding overhead is big business. (ASPCA spending on executives is $6.2 million. The CEO makes $1.1 million a year.)
Consider the difference in program spending between what the ASPCA and CharityWatch say: 25 cents on the dollar. That’s one-quarter of the ASPCA’s entire budget, which was $340 million in 2022.
Nonprofits that use joint cost accounting must say so in their public tax returns. Hardly any average donor goes through a tax return — if they even know the returns exist.
The ASPCA is far from the only group taking advantage of this accounting trick. Charities for Vets, a campaign I run, evaluates veterans charities and recommends some while cautioning donors on others. One factor is whether a veterans charity uses joint cost accounting to hide its true overhead.
Many veterans charities use this trick. Wounded Warrior Project, for example, declared that it allocated $29.1 million to program spending under joint cost accounting in 2022.
Paralyzed Veterans of America is another large veterans charity that uses joint costs. According to its latest tax filing, it allocated $11.9 million to its program spending using joint costs, more than 10% of its overall budget.
Would you give to a charity if half of every dollar was spent on overhead?
There’s no way to calculate how much money charities spend under these joint cost campaigns, but these three groups alone spend $100 million a year. Across the charity world, the figure is undoubtedly in the billions of dollars.
So, the next time you get a letter in the mail from a big charity claiming to spend a certain percentage on its programs, be skeptical. Seek third-party evaluators that cut through the noise and tell you the truth. Americans already donate $500 billion a year to charities. If that money can be used more efficiently, we can do more good without spending another penny.
• Rick Berman is president of RBB Strategies.
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