By Wall Street 24/7: Rating the non-profit sector is tricky. The main ratings services Charity Navigator and BBB Wise Giving Alliance are both flawed. Moreover, some in the non-profit world object to the idea of assigning grades to the sector because the organizations vary so much in size and scope. That's nonsense.
There clearly are some non-profits that are superior to others. The question is how to do it in the fairest way possible. Charity Navigator, which bills itself as the largest rating service, analyzes a number of factors related to a charity's financial health including how efficiently it raises funds and the amount it spends on administrative expenses. Charities interested in receiving the BBB Wise Giving Alliance certification must pass the organization's standards for financial accountability and transparency. In addition, they pay an annual fee of as much as $15,000 to display the group's seal. GuideStar, another service, provides access to charity financial documents but does not offer any qualitative analysis. For donors, though, there is a fourth alternative, The American Institute of Philanthropy (AIP), which we found to be superior.
AIP rates more than 550 charities, and boasts that its reviews are the toughest in the industry. The watchdog's reports are more in-depth than its rivals and go beyond the information the groups report to the IRS through its Form 990 because charity accounting rules give organizations lots of leeway. As AIP notes on its website, " ... (we) make adjustments to better reflect the goals of most donors who want their cash donations to be used efficiently. We do not allow charities to count the funds they spend on direct mail or telemarketing in their program spending, or to include large amounts of undisclosed and often overvalued donated goods in their expenses, even if their accountants allow them to do so."
Charities may be unfairly penalized for complying with complex accounting rules under ratings that are derived from financial calculations derived from data the organizations report to the federal government, according to AIP. Other experts in the non-profit world expressed similar sentiments.
In determining its list of the worst-run charities, 24/7 Wall St. relied on the AIP's ratings. We also considered data from Charity Navigator and BBB along with media reports. The charities on the list were either rated "F" by AIP or were held in low regard by other raters. Moreover, they were heavily dependent on telemarketers for their fund-raising.
Though most non-profits are run by responsible managements and boards of directors, a select few are not. One way that these organizations get tripped up is because of nepotism. Though having family members working in the same organization is not necessarily a bad thing, it can be a warning sign.
"It's definitely a red flag" says AIP analyst Laurie Styron in an interview. "It crowds out the best available people from landing jobs based on their merits. It promotes a lack of oversight."
There is no better poster child for nepotism and mismanagement run amok than Feed the Children, which reportedly collects $1 billion and became famous for its gut-wrenching TV commercials and rated "F" by AIP for years.
In 2009, Feed the Children fired Larry Jones who founded the charity 30 years earlier after he admitted to installing hidden microphones in the offices of three executives who opposed to him. He is fighting for his job back and the charity has struck back claiming that Jones took kickbacks from vendors, kept a hidden stash of pornography in his office and gave himself and his wife, who also worked for Feed the Children, unauthorized raises. His daughter Larri was fired in August. Son Allen has filed a defamation suit against his sister and several board members because she said he was bipolar during a Feed the Children board meeting. A federal appeals court recently ruled against him. Though Allen Jones didn't work for the charity, its board Feed The Children has accused him in a lawsuit of taking materials from a charity food distribution warehouse in Elkhart, Ind, according to the Oklahoman newspaper.
Members of 24/7 Wall St. list of mismanaged charities all solicit donations nationally and all are either poorly rated or not held in high regard by the charity raters. The fact that some of these charities operate as if they were family businesses should make donors cautious.
These are the most mismanaged non-profits in America -- and check out 24/7 Wall Street for more information:
Angel Food Ministries delivers groceries and financial support to those in need through a national network of churches. However, Gary Snyder, author of Nonprofits: On the Brink, notes that the charity “may be fulfilling its mission by delivering food, but it is not delivering on credibility.” Last year, the FBI and IRS raided the Ministries’ headquarters in Georgia. Angel Food Ministries is lead by the Wingo family, including CEO Wesley Joseph Wingo, his wife Linda, and their sons, Andrew and Jonathan Wesley. Over the fiscal years 2006 to 2007, the family received $2.5 million in total compensation. In addition to this, the family received a combined $1.098 million in loans from the organization as of 2007. Read More at 24/7 Wall Street
According to the Cancer Fund of America, its mission is “To provide support and services to financially indigent patients; to disseminate information concerning the early detection and prevention of cancer; to provide commodities, and gifts-in-kind to hospices and other health care providers; to procure and distribute donated merchandise to various 501-(c)-(3) nonprofit community service organizations which aid the ill, needy, and infants.” The non-profit, however, only spends 17% of its budget on program services. Furthermore, it was accused by the Georgia Governor’s Office of Consumer Affairs for making false and misleading claims in its mail solicitations. Cancer Fund also employs two sons of founder James Reynolds Sr. and a son-in law. Read More at 24/7 Wall Street
Operation Lookout National Center for Missing Youth is an “international child-search assistance center.” The organization reportedly spends a massive 82.9% of its budget on fundraising expenses, however, proving itself to be highly inefficient. A reason for its ineffectiveness is its reliance on expensive outside telemarketers to procure donations. Read More at 24/7 Wall Street
American Veterans Coalition, which is run by Robert Friend and his wife Shao Mei Wang, describes itself as being “dedicated to assisting the brave men and women who have done so much for their country.” Records show, however, that of the $1,579,521 the organization raised in 2007, only 21% went to program services, and of that less than 1% went directly to veterans and their families. Additionally, officials in both Arkansas and Kentucky have claimed that the organization violated the Consumer Protection Act by misleading donors about how their donations would be spent. Read More at 24/7 Wall Street
Children’s Wish Foundation International, which has as its top two executives husband and wife Arthur J. Stein and Linda Dozoretz, was established to grant wishes to children with life-threatening illnesses. According to Charity Navigator, however, only 46.4% of the charity’s revenue goes to program expenses. In comparison, 43.3% goes to fundraising expenses. It received zero stars from the group and an “F” from AIP. Read More at 24/7 Wall Street
Kids Wish Network was established in 1997 to grant wishes for children with life-threatening conditions. Since then, the organization has faced a high level of criticism for a number of reasons. The most prominent critique is that Kids Wish Network is inefficient, relying too much money on fundraisers while providing too little to their cause. Charity Navigator reports that only 48.5% of the charity’s revenue goes to program expenses. This is because of their their telemarketing costs. The charity is lead by Mark and Shelley Breiner, along with in-law Barbara Askin. AIP gives the group an “F.” Read More at 24/7 Wall Street
The National Association of Chiefs of Police is a not-for-profit organization which provides “educational and charitable activities for law enforcement officers.” According to the American Institute of Philanthropy, Donna M. Shepherd is Chief Executive Officer and her two sons Barry and Brent and former daughter-in-law Jamie, all have top positions. The organization also spends 12.3% of its revenue on administrative expenses, underscoring concerns about the family’s involvement. Additionally, there are a number of employees at the charity who are also related, although outside of the Shepherd clan. It was graded “F” by AIP. Read More at 24/7 Wall Street
The Veterans Fund describes itself as supporting “programs that assist thousands of … veterans with mental, physical, and emotional recovery, and that give them hope and encouragement.” The charity, which is run by Hugh Brooks and his wife Katie Clayton, however, has received an “F” rating from the American Institute of Philanthropy. The organization spends just over half of its revenue on program expenses, assigning the rest to administrative expenses (17.2%) and fundraising expenses (31.5%). After accounting for funds spend on educational messages, the amount actually spent on veteran program services is even less. Read More at 24/7 Wall Street
The Arthritis Trust of America works to inform people how to fight disease and funds research. The charity, however, is extremely inefficient. It is lead by Executive Director Perry Chapdelaine and a relative, Lucelyn Chapdelaine. Randolph Chapdelaine on its website as president. Under their control, however, the organization has received a zero-star rating from Charity Navigator, which notes that the group spends under half of their revenue on program expenses, while dividing the remaining funds on administrative and fundraising expenses. It also was rated “F” by AIP. Read More at 24/7 Wall Street