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: