WASHINGTON - Thousands of nonprofit organizations 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.
A Scripps Howard News Service analysis found 41 percent of all 37,987 charities and other nonprofit 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.
In Arizona, out of the nearly 600 non-profits that report taking in more than $1 million, nearly 45 percent reported spending nothing on fundraising.
Nationwide, 15,389 nonprofits reported spending nothing for advertising, telephone solicitations, mailed donation appeals, professionally prepared grant applications or staff time for face-to-face pleas for contributions.
These groups reported that they managed to raise a total of $116.7 billion while reporting zero fundraising expenses, according to a study of federal tax records by Scripps Howard News Service. By law, nonprofits do not owe federal taxes on any funds they raise.
Robert Ottenhoff, president and CEO of the nonprofit oversight group Guidestar , which provided the financial data for the Scripps study, laughed when told of the finding.
"It is ridiculous to think an organization 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 nonprofit's officially stated purpose.
The Scripps study found that 22,598 nonprofit groups did report fundraising expenses that totaled $14.3 billion, or about 7 cents for every dollar they raised.
Some experts express indignation that major charities would claim to spend nothing on raising money.
"This is just outrageous," said Marion Fremont-Smith, senior research fellow at Harvard University's Hauser Center for Nonprofit Organizations. "If they say zero -- and it cannot be zero -- then that is a misreported tax form. And there are penalties for that."
Chief executives of nonprofits sign their annual Form 990s to the IRS promising "under penalties of perjury" that the information provided is "true, correct and complete." However, legal action for a false filing is extremely rare.
"I am concerned when organizations do not file correctly," Lois Lerner, director of the IRS' Exempt Organizations Division, said in an interview.
Lerner declined to speak directly about large nonprofits that report zero fundraising expenses. But she pointed to a multi-year study she began in 2010 at IRS to review how charities raise and use donations to accomplish their stated charitable purposes.
"What I can tell you is that I have a Charitable Spending Initiative that looks at fundraising costs, along with other indicators of potential noncompliance with the tax rules. We are very, very interested in that," Lerner said.
In Arizona, more than 250 nonprofits that took in more than $1 million in their most recent IRS filings reported that they raised that money without spending a dime.
Lattie Coor, CEO of the Center for the Future of Arizona , said his organization has never reported fundraising costs in the 10 years they’ve operated. But he says there’s a different reason his nonprofit didn’t report them.
“We do make phone calls, we do mailings,” he said, “We just consider that just a basic part of the cost of doing business.”
His organization funds educational and community programs in the state but it doesn’t solicit individuals, he said. They don’t employ a development officer and Coor said they get the majority of their money from foundations.
The cost of those phone calls and mailings are not reported in the fundraising column, he said, but they are included in the Center’s administrative costs.
“The fundraising costs are such a minor part of it that I think it’s fairly represented in those administrative costs,” he said.
He also said that how they report – or don’t report – fundraising costs was something the nonprofit would think about in the future. “You raise a question that I think should be important to all of us,” he said.
Several nonprofit groups said they will examine their reporting practices as a result of the Scripps study.
When informed that 48 of Goodwill Industries ' 127 major affiliates reported raising $387 million at no cost, Goodwill Industries International President and CEO Jim Gibbons said the charity group will rethink