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Nonprofits fail to disclose data – Fundraising costs not reported

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More than one-fourth of 4,889 nonprofit organizations violated federal rules by telling the Internal Revenue Service they spent nothing on fundraising, the Chronicle of Philanthropy reports.

A Chronicle computer analysis of IRS data from 1996 showed more than one-fourth of the organizations that received $500,000 or more in gifts reported spending nothing on fundraising.

Organizations included in the study together receive more than 90 percent of the total donations reported by all charities.

The Chronicle’s findings echo those of a new study by the Urban Institute’s Center on Nonprofits and Philanthropy.

Using a sample of computerized returns from 1997 and 1998, the institute found that 35 percent of charities that received between $500,000 and $1 million reported no fundraising expenses.

Nor did nearly 30 percent of those in the $1 million to $5 million range, or nearly one fourth of those with more than $5 million in contributions.

In some cases, groups had legitimate reasons for reporting no fund-raising expenses, the Chronicle reports.

Some actually do spend nothing on fundraising, and others are part of an organization with several affiliates, which means that their contributions are only listed on the main organization’s return.

Many of the charities contacted by the Chronicle simply don’t follow the rules, however, and are misleading the public about how their donations are spent, the newspaper says.

Charities always are under pressure to report low fundraising expenses so donors know their money is going to the cause and not the charity itself.

The pressure has increased since information on fundraising has become more readily available: Federal rules were enacted a year ago making it quick and easy for anyone to get a copy of a charity’s tax forms.

Charities have good reasons to minimize the fundraising expenses they report. The Better Business Bureau recommends that people give only to charities whose fundraising costs are no more than 35 percent of the total collected.

The Combined Federal Campaign, the on-the-job charity drive for federal employees, bars any organization that spends more than 25 percent of its budget on fundraising.

The National Charities Information Bureau doesn’t use a specific figure, but urges donors to make sure fund-raising costs are reasonable.

Many nonprofit officials complain that these standards are simplistic, the Chronicle reports. New charities and those that  support controversial causes have a harder time raising money and must spend more on fundraising.

Under federal law, a nonprofit that files an incomplete return is subject to penalties of up to $50,000.  The government fines charities only rarely, however, on the theory that most such omissions are inadvertent mistakes  by volunteers.

And the I.R.S. is not likely to audit an organization simply because it omitted fund-raising expenses, the Chronicle says.

Many say the problem can be solved simply by teaching charities to fill the form out properly.  Others, however, say that public perception is the real problem.

A number of charities also told the Chronicle that their accountants told them to list no fund-raising expenses, for a variety of reasons.

But regardless of what a particular accountant says, fundraising information is required by the IRS.

In the long run, many in the nonprofit world say, it would be better for philanthropy’s image if organizations disclosed their costs and informed their donors.

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