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Check on your charity

December 22, 2002 1:07 am

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The holiday spirit and desire for end-of-year tax write-offs make December a popular month for giving to charities. People donate generously, with trust that their money will be put to good use.

And, mostly, it is.

An analysis by The Free Lance-Star shows a large number of Fredericksburg-area agencies perform valuable services on well-balanced and thrifty budgets. The groups spend the majority of their money on services related directly to their programs. And those programs enrich the Fredericksburg area by enhancing public safety, helping the needy, expanding educational opportunities and preserving historical monuments, among other things.

Still, it's wise for prospective donors to be cautious before writing checks.

Some local agencies spent more on management and fund raising than on program services, a situation charity watchdogs frown on. And a few groups spent more money than they brought in, resulting in deficits, the newspaper's analysis shows.

The analysis, based on year 2000 tax returns, sheds light on the financial status of more than 150 area organizations. These include multimillion-dollar outfits such as Mary Washington Hospital and smaller nonprofits such as the Rappahannock Council on Domestic Violence.

Most of the agencies are charities, gathering and distributing money for the needy. But some are not. The agencies the newspaper studied include fraternal societies, trade associations, veterans organizations and other groups. All the agencies have tax-exempt status, meaning they do not pay federal income tax. But not all of them perform services for charity.

Some operate much like businesses, except they do not generate profits for shareholders. Most, though, are traditional nonprofits, raising money through donations, fund-raisers and government grants, and then spending the money to help the needy.

With the holiday season under way, the newspaper has posted key figures from each agency's tax return, known as Form 990, on the paper's Web site, fredericksburg .com.

The figures are from year 2000 forms because 2001 returns, which normally are completed in 2002, were not yet available from some agencies when the newspaper requested them earlier this year.

Among the findings:

The amount of revenue brought in by area agencies ranged from $25,423 for Dubs Etc. Inc., a Ruther Glen nonprofit that helps the disabled, to more than $204 million for Mary Washington Hospital Inc.

The study does not include organizations with annual incomes of less than $25,000 because those groups are not required to file the informational tax forms.

No organization received more in direct public contributions than the American Life League. The national anti-abortion advocacy group based in Stafford County picked up more than $6 million in direct public support.

Greater Fredericksburg Habitat for Humanity generated nearly $180,000 in revenue, including about $59,000 in donations. But it spent just $29,000 on its purpose--providing affordable housing to low-income residents.

Executive director Carl Wiberg said its expenses were higher in 2000 because the organization had a paid staff that year. Before then--and since--it's been run by volunteers, Wiberg said.

"We felt we weren't getting the maximum productivity out of the paid people, so we released the program and went back to volunteers," he said.

The Fredericksburg Area Food Bank spent the vast majority of its money on program services, with a very small amount going to management. But the food bank ended the tax year with a deficit of nearly $300,000.

Food bank officials say the deficit is merely a function of how the group does its accounting. Both donated food and food distributed by the agency are given a monetary value based on weight. In 2000, the food the agency received had a lower value than the food the agency passed out, thereby causing a deficit.

The situation highlights the need to ask agencies about their finances, since numbers on the tax forms, while valuable, can at times be misleading.

First Nations Development Institute, an influential national advocacy group for American Indians, has more than $2 million in net assets and brought in nearly $2.5 million in revenues in 2000. But the agency ran a deficit of more than $1 million that year.

The deficit is not a sign of financial problems, First Nations finance director Heather Foley said. Rather, it's the result of the group receiving multiyear grants. The revenues from the grants are recorded only in the first year, while the expenses are recorded as they are spent. This can lead to the appearance of a deficit in some years, even though over the course of the grant no deficit exists.

George Washington's Fredericksburg Foundation is one of the best-funded tax-exempt agencies in the area, with more than $5 million in annual revenue.

The historic-preservation group spent 39 percent of its money on program services, with considerably more money going to management.

Foundation officials say this is because the organization spent heavily in recent years on land acquisitions, such as George Washington's boyhood home at Ferry Farm, and on renovations to the Kenmore mansion. These long-term capital projects support the foundation's mission, but they also create an imbalance in its spending, executive director W. Vernon Edenfield said.

The projects are in their early stages, Edenfield said, and cause an "inflation" in spending for management. Some public programs have been developed in conjunction with the acquisitions, but others are still being developed, he said.

"It's disproportionate," Edenfield said.

Donor advocates say people should consult annual reports and agency leaders to flesh out numbers recorded on the forms. And they should consider the type of organization they're checking into. A group with millions of dollars worth of property to oversee, such as Kenmore, can be expected to have higher management costs than a group that distributes food to the needy.

The tax returns don't provide all the facts needed to understand an organization's spending habits.

Even so, the forms offer telling clues about how much agencies have in the bank--and how they spend it.

Donors can glean whether an agency has sizable net assets, a hefty travel budget or pays any employee more than $50,000 a year. They can find out whether an agency pays a meager rent, splurges on supplies or puts nearly every nickel it gets into its programs.

Donors can also determine, through a quick calculation, whether an agency spends a bigger chunk of its funds on management and fund raising or on costs directly related to carrying out its mission.

Tax-exempt groups that solicit donations should spend at least 50 percent of their money on program services, according to the Council of Better Business Bureaus, which monitors charity spending. Other charity watchdog groups set the bar higher, saying at least 60 to 70 percent should go toward program services.

Some in the Fredericksburg area, including the Fredericksburg and Rapidan chapters of Habitat for Humanity, fall short of the minimum 50 percent standard that the CBBB applies to all tax-exempt groups that seek donations of money, property or volunteer service.

While the Form 990s provide an excellent starting point for scrutinizing an agency's finances, getting a look at the forms isn't always easy.

Some groups post them online, and others hand out copies upon request. But others battle to keep them secret despite the openness the law requires.

June Woditsch, the president of the local SPCA, for instance, sent a letter saying the agency doesn't release "confidential information. Thus, we must decline the newspaper's request for that information," she wrote.

The letter runs counter to the law, which requires tax-exempt agencies such as the SPCA to share their tax forms with the public.

The SPCA provided its returns months later, after subsequent requests.

The paper's Web site doesn't include information on every tax-exempt entity in the area. In addition to small groups that take in less than $25,000 annually, private nonprofit foundations are not listed. And some groups explicitly refused to provide a copy to The Free Lance-Star.

Some groups were too new to have filed their first returns with the Internal Revenue Service. Some other agencies, for a variety of reasons, could not be reached.

Even so, the newspaper's Web posting reflects the largest single-site collection--aside from IRS records--of financial data on Fredericksburg-area organizations.

These groups include fraternal organizations such as Moose lodges, recreational groups such as the Fredericksburg Hockey Club and agencies more commonly thought of as nonprofits, such as the Rappahannock Council Against Sexual Assault.

Some of these groups are not the kind to pull in $50 checks from people wanting to help the needy at Christmastime. They don't hold fund-raisers, solicit contributions or apply for government grants. Often, they rely on money generated by their program services.

But other agencies aggressively pursue individual donations and hold annual fund-raisers, such as Rappahannock Council on Domestic Violence's Empty Bowl event. Some advertise for donations, some receive government grants and some, such as fire and rescue agencies, benefit from gifts in memory of the recently deceased.

The majority of groups spent at least as much on program services as what charity watchdogs recommend, shunning high overhead costs, their forms show.

The Thurman Brisben Homeless Shelter, for instance, spent about 92 percent of its money on program services.

About 89 percent of Rappahannock United Way's expenses were for program services. And about 87 percent of Fredericksburg Area HIV/AIDS Support Services' costs were for program services.

The forms also reveal which agencies ran a deficit in 2000. These agencies include Rappahannock United Way, Culpeper Baptist Retirement Community Inc. and the Rappahannock Association for Retarded Citizens.

Though a deficit can be an indicator of financial instability, it can also be misleading, as an agency with a deficit one year might have significant excesses in previous and subsequent years.

In the case of Rappahannock United Way, the deficit stemmed from the board of directors' decision to not collect money owed to it by other charities, outgoing director Barbara Terry said.

At Culpeper Baptist Retirement Community, the deficit of more than $335,000 was a "paper loss" caused by more than $400,000 in depreciation, executive vice president Kevin Quinn said.

For other nonprofits, the deficits led to a change in operations. Rapidan Habitat for Humanity released its executive director, trimming a $32,000 salary, to bring its finances into balance.

And the Association for Retarded Citizens-Rappahannock negotiated a more favorable rent for its Hart House program. "We're no longer running a deficit," executive director Jan Griffin said.

The vast majority of Fredericksburg-area agencies ended the 2000 tax year with plenty in reserve.

Topping that list was Mary Washington Hospital, which reported an excess of nearly $10.4 million.

No one figure from the tax forms can paint a full picture of an organization's financial health or spending habits. Relying only on the forms, without consulting agency leaders for explanations, is ill-advised. But so is writing a check without looking at the returns at all.

As the small print on the tax form says, "Form 990 is available for public inspection and, for some people, serves as the primary or sole source of information about a particular organization. How the public perceives an organization in such cases may be determined by the information presented on its return."

Staff writer Jim Hall contributed to this report.