Saturday, April 13, 2013

When Summary Accounting Metrics Fall Short: The Case of Breast Cancer Charities of America

Many donors rely on summary measures of accounting performance to assess the financial propriety of nonprofits.  While accounting statements certainly provide important information about a nonprofit and its operations, a simple glance at summary measures can often fail to provide an adequate picture.  A case in point is the Breast Cancer Charities of America (BCCA).  A quick review of their website and their overall financial performance paints a picture of a growing organization committed to providing assistance and research to those suffering from breast cancer.  A deeper look into the financials reveal a more complex story.

The Breast Cancer Charities of America touts itself as the only nationwide breast cancer charity that focuses on "integrated cancer care."  Their mission and effective outreach efforts have led to some notable corporate and celebrity partnerships, including Chick-fil-A, Coca-Cola Bottling Company, J CREW, Tiffany & Co., and Gretchen Rossi (of Real Housewives of Orange County fame).  As their website boasts, they also host a variety of popular fundraising events to support their cause.  These efforts have led to a growing budget.  From their IRS form 990 filings, in only three years, their expenses have grown to over $14 million annually.  Further, 79% of their expenses relate to their mission.

BCCA Expense Growth
BCCA 2011 Expense Classification

Here's the catch - these numbers do not convey what most people think they convey.  Digging into the financials reveals a bit more about their revenue sources and expense classification.

True, BCCA had nearly $15 million in revenues in 2011.  However, these did not come from their many fundraising events.  In fact, their fundraising events actually lost money (over $100,000) in 2011.  Where did the money come from?

In short, their revenues have grown, but the growth is due to receipt of medical goods and fundraising efforts conducted by third parties.

The natural follow-up question is where their resources go.  After all, the organization's 79% program expense ratio looks quite good.  The program expense ratio, however, does not tell the whole story.  Of their total expenses of $14.8 million,
  • $8.8 million represents assistance to those outside the United States (i.e., transfer of donated medical supplies to others).  It's not clear what these supplies were (receipt and subsequent disbursement of medical supplies by charities is itself a source of controversy), but there is no evidence they have anything to do with integrated cancer care, and they certainly aren't for cancer patients in America.
  • Almost $6 million represents payments to Associated Community Services ($4.3 million) for telemarketing and donor processing fees, and Brickmill Marketing Services ($1.675 million) for direct mail campaigns.
  • Only $42,620 was paid out in to individuals in the United States.

Given where their money goes, how can they claim program expenses of nearly $11.8 million?
  • First, the $8.8 million in medical supplies are treated as program expense on the grounds that they assist those in need of medical care.
  • Second, the payments to the third party fundraisers were treated as joint costs that relate both to fundraising and programs.  Sidestepping the issue of whether the organization appropriately applied the accounting rules, they deemed approximately $2.8 million of those costs as program costs on the grounds that they helped educate the public about "integrated cancer care".
  • Finally, there was the $42,620 paid to assist women with breast cancer as part of their Help Now Fund.

In total, just because they have a lot of program expenses does not mean that they are providing a lot of financial assistance to those with breast cancer.  This may be a somewhat extreme case of financial statement dissonance, but these issues are actually quite common.  So, what is a donor to do?  Importantly, don't assume that your donation will be used how you want it to be used.  Ask questions.  Demand details.  Look at detailed reviews by reputable rating agencies.

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