Friday, May 17, 2013

On the Locks of Love Scandal

Recently, the group Nonprofit Investor released a report on the well-known charity Locks of Love (which collects donations of hair to make wigs for underprivileged children with hair loss).  The scathing report accuses the organization of having over $6 million in unaccounted for hair.  The report makes some good points, but there are also some clear flaws.  I will discuss both.

The basic math:

  • The organization is estimated to get 104,000 locks of hair each year.
  • Only 20% of these are usable (some of the rest is sold to pay for processing the usable ones).
  • It takes up to 10 locks of hair to make a hairpiece -- this means they have the potential for 2,080 hairpieces.
  • However, they only made 317 in 2011.
  • The retail value of a wig is $3,500 -- that means $6.17 million of wigs are not accounted for.

Here are the concerns with the math:

  • The estimate of donations is a very rough estimate taken from a newspaper quote in 2004 and is a number that Locks of Love disputes.  Of course, if that number is wrong, so is all the rest of the analysis.
  • The number of wigs provided by Locks of Love during 2011, according to their Form 990 filing, was actually 430.
  • The retail value of a wig is not the same as the value of the hair donations themselves.  In fact, the organization incurs substantial costs to convert hair into usable wigs, so while the value of a wig is $3,500, the value of the "unaccounted for" hair is not.

In short, getting to the $6 million number requires a huge leap of faith -- it brings together several different information sources with varying levels of accuracy.  But, if one can get past the shock-value of the $6 million number, the essence of their point is a good one.  An organization that relies heavily on cash donations from the public should be very careful about tracking and disclosing how much cash came in and where it went.  Similarly, an organization like Locks of Love that relies heavily on donations of other items (in this case hair) from the general public should be very careful about tracking how much of it came in and where it went.  This information  is hard to come by with the disclosures Locks of Love makes, and by all accounts appears to be something they do not even track.  Nonprofit Investor would not need to rely on a mixed bag of evidence for their analysis if Locks of Love provided more of that information itself (even better if it were audited).

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