Wednesday, October 8, 2014

Reconciling Views of Spending by the Wounded Warrior Project

As its popularity and size have grown, the Wounded Warrior Project (WWP) has seen added scrutiny, particularly of its finances. In response to accusations that it does not spend enough of its funds on helping wounded veterans, WWP has consistently stressed that in 2013 "80 percent of total expenditures went to provide services and programs for wounded service members and their families". At the same time, other outlets like ProPublica and the National Center for Charitable Statistics report data indicating the number is closer to 75 percent, whereas Charity Navigator and the Center for Investigative Reporting put the figure at around 55 percent.

In this post, my goal is not to consider whether WWP is spending its money appropriately or even which figure is the one that you should use. Rather, the goal is more modest – to provide a reconciliation of these figures so people can at least get a feel for what they represent.
Let's begin with the WWP figure. The following presents a very condensed version of WWP's statement of functional expenses for 2013.

The first two lines will be discussed shortly, but note that while WWP does provide grants, this is not its primary activity. As such, accusations it doesn't provide enough grants miss the fact that this is not its primary approach to programming, as grants represent only 5% of its program-related expenses. For completeness, I should also note that the "other expenses" category brings together consulting/outside services, mailing expenses, building costs, professional fees, etc. (a full breakdown is in their financials here).

The claim that 80% of expenses is for the benefit of wounded veterans and their families represents the program component (totaling $175 million) of all of the above expenses (totaling nearly $219 million). The first one of these expenses that has been brought into question is the line on advertising. As it turns out, all but $99,000 of this advertising represents donated media (print, television, online) for public service announcements and awareness campaigns. WWP records the estimated value of this donated advertising as revenue and then records an expense based on how the advertising is used (programs vs. fundraising). As you can see above, $67 million of the $70 million was recorded as relating to programs, ostensibly due to awareness and/or public education. For tax reporting purposes, these donated ads are not recorded, either as revenue or expense. If they are removed from consideration entirely, the revised expenses appear as follows.

This revised figure approximates the claims that WWP spends around 75% of its budget on programs.  The next item of note is "Joint Costs". This represents costs incurred as part of fundraising efforts that had program-related components (e.g., included education or awareness elements).  In WWP's case, these costs included expenses associated with "direct mail, online and direct response campaigns."  Accounting rules permit an organization to allocate such costs between categories subject to certain limitations. As can be seen above, WWP opted to allocate 61% of its joint costs to the program category. Charity Navigator and others have concluded that such allocations are not appropriate so simply move the entire amount of "joint costs" to the fundraising category.  Such a reclassification would result in the following breakdown.

Hence, with a reclassification of joint costs as entirely fundraising in nature, one arrives at the 55% figure.

I leave it to others to decide which figure is the best reflection of where the funds for WWP go, but hopefully this at least gives a window into what is included in each of the figures commonly presented.

1 comment:

  1. Great illustration of why interpreting functional allocation information is difficult and nuanced.