Tuesday, August 16, 2016

A look at the 2015 Wounded Warrior Project Financial Statements

Since this blog previously discussed what can (and what cannot) be gleaned from the Wounded Warrior Project (WWP) financial statements from 2015, I figured I would revisit the question now that they have been publicly released.  The five things to look for were:

If you want to see how the crisis affected donations or changed WWP's spending approach, you’ll need to wait another year for it to show up in the financials.
As mentioned before, these financials cover the period prior to the fallout from media scrutiny, so there are not any operational changes here to note.  One feature worth noting, however, is that the disclosure on subsequent events does mention a reorganization planned for September 2016 to address concerns that have been raised.

If you want a complete picture, you will need to look at the consolidated GAAP (audited) financial statements.
As discussed before, the main reason GAAP financials are more informative for WWP than the IRS Form 990 is that they consolidate the activities of WWP and its controlled entity, the Wounded Warrior Project Long Term Support Trust (WWPLTST).  For 2015, this matters because WWP transferred $54,000,000 to WWPLTST, an amount that didn't register as an expense in the GAAP financials since they consolidate the two entities.  Surprisingly, the organization has decided to make a shift toward highlighting the results from the WWP Form 990, which lists this $54,000,000 as an expenditure devoted to programs.  This is perplexing, since it is hard to argue that shifting money from one of your organizations to another is spending money on veterans programs (that money shouldn't be viewed as spent until it is disbursed from WWPLTST).  I am not sure why the organization made this shift in focus, but I continue to stress that the Form 990 is misleading in this case and interested readers should stick to the GAAP financials.

Check the audited financials to see who conducted the audit and if they offer any mention of the developments in 2016.
Nothing earth shattering to report here.  Grant Thornton once again served as the auditor and provided an unqualified opinion on the financial statements.  As discussed above, the developments are described briefly as a subsequent event but there is no mention of a material consequence of them.  That said, Jim Ulvog noted the interesting tidbit that the audit report was issued by the Atlanta office in 2014 but switched to the New York office in 2015.

Examine the consolidated net asset balance to see how much of a financial cushion the organization built before the controversy.
As of September 30, 2014, the organization had accumulated over $283 million in unrestricted net assets (up from $173 million just one year prior). This number increased another $86 million in 2015 to $369 million.

Check to see if the organization chose to be more conservative in its accounting choices. 
The short story on this is it appears the organization largely continued its accounting choices from previous years, relying heavily on joint cost allocation and treating donated public service announcements as entirely program-related.  This remained a material aspect of their financials, with donated media, advertising, postage & mailing, and direct response efforts making up 50% of all of the organization's expenses; of that amount, 73% was recorded as program-related.

Tuesday, August 2, 2016

If He Did It: The Question of Charitable Donations by Donald Trump

One interesting subplot of the presidential campaign that has brought the nonprofit world into play is the question of Donald Trump’s personal charitable giving.  After repeated claims of Mr. Trump’s philanthropic largesse by his supporters, many have questioned the extent of such giving.  Gifts of conservation easements, free golf rounds, and the like by Trump-controlled companies have been well-documented, but personal giving by the candidate himself was, until recently, largely uncharted territory.  This is where the extensive work of David Fahrenthold of the Washington Post comes in.  While the Washington Post examination itself has yielded several fascinating stories, it has found little evidence of substantial personal giving by Mr. Trump.  However, in my mind, there is one large gap in the investigation that will be hard to bridge.  To elaborate, here are what I see as the three most plausible sources of personal giving by Mr. Trump:

1. Donations to the Donald J. Trump Foundation.  This would seem like the obvious recipient of Mr. Trump’s personal giving.  After all, he established this charity as a private foundation, and that is what private foundations are for.  Yet, it turns out that little of the giving to the Donald J. Trump foundation comes from Mr. Trump himself; instead, the organization acts more like a public charity.

2. Donations to individual operating charities.  This is the most popular choice for the average donor, so it seems like the natural next place to look.  And, this is precisely what Mr. Fahrenthold has done – seeking out nonprofits that have had some affiliation Mr. Trump, have been recipients of funds from the Donald J. Trump Foundation, or have otherwise been mentioned in conjunction with the candidate.  Though plagued by many nonprofits’ opting for “no comment”, this avenue of investigation has yielded little evidence of donations.

3. Donations to Donor Advised Funds (DAFs).  Though donations to individual operating charities seems like a reasonable path for investigation, it is actually not a particularly wise way to go for a high-wealth individual.  Instead, I would argue that the second-most plausible giving outlet is through donor advised funds.
Why are DAFs an avenue to consider? For one, there are strong tax incentives to give appreciated investments rather than cash to charity, and donor advised funds (at least those with commercial sponsors) are typically better equipped to take and convert such donations to cash.  Second, using donor advised funds helps separate the tax benefit of giving from the decisions of which operating charity will get funds and when.  Finally, donor advised funds permit giving to individual operating charities while preserving privacy of the donor.
What would this entail? The donor gives money (or, more likely, investments) to the DAF and then later directs the DAF about which operating charity should receive the cash.
Would Mr. Trump use DAFs?  Normally, I would say no, that having a private foundation is strong evidence that the individual intends to use the private foundation for his/her giving and not a DAF.  In this case, however, if there is substantial giving, we already know the private foundation is not the source.  More circumstantial evidence to this end is that Mr. Trump’s private foundation itself has granted funds to DAFs, so there are some natural recipients.

The problem presented by DAFs is that if they are a possible source of Mr. Trump’s personal giving, it is unlikely that these organizations will comment on the presence or extent of Mr. Trump's use of them without him asking them to. How can we know then?  The only sure way is if the candidate releases tax returns, or at least the portion that details his charitable contributions.  Until that happens, we are left with an incomplete picture.  In the mean time, we can all enjoy David Fahrenthold's valiant attempts to piece together the puzzle.