Wednesday, July 24, 2013

Let's Examine That 18% Overhead Claim

The Salvation Army states the organization has an 18% overhead cost, claiming 82% of the dollars you donate go directly to the benefit of those in need.  Let's examine that claim.  It is very misleading.   

The organization claims that it submits to annual audits, performed by Arthur Andersen, yet those audits are not public record.  The claims that The Salvation Army submits to annual audits is very public, but the annual reports you can access on the organization's website contain only unaudited financial statements.  Check online, you will not find an audit financial statement.  Why not put the audited financial statements online?

Why does The Salvation Army submit to an annual audit?  The organization claims it is under no obligation to do so.  That is a false claim.  The Salvation Army has state and federal government contracts that require the organization to have annual audits, conducted by an outside audit firm.  So, why not release those financial statements to the public?  What is The Salvation Army hiding from the public that it cannot hide from state and federal government agencies?

The Salvation Army is hiding a lot!  With respect to this blog, the organization buries overhead expenses in a category called program expenses.  Program expenses are not reported as overhead.

For example, anything paid for an officer, as part of his/her compensation package, is considered program expenses.  The Salvation Army sees its officers as gods over the corps they manage.  As such, they are the administrative managers and fund raisers for the corp, as well as the chaplains.  There is no question that administrative and fund raising expenses are overhead expenses.

Most officers claim to spend at least 50% of their time on administrative and fund raising matters.  It follows that the same percent of officers compensation should be considered as overhead expense, but The Salvation Army does not report any part of officers' compensation as overhead expense.

Let's take a look at that compensation package.  Officers in The Salvation Army say that there compensation is slightly above minimum wage.  I truly believe they are taught that in officer train school.  The fact that it is a bold face lie seems irrelevant.  It sounds good when the officer is asking for donations.

It is true that most officers receive money allowances that are close to minimum wage.  There are no taxes taken from that allowance.  The Salvation Army calculates the tax liability for the officer and gives the officer a grant to pay that tax liability.

In addition to a cash allowance, The Salvation Army pays all living expenses, transportation, medical insurance costs and retirement plan costs for its officer.  It also treats them to luxury vacations, such as cruises disguised as conferences.  The Salvation owns the homes the officers live in, pays all utilities, insurance and upkeep on the home.  The Salvation Army owns the vehicle (s) driven by its officers, pays all gasoline, insurance and maintenance costs.

Salvation Army officers enjoy a higher standard of living than most who donate money to the organization.

The Salvation Army officer's compensation package is bullet proof with respect to downturns in the economy.  When utility costs rise, The Salvation Army pays the increase.  When gasoline prices rise, The Salvation Army pays the increase.  Actually, your donations pay the increased costs.

All officer compensation is reported as program costs by The Salvation Army.  At least 50% of these costs should be reported as overhead, which would change the 18% overhead claim dramatically.  There is no way 82% of the money you donate makes it to those in need.

Two other expenses The Salvation Army does not report as overhead are "Support Services" and "Statewide Services".  These two expenses total 11.8% of all money received by Salvation Army Corps from donations, grants and agency contracts.  If you donate $1.00 to The Salvation Army, the organization's Divisional Headquarters offices and Territorial Headquarters offices skim nearly 12% of that dollar off the top, as administrative overhead.

This percentage is left out of the equation when calculating a minimal 18% overhead.  This does not follow Generally Accepted Accounting Principles.  Why is the Salvation Army allowed to make the 18% overhead claim?  You allow them to without questioning the claims!  Start asking questions.  Your questions will not be answered.  The Salvation is not a transparent organization.  It's attractive public image is manufactured by very well oiled public relations firms.  The view is much less attractive within the organization.

 Another issue with respect to costs reported as program expenses, is the "expense" category, "Gifts In Kind".  This represents donated food, clothing and supplies, charged to program expenses at market value.  Public volunteer hours are also valued at $15 to $20 per hour and charged to program expenses.  (This hourly rate is higher than the hourly pay rate of most The Salvation Army employees).

Also it is questionable as to whether gifts-in-kind should be classified as a program "expense". The Salvation Army pays nothing for these items, but values them as expenses to the organization.  The Salvation Army also books income for these gifts-in-kind, equal to the amount of the expenses charged to program expenses, but does not include that income when it calculates the percentage of income to expenses that go directly to those in need.  This definitely inflates that claim that 82% of all donations go directly to those in need.  Remember, The Salvation Army pays nothing for gifts in kind, but accounts for these items as program expenses, at market value. 

You should be aware of these facts before you choose to believe The Salvation Army's claim that it holds its overhead costs to 18% of your donated dollars.  Whether, or not, you donate to The Salvation Army is a choice you should make based on all the facts. The Salvation Army spends much more of your donated dollars on overhead than the organization reports.  How do you think The Salvation Army built a net worth of $8.8 billion?  That net worth came from your donations!

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