I have been asked by my readers to explain gifts-in-kind. Thank you for the question.
In short, gifts-in-kind includes donated food, clothing, supplies and volunteer hours, booked by The Salvation Army at market value. When the entry is made for gifts-in-kind, The Salvation Army records income equal to the amount it records as expense, or puts it into inventory.
There is actually nothing wrong with that entry. It is the way most non-profit organizations record gifts-in-kind. It follows Generally Accepted Accounting Principles. What The Salvation Army does those numbers in its written reports is the problem.
I mentioned in other blogs that disaster relief is big business for The Salvation Army. Gifts-in-kind are a very large part of that disaster relief business. The Salvation Army distributes gifts-in-kind to disaster victims, which is a good thing. However, gifts-in-kind are valued as costs of the disaster relief effort by The Salvation Army when reporting costs associated with the disaster relief effort. Remember, gifts-in-kind cost The Salvation Army absolutely nothing.
When disasters strike, such as the tornado that recently hit Moore, Oklahoma, The Salvation Army quickly places ads, asking you to donate to the organization. Read the ads carefully. Those ads do not state that the money you donate will go to disaster victims and it does not go to the victims. Your donations go into the general fund of The Salvation Army. The organization uses those donations as it sees fit.
Reporting for disaster relief operations is sketchy at best, but it does release some reporting to major donors who press for an accounting. That reporting is less than honest reporting.
This reporting is not offered to the general public, but the organization uses it to entice major donors to keep giving money. These major donors give very large sums of money to The Salvation Army and some do press for reporting as to how their donations are spent. What they should press for is an audit, conducted by an outside auditing firm. The truth with respect to how disaster donations are used would infuriate donors.
Example: Assume The Salvation Army collects $100,000 in cash donations from pleas for disaster assistance. It reports the out of pocket dollars to send its disaster vehicles and officers to the disaster site as $50,000. For the sake of argument, assume that $50,000 is an actual cost to the organization. The Salvation Army reports a profit of $50,000 from the disaster relief donations.... right? Wrong!
The Salvation Army also reports the market value of gifts-in-kind it distributes to victims against those donated dollars. For purposes of this example, assume the market value of the gifts-in-kind is $75,000. The Salvation Army reports a shortfall of $25,000 to major donors for the disaster relief effort, in hopes those donors will dig deeper and donate more money to the organization.
The Salvation Army actually spent $50,000, but includes the value of $75,000 in gifts-in-kind as costs incurred; a total cost of $125,000 for the disaster relief effort is reported to major donors. So, The Salvation Army reports a $25,000 shortfall with respect to dollars received and dollars spent for the specific disaster relief effort. Of course The Salvation Army gladly accepts donations to make up that shortfall, that does not really exist.
What's wrong with this picture? The gifts-in-kind cost The Salvation Army absolutely nothing. The organization gets these items at no cost from donors. Then the organization, in effect, sells the gifts-in-kind that donors previously gave to the organization to donors, at market value when it distributes them in disaster relief efforts. In some cases it even charges volunteer hours at market value to the disaster relief. Volunteers donate their time to the disaster relief and the Salvation Army charges donors for those volunteer hours at market value.
It's all smoke and mirrors with the numbers The Salvation Army reports to major donors. Gifts-in-kind are a large part of this smoke and mirrors reporting. No ethical accountant would endorse this type of reporting.
Is it illegal? Sadly, no, but it is highly misleading and many view it as an unethical practice. Donors give food, clothing and supplies to The Salvation Army and the organization sells those items back to those donors at market value when it distributes the items to disaster victims. The Salvation Army keeps a large portion of your disaster donated dollars, thanks to the gifts-in-kind you donate.
Showing posts with label misleading ads. Show all posts
Showing posts with label misleading ads. Show all posts
Wednesday, July 24, 2013
Tuesday, July 16, 2013
The Business of Disaster Relief
Disaster relief is big business for The Salvation Army. Do not assume the money you donate to The Salvation Army for a specific disaster will make it to the victims of the disaster. The money you donate goes into the coffers of The Salvation Army and the organization uses that money as it sees fit.
Read their disaster pleas very carefully. Those pleas reference specific disasters, such as the disaster in West, Texas, or the Moore, Oklahoma tornado. The ads ask you to pray for the victims of those disasters. On the page there is a "donate to The Salvation Army" button. Do not assume the money you donate will go to the victims of the disasters. The Salvation Army profits from your donations. Victims of the disasters never see the money.
The Salvation Army is an $8.8 billion net worth organization. It owns more than $4 billion in luxury offices, homes for its officers and provides those officers with a better style of living than most people who donate. The Salvation Army provides its officers with a home, car, medical insurance, a retirement plan, pays all of the officers living expenses, gives them a salary and sends them on luxury vacations with the money you donate, including the money you believe you are donating for disaster relief.
The Salvation Army diverts the money you believe you are donating for disaster relief. This diversion of funds will continue as the organization runs its deceptive ads, asking for donations you believe will go to disaster victims. Remember, the ads do not state that your donations will go to disaster victims. The ads ask you to pray for the victims and donate to The Salvation Army.
Where do your disaster donations go? That money goes into The Salvation Army's general fund. No one really knows how the money is spent, but the organization has one financial issue that will further effect the way it uses your disaster donations in the years to come. Take a look at its fiscal 2012 annual report. The Salvation Army owes its retirement plan almost $1.8 billion, which is 67% of the revenue reported by the organization in the annual report.
This liability has grown over the past four years and is going to be a major issue for The Salvation Army in the years to come. By the organization own admission, the number of officer retirements is growing each year. In some years, the number of retiring officers retiring exceeds the number of newly commissioned officers. The organization relies on newly commissioned officers to earn the money to pay its retirees.
Much of the money the Salvation Army receives as disaster donations will be used to pay retirees. The money you donate by clicking that magic "donate" button on the page with a disaster relief plea for prayers, goes into the organizations general fund. Victims of disasters never see that money.
You will never see an audited accounting for disaster donations to The Salvation Army. Example; when the Katrina disaster hit, The Salvation Army finally admitted collecting $295 million from donors who gave to the organization, believing the money would go to the victims of the Katrina disaster. When pressed for an accounting of those funds, The Salvation Army would only say that it planned to spend about 1/3 of the money on "future" needs of those devastated by the disaster. What about the other 2/3 of the money collected? No accounting for that money.
When you do hear The Salvation Army talk about money spent on disaster relief, be skeptical of the way the organization calculates the money it spends. The Salvation Army has disaster warehouses throughout the United States. Those warehouses stock donated water, donated food, donated clothing and other donated supplies. These donated goods cost The Salvation Army nothing. However, when the organization talks about the money it spends on disasters it includes the market value of those donated goods, even though the donated goods cost The Salvation Army nothing.
If you want to do the most good with your disaster donations, you should look for a disaster relief fund that is set up though a bank in the local disaster area. Your money will go to the victims. The Salvation Army will use it to line the pockets of, and improve the lifestyles of, its officers.
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Read their disaster pleas very carefully. Those pleas reference specific disasters, such as the disaster in West, Texas, or the Moore, Oklahoma tornado. The ads ask you to pray for the victims of those disasters. On the page there is a "donate to The Salvation Army" button. Do not assume the money you donate will go to the victims of the disasters. The Salvation Army profits from your donations. Victims of the disasters never see the money.
The Salvation Army is an $8.8 billion net worth organization. It owns more than $4 billion in luxury offices, homes for its officers and provides those officers with a better style of living than most people who donate. The Salvation Army provides its officers with a home, car, medical insurance, a retirement plan, pays all of the officers living expenses, gives them a salary and sends them on luxury vacations with the money you donate, including the money you believe you are donating for disaster relief.
The Salvation Army diverts the money you believe you are donating for disaster relief. This diversion of funds will continue as the organization runs its deceptive ads, asking for donations you believe will go to disaster victims. Remember, the ads do not state that your donations will go to disaster victims. The ads ask you to pray for the victims and donate to The Salvation Army.
Where do your disaster donations go? That money goes into The Salvation Army's general fund. No one really knows how the money is spent, but the organization has one financial issue that will further effect the way it uses your disaster donations in the years to come. Take a look at its fiscal 2012 annual report. The Salvation Army owes its retirement plan almost $1.8 billion, which is 67% of the revenue reported by the organization in the annual report.
This liability has grown over the past four years and is going to be a major issue for The Salvation Army in the years to come. By the organization own admission, the number of officer retirements is growing each year. In some years, the number of retiring officers retiring exceeds the number of newly commissioned officers. The organization relies on newly commissioned officers to earn the money to pay its retirees.
Much of the money the Salvation Army receives as disaster donations will be used to pay retirees. The money you donate by clicking that magic "donate" button on the page with a disaster relief plea for prayers, goes into the organizations general fund. Victims of disasters never see that money.
You will never see an audited accounting for disaster donations to The Salvation Army. Example; when the Katrina disaster hit, The Salvation Army finally admitted collecting $295 million from donors who gave to the organization, believing the money would go to the victims of the Katrina disaster. When pressed for an accounting of those funds, The Salvation Army would only say that it planned to spend about 1/3 of the money on "future" needs of those devastated by the disaster. What about the other 2/3 of the money collected? No accounting for that money.
When you do hear The Salvation Army talk about money spent on disaster relief, be skeptical of the way the organization calculates the money it spends. The Salvation Army has disaster warehouses throughout the United States. Those warehouses stock donated water, donated food, donated clothing and other donated supplies. These donated goods cost The Salvation Army nothing. However, when the organization talks about the money it spends on disasters it includes the market value of those donated goods, even though the donated goods cost The Salvation Army nothing.
If you want to do the most good with your disaster donations, you should look for a disaster relief fund that is set up though a bank in the local disaster area. Your money will go to the victims. The Salvation Army will use it to line the pockets of, and improve the lifestyles of, its officers.
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