Posts Tagged ‘Joint costs allocation’

SPLC and “Disqualified Persons”

February 12, 2017

Is there a tax doctor in the house? Last week the Southern Poverty Law Center released its IRS Form 990 tax returns for Fiscal Year 2016. The Form 990 is always an informative read because it contains so much useful information.

Page 1, Line 15 notes that the company paid $20,291,678 in “salaries, other compensation, employee benefits,” (11% of which went to the top 9 execs, leaving the other 282 employees to split the rest for an average of $64,000 each.)

We get that. What we don’t get is the entry on Page 10, Line 6 that reads: “Compensation not included above, to disqualified persons.”

disqualified

Who exactly are these “disqualified persons” and are they being paid outside of the $20 million dollar pot listed on Page 1?

Naturally, the IRS website was virtually incomprehensible on the subject, but several other sources defined disqualified persons as:

  • “Disqualified persons” are those who are in a position to exercise substantial influence over the affairs of the organization, during the five years before the excess compensation was made.

  • “Disqualified persons” would include, for example, voting members of the governing body, and presidents, chief executive officers or chief operating officers, treasurers, and chief financial officers.

  • Also included as “disqualified persons” are certain family members of a disqualified person, and 35% controlled entities of a disqualified person.

  • Other people could also be considered “disqualified persons,” depending upon the relevant facts and circumstances that show substantial influence over the organization, such as a founder, substantial contributor, or manager of a substantial portion of the organization’s activities.

So, apparently, for a 501(c)(3) public charity like the SPLC, “disqualified persons” include founders, presidents, and other top executives, who are already got paid on Page 1, Line 15.

It can also include members of the Board of Directors, who, according to Page 10, receive no compensation for their efforts.

Or, it may include family members of all of the above.

Sadly, the Form 990 does not disclose the identities of the people who are receiving that $14.4 million compensation. Surely somebody has this information. Perhaps the Freedom of Information Act could help?

We ask these impudent questions because the SPLC has a habit of hiding expenditures from the donors. For example, the company routinely makes the claim that “During the last fiscal year, approximately 68% of our total expenses were spent on program services.”

History has shown that this figure relies on the use of legal but ethically dubious gymnastics on the part of the bookkeepers. For example, Page 1, Line 16b of the Form 990 states categorically that “total fundraising expenses” for the year came to $9,689,461, or 21% of expenses for 2016.

Page 10, Line 26, however, notes “joint costs” of $6,989,987. What are “joint costs”? According to the SPLC’s own auditor: “The Center incurred joint costs of $7,983,475 for educational materials and activities as part of fundraising appeals during the year ended October 31, 2016.” (p. 14) Note that the auditor’s figure comes in at nearly a million dollars more than the Form 990.

Translation: “Joint costs are fundraising costs assigned to other departments.” For example, “Management” spent $737,711 on postage last year. That’s more than 1.6 million first-class stamps. Don’t the employees have email? Who else would “Management” need to contact on such a scale?

As Charity Navigator notes on its website: “Although the use of this accounting “trick” is often perfectly in line with the accounting rules for the reporting of joint solicitation costs (AICPA SOP 98-2) these rules allow for many interpretations and judgments that can produce questionable results.”

Add the auditor’s joint fundraising costs to the fundraising costs listed on the Form 990, ($17,672,936) and we’re already looking at 38% of last year’s budget, not the 32% claimed by the SPLC.

As it turns out, compensation to disqualified persons is also spread out across several departments, including another $2 million to fundraising, not listed above. That brings Fundraising’s grand total to $19,834,444, or 43% of the budget, not the 32% claimed by the SPLC.

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Long story short, if the Southern Poverty Law Center is willing to obfuscate its fundraising numbers to hide reality from the donors, why wouldn’t it use the same kind of accounting prestidigitation concerning what it pays its all-white executive suite?

Does anyone out there know how Watching the Watchdogs can obtain the names of these mysterious “disqualified persons”? If so, please contact us as soon as possible.

SPLC — Where the Money Goes, Part 2

January 5, 2015

As mentioned in an earlier post, the winter holidays have given us some downtime with which to reflect upon the Southern Poverty Law Center’s audited financial statements from 2006 to 2013. Having no accounting training beyond what we got as a college freshman years ago, we freely admit that spreadsheets, etc., are not our strong point, and so we ask our readers to look at the numbers and see what they think.

Is there a CPA in the house?

Obtaining the SPLC’s financial information is simple enough, as we described at the end of that previous post. Interpreting the numbers is the tricky part.

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Above is a breakdown of SPLC expenses through the end of Fiscal Year 2013. With the help of the Internet Archive’s cantankerous Wayback Machine, we were able to obtain the same information going back to 2006, and it is only after one compiles the numbers that patterns, and questions, begin to emerge.

For example, below is a compilation of postage costs claimed by the SPLC over the eight year period and using the same headings as the audited report.

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Looking at the numbers for 2013 in particular, we can almost justify Development (Read: “Fundraising”) spending the better part of a million dollars on postage, because many of the SPLC’s mostly elderly donors still prefer snail-mail, but we’re having a really tough time understanding how Legal Services could rack up more than $400,000 in postage, and that’s down $80 grand from the previous year! Have they never heard of e-mail?

And that $400k is just a little more than half of what Management spent in postage last year! Is the management of the SPLC still using stone tablets to communicate? What gives?

Given the high labor costs associated with producing hieroglyphics and cuneiform, that might explain the SPLC’s printing expenses.

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According to this, Management actually outspent both Legal Services and Fundraising, respectively, on printing costs. What the heck are the all-white managers at the SPLC printing with all of those tax-free donor dollars? And what, for that matter, is Legal Services printing to the tune of $422,000 dollars?

The SPLC doesn’t charge their clients for services rendered, so it can’t be for billing.

To make things even more confusing, Printing costs are a completely different category from Lettershop expenses?

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Finally, we see Fundraising, er, Development, getting the lion’s share.

“Well,” you might say, “Hate is on the rise and these are necessary expenses. Plus, it takes money to make money, so Development needs to spend these donor-dollars on fundraising.”

Business must be booming at the SPLC, which has nearly doubled in size since 2006, from 139 employees to 271 on the payroll in 2013, according to the IRS Form 990s.

If salaries are any indication of where the job growth occurred, it would have to be in the Legal Services sector, whose payroll jumped by a whopping 123% since 2006, compared to a rather anemic 39% for Fundraising.

Such an unprecedented bolstering of the legal team can only mean that the dedicated lawyers of the Southern Poverty Law Center are slogging it out in the courts more than ever, right?

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Oddly enough, Legal Case Costs have pretty much remained flat for the past eight years, as shown above, despite the more than doubling of Legal Services salaries.

So where is all that money going? How can SPLC Management justify $779,000 for postage in 2013?

At current First Class postage rates that would work out about 30,580 letters every week, and you know that the SPLC gets a greatly reduced nonprofit postage rate. Who could they possibly be writing to?

As with most SPLC mysteries, the answer is fairly simple.

The only plausible explanation is that the bookkeepers at the SPLC are probably engaging in an old accounting technique known as Joint Costs Allocation.

According to the American Institute of Certified Public Accountants (AICPA):

“[Joint Costs Allocation] focuses on expenses associated with certain joint activities, which in part serve a fund-raising function, but also have elements of program services or operations.

For instance, the expenses associated with an educational mailing that also includes an appeal for donations might be jointly allocated between program services and fundraising expenses.” [Emphasis added]

How does it work?

“Joint costs allocation is unfortunately an area where NPOs [Nonprofit Organizations] sometimes use questionable financial practices, such as arbitrarily dividing up and spreading most or all of their actual fundraising and/or operations costs in their financial reports among their various program services in order to make it appear that they have very low fundraising and overhead costs.” [Emphasis added]

And what’s the problem with it?

“That contrasts with legitimate accounting procedures for accurately assigning a particular program service (or fund or grant) its true share of the operations and overhead costs.” [Emphasis added]

And here’s what the American Institute of Philanthropy’s Charity Watch has to say about the procedure:

“In nonprofit financial reporting, the funds spent on telemarketing, direct mail, or other solicitation activities that also include an “action step” or “call to action” are referred to as “Joint Costs.” Charities often use joint costs as a way of inflating their reported charitable program spending and deflating their reported fundraising costs. [Emphasis added]

Although the use of this accounting “trick” is often perfectly in line with the accounting rules for the reporting of joint solicitation costs (AICPA SOP 98-2), these rules allow for many interpretations and judgments that can produce questionable results.[Emphasis added]

Questionable results. Perfectly legal. Inherently scuzzy.  Remember this the next time you write a check out to the SPLC.

You think this is a one-off aberration? Check out what the SPLC claims for “Office Equipment” expenses versus Legal Case Costs to see where your donor dollars really go.

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To those of you who believe your donor-dollars actually go toward “fighting hate” and “civil rights” law we only ask that if you have any legitimate explanation for the bizarre numbers we’ve cited, please share them with us.

If an average of $898,000 a year for office equipment and $711,000 for Management postage costs sound like legitimate expenses, we’d like to hear from you. As always, we remind our readers to never take our word for it. Look at the SPLC’s own documents and come to your own conclusions, and please share them with us.

If the Southern Poverty Law Center is actively obfuscating on such primary documents as their own audited financial reports, what else can they be “exaggerating”? You tell us.

UPDATE – 1/12/2015: In addition to exposing the SPLC’s all-white Executive Suite and Teaching Tolerance’s all-white leadership, Ken Silverstein’s landmark article in the November, 2000, Harper’s Magazine, “The Church of Morris Dees,” also noted the SPLC’s fast and loose fundraising figures.

You can find the full-text of “The Church of Morris Dees” on our home page. Just click the “Watching the Watchdogs” banner at the top of this page.

“In response to lobbying by charities, the American Institute of Certified Public Accountants in 1987 began allowing nonprofits to count part of their fundraising costs as “educational” so long as their solicitations contained an informational component.

On average, the SPLC classifies an estimated 4 7 percent of the fund-raising letters that it sends out every year as educational, including many that do little more than instruct potential donors on the many evils of “militant right-wing extremists” and the many splendid virtues of Morris Dees.

According to tax documents, of the $10.8 million in educational spending the SPLC reported in 1999, $4 million went to solicitations. Another $2.4 million paid for stamps.”


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