From the April/May 2007 Watchdog Report
Defense for Bad Accounting
Celebrating its 60th anniversary this
year, Defenders of Wildlife (DW) once again receives a "D"
rating from AIP based on recently received 2005 financial information.
At first glance, the tax form gives the appearance of a fairly efficient
group, reporting $19 million out of its $25.6 million in total expenses
going to programs. However, upon closer inspection, it turns out
that about half of reported program spending consists of direct
mail and other combined educational campaign and fundraising solicitation
costs, reported as joint costs in the group's tax form.
An AIP member sent us a solicitation
she received from the group which included five colorful greeting
cards with envelopes, a small page of address labels, an informational
letter containing multiple requests for a contribution, a "members'-only"
offer for their choice of a kitchen apron or wind chime containing
the organization's insignia, and a "Contribution Reply Form."
On the back of each greeting card appears a paragraph of facts about
the animal whose photo appears on the front of the card, along with
an address to the organization's web site where donors may obtain
more information on what they can do to help save the animal. Once
the costs associated with such mailings and other joint costs are
subtracted out of program expenses, DW spent only about $10.9 million,
or 43% of its total expenses on its programs.
In 2004, auditors for DW issued a report
to the group's board of directors containing multiple recommendations
with respect to how DW reports and accounts for certain expenses.
One recommendation states, "Defenders currently includes membership
development expenses as a program expense on the Form 990. Although
we do not prepare the Form 990, we recommend that Defenders discontinue
this practice and group membership development with fundraising
or general & administrative expenses on the Form 990."
This is sound advice considering that a charity's membership development
is the cost of obtaining members or donors not a program.
Joe Zillo, V.P. of Finance for DW takes a different view. "The
costs are not fund raising, since the plan is not to raise net income
but to build Defender's grass roots memberships," he said in
response to our inquiry. However, he indicates the practice may
not be set in stone, saying, "I and the Board Audit Committee
will be reviewing this position during the fiscal year."
Another recommendation made by DW's
auditors refers to the group distorting its fundraising efficiency
by accounting for its direct mail expenses in a different financial
period than the resulting contributions. It states, "Defenders
policy is to expense direct mail costs as incurred and not in the
period to which the mailing relates. This practice can materially
misstate direct mail costs in any one fiscal year. We recommend
Defenders record direct mail costs in the period in which the mailing
is sent." The auditors had other recommendations, including
a concern with DW recording certain direct mail costs as program
expense even though they should have been reported as fundraising.
In response to AIP's inquiry, DW claims
that it did adopt some of the recommendations outlined by their
auditors in the 2004 report, and has taken steps to better comply
with certain accounting and reporting standards. However, donors
should not be fooled. The group is not spending donors' dollars
any more efficiently than it has in previous years.