American Institute of Philanthropy (AIP) is now CharityWatch.
From the Summer 2000 Watchdog Report
Fundraising Costs May Signify Zero Accountability
The high percentage of charities filling IRS forms
that report $0 in fundraising costs could make you believe that
money is falling from trees. According to a recent Urban Institute
study of tax returns for the years 1997 and 1998, nearly 35 percent
of charities that receive between $500,000 to $1 million in private
contributions reported no fundraising costs to the IRS. The study
also showed that 28 percent of charities with contributions of $1
million to $5 million and 23 percent of charities with over $5 million
in contributions reported spending nothing on fundraising. A study
by The Chronicle of Philanthropy reported similar findings: Over
25 percent of the nearly 5,000 nonprofit organizations reporting
private contributions of $500,000 or more reported no fundraising
costs in their 1996 tax returns.
There are a few cases where a nonprofit legitimately
could report no fundraising to the IRS. Examples include, if all
fundraising was conducted by volunteers who did not receive reimbursement
for out-of-pocket costs, or if an organizations fundraising
costs were reported separately by related entities on their own
tax returns. Also, there would be no fundraising costs at charities
where everyone gave contribution automatically without ever having
to be asked, human nature being what it is we know how often this
Enlightened donors realize that charities who report
zero fundraising costs are more likely to be advertising the poor
quality of their financial reporting than their fundraising efficiency.
AIP encourages donors to ask charities who report $0 fundraising
costs to explain how they can raise money for free.