DATELINE: May 17, 2009, Chicago
Last week the Washington Examiner reported that the Montgomery County Council had voted to withhold $55,000 in support from Food & Friends, a social service agency in the Washington, D.C. area that delivers meals to people with cancer and HIV/AIDS. Alan Suderman, MontCo Withholds Money to Charity Because of High Executive Pay (May 5, 2009). The Chronicle of Philanthropy referenced the Examiner story in its Elsewhere Online column, which inspired six comments from Chronicle readers that we will consider shortly.
The council decided to cut funding because the salary of Craig Shniderman, the charity’s executive director, was too high at $334,551. The 2007 Form 990 for Food & Friends reports more than $7.4 million in total expenses, indicating a relatively large organization.
We were annoyed with the rationale given for the cut in funding. George Leventhal, a council member, believed that Mr. Shniderman’s salary was...
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Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, has quickly become the go-to guide for nonprofit executives and advisors. So what are people saying about the Guide? In the October 2007 edition of the The Federal Lawyer, New York lawyer George W. Gowen and nonprofit authority, wrote:
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too high. The Obama Administration’s and Senator Carl Levin’s continuing attacks on executive compensation appear to be filtering down to the local level. The hypocrisy in these attacks isn't lost on us: These "high" salaries support political campaign contributions.
A spokesperson for the council pointed out that the council
received grant applications from about 150 organizations. About two-thirds of the applicants did
not have a staff member who earned over $100,000. What the spokesperson apparently failed to tell the Examiner
was the annual budgets for each of these organizations. At least, the Examiner didn’t report a statistic
for average annual budget. Most
importantly, the Examiner gives no indication that the Montgomery County
Council gave any consideration to how efficiently services were provided. Nor did the council apparently focus on
effectiveness or outcomes. As we have written many times before, the question is not
how a charity spends its money, but on the outcomes achieved per dollar of
expenditure. The problem with the
council’s decision process is the apparent failure to consider
efficiency. Council member
Leventhal takes on the guise of a populist crusader, but one who
is not interested in the facts. Voters who allow their elected officials to head down this
dangerous path are putting their own jobs and compensation in jeopardy. Compensation should be determined by
market forces, not government officials with political agendas. It is particularly noteworthy that the
Food & Friends board of directors used a compensation consultant to assist
it in setting Shniderman's compensation. Moreover,
the organization froze Shniderman’s salary this year because of the economic
downturn. Now let's turn to the comments from the Chronicle's readers about the Montgomery County Council's decision. The six
comments run the gamut—some from those who believe in markets and others from those who believe making money and
working for a nonprofit are incompatible. What we noticed was some confusion over the facts. One person looked at the Food & Friends 2007 Form 990 and
noticed a line for “Specific Assistance to Individuals,” which reported just
$1.2 million in expenditures. This
person apparently assumed that all other expenditures were overhead
related. Another person took issue
with this view of the $1.2 million figure. He
pointed out that there were an additional $6.8 million in operating
expenditures. Still another person
interpreted the $6.8 million as being for overhead despite the fact that it was
listed in the program services column rather than the management expense or fundraising expense columns. Herein lies the true lesson in this story. We took a look at the Form 990 to determine exactly what
Food & Friends does. Part III
of its 2007 Form 990 offers what is at best a sketchy
description. It states that "$6,061,528 is
spent on providing specialized meals and nutrition counseling to more than
2,700 persons living with HIV/AIDS and other life-challenging illnesses." What is confusing is why Line 23 refers
to specific assistance to individuals, reporting $1,212,901 in expenses. In other words, what are the other $5.8
million in expenses spent on? The confusion reflected in reader comments is justifiable
given the Food & Friends' Form 990, which does a lousy job of describing Food & Friends activities and mission. We suspect that the
decision by the Montgomery County Council would be the same even if more detail
were provided because that decision represents classic political grandstanding. It was not based on the facts or the
merits. Yet, the reader comments
do serve as an important lesson for tax-exempt entities as they complete the
redesigned Form 990. People bring
preconceived notions to the Form 990.
If your organization is not specific, it permits people to develop views of your
organization that are consistent with their own notions, but that may not be
consistent with reality. The
Chronicle’s readers could have been grantmakers, donors, IRS auditors, or state
regulators. They might have made
decisions based on incomplete data that were contrary to Food & Friends’ best interests. In completing the Form
990, organizations should anticipate how others might view the data
presented. Organizations should
offer full and complete explanations and descriptions in an effort to head off misperceptions. Organizations must be truthful in how they complete the Form 990, but that does preclude them from addressing obvious concerns and questions that readers will have when they first see the raw data. Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
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THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
