CharityWatch REPORT
Issued August 2016

CharityWatch Analysts perform an in-depth analysis of charities' audited financial statements and IRS tax filings, and often review other documents such as state filings, annual reports, and fundraising contracts during their evaluations. Below are select notes that CharityWatch believes may be of interest to donors.

Any time an Analysts' Note refers to a charity's Audited Financial Statements or IRS tax form, CharityWatch encourages interested donors to obtain a copy of the referenced documents so that they may view the information in context. Please contact the charity directly to request a copy of any referenced document. Charity tax forms and audits may also be obtained from a number of online databases. For a list of sources, please visit our LINKS page.

Note(s)
CharityWatch has been keeping an eye on Planet Aid, a charity known for its ubiquitous clothing collection boxes, for many years. Planet Aid consistently reports low overhead and high program spending in its annual financial documents, but a closer analysis by CharityWatch reveals a different picture of how efficiently Planet Aid is operating.

Planet Aid reports spending 84% of its expenses on Programs in 2015. However, CharityWatch's analysis of Planet Aid's 2015 IRS Form 990 filing and audited financial statements shows it spending only 17% of its expenses on Programs.

Why the difference?

In short, Planet Aid considers the costs associated with collecting and processing donated clothing and other goods to be a program expense in support of its "significant contribution in the fight against climate change." It argues that if it did not collect these items they would end up in a landfill. In 2015, Planet Aid spent about $29 million to collect and process these non-cash donations, and reported these costs as Program expenses. CharityWatch disagrees with Planet Aid's reporting and reallocates these expenses to Fundraising. Here's why:

The expenses a charity incurs to raise donations, whether the donations are in the form of cash or non-cash items like donated clothing, are fundraising expenses, not program expenses.

There are many nonprofit organizations that compete with one another for clothing donations. If Planet Aid did not collect the used clothing and other goods, most of the items would surely be collected by another charity, or by a for-profit company that could sell the items for a profit. So it is not the case that all of these items would likely end up in a landfill if Planet Aid did not collect them.

The most damning evidence against Planet Aid's financial reporting logic is provided by the charity itself. Planet Aid does not distribute the vast majority of the clothing and other goods it collects to needy people--it sells the items. In 2015, Planet Aid brought in over $36 million from selling these items. This proves that there is a ready market of buyers willing and able to pay large sums of money to purchase used clothing, shoes, and textiles like the items Planet Aid collects. It is ridiculous for Planet Aid to assert that items worth millions and millions of dollars would end up in a landfill if it did not collect them.
According to Planet Aid's 2015 tax filing, IRS Form 990, Schedule C, Political Campaign and Lobbying Activities, Part II-B:

Planet Aid responded "Yes" to the question of using of "Other activities" to "attempt to influence foreign, national, state or local legislation, including any attempt to influence public opinion on a legislative matter or referendum." Planet Aid reported that it spent $129,557 on such activities in 2015.

Per IRS Form 990 Schedule C, Part IV (Supplemental Information), Planet Aid described its 2015 lobbying activities as:

-- State of Michigan: Legislation for a progressive textile recycling ordinance.

-- County of Los Angeles, California: Legislation for a progressive textile recycling ordinance.

-- California State Assembly: Requirements for the use of unattended collection [boxes]. [S.B. 450]*


*Note: California Senate Bill 450 was proposed to strengthen laws related to protecting the rights of property owners on whose properties [clothing] collection boxes are placed without property owner consent; and to protect such owners from certain legal liabilities should they remove or dispose of such boxes from their own properties. According to documents CharityWatch obtained from the office of the California Secretary of State, Planet Aid is listed as being in "opposition" to S.B. 450.

A copy of S.B. 450 can be viewed by copying and pasting the website address below into a new web browser and making the noted search selections:

http://www.leginfo.ca.gov/bilinfo.html

Session: (2013-2014) prior
House: Senate
Bill #: 450
According to the Planet Aid audit of December 31, 2015, Note 1, Operations and Nonprofit Status:

"... The Organization's revenues are derived from used clothing contributions that are sold worldwide, government contracts, corporate grants, and private contributions. During 2015, the Organization opened a retail store in the Baltimore, MD area. Donated clothing and other goods are sold to the general public at this location."

And, according to Note 12, Concentrations:

"In 2015 and 2014, a significant amount of sales were made to a few geographic areas outside the United States. It is always considered reasonably possible that customers might be lost in the near term..." Planet Aid reports that 18% and 15% of its sales were concentrated in the "Central America" market in 2015 and 2014, respectively.
According to the Planet Aid audit of December 31, 2015, Note 4, Commodities:

"In 2012, the Organization entered into a three-year contract with the USDA for 3,600 metric tons (3,600,000 kilograms) of a corn soy blend (CSB) valued at approximately $5.25 million, plus $16,155,427 for handling, storage and distribution costs, and the costs of administering and monitoring food assistance programs. The CSB will be used in conjunction with a school meal program in Mozambique administered by the contract's sub-recipient, ADPP Mozambique. In 2015 and 2014, the Organization recognized $5,008,885 and $5,945,705, respectively, in [Federal Contracts] revenue under the agreement..."

"In 2015, the Organization received a shipment containing 830 metric tons (829,600 kilograms) of CSB [corn soy blend] under the three-year contract with USDA listed above. The Organization also received 1,491 metric tons (1,491,525 kilograms) under the three-year contract with USDA listed above in 2013. This food is to be transported and distributed to schools in Mozambique. The food was valued at $657,730 on the date of receipt..." [It is also noted that as of December 31, 2015, the undistributed portion of the food inventory totaled $251,827.]

"In 2015, the Organization entered into a five year contract with the USDA for 4,810 metric tons (4,810,000 kilograms) of CSB [corn soy blend] valued at approximately $4.70 million, plus $27,130,761 for handling, storage and distribution costs, and the costs of administering and monitoring food assistance programs. The CSB will be used in conjunction with a school meal program in Mozambique administered by the contract's sub-recipient."

"These contracts are subject to possible audit by the appropriate government agencies. In the opinion of management, the results of such audits, if any, will not have a material effect on the financial position of the Organization as of December 31, 2015 and 2014, or on its changes in net assets for the years then ended."

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