Phoenix House Foundation

According to the Phoenix House Foundation consolidated audit of June 30, 2020 (Note 9, Due (to) from Affiliates):

"In September 2018, Phoenix House's Board of Directors voted to dissolve the sole corporate member (the Phoenix House parent entity, incorporated in Minnesota). The dissolution took effect on March 31, 2019 and because of the dissolution, each regional Phoenix House affiliate and the Foundation became stand-alone entities. The boards of these regional Phoenix House affiliates became self-governing operating boards, all inter-company balances, as of the dissolution date, either settled in cash or were forgiven, and the Foundation will license the name and intellectual property ('IP') to each regional Phoenix House affiliate, at no cost. Following the dissolution, the Foundation discontinued holding any licenses for the delivery of programs."

CharityWatch is unable to provide a letter grade rating for Phoenix House Foundation based on its fiscal year 2024 financial activities.

CharityWatch generally applies our methodology and assigns letter grade ratings to charities that take in at least $1 million in public cash contributions and that maintain an annual budget of at least $500,000. For the fiscal year ended June 30, 2024, Phoenix House Foundation reports raising $0 in cash contributions. In addition, the Foundation reports $0 in program services spending and $0 in fundraising expenses in fiscal 2024. It also reports a total net assets deficit of $(7,270,285) at year-end June 30, 2024, according to its fiscal 2024 IRS Form 990 tax filing. This means that it owes that much more to outside parties than the value of its assets. 

According to the Phoenix House Foundation tax filing for the fiscal year ended June 30, 2024, the Foundation reports: "The Organization is in the process of restructuring and is working on receiving contributions in the future." (IRS Form 990, Schedule A, Part VI re: Part II, Section C, Line 17a, Facts and Circumstances Test)

The financial reporting of small charities is often not comparable to that of larger ones for several reasons: 

Lack of Independent Audited Financial Statements

In its 2024 IRS Form 990, the Foundation responds "No" to the question: "Were the organization's financial statements compiled or reviewed by an independent accountant?" It also responds "No" to the question: "Were the organization's financial statements audited by an independent accountant?" (IRS Form 990, Part XII, lines 2a & 2b).

Most charities forego hiring external auditors to produce annual audited financial statements until they reach a size that subjects them to regulations requiring them to do so, such as to satisfy state fundraising regulations, to obtain credit, or for insurance purposes. Audits conducted by Certified Public Accountants (CPAs) can cost thousands of dollars, which is relatively expensive for small charities. The lack of an audit, however, means that a qualified outside party has not subjected the charity's financial reporting to auditing standards that would test the effectiveness of its internal controls and assess whether or not the charity's financial information is fairly presented and free of material misstatements. 

Economies of Scale

Economies of scale occur when the size of an organization's operations allow it to operate more efficiently. As an organization grows it costs it less (per unit) to produce its goods or services due to its overhead and other fixed costs being spread over a larger volume of output. For example, a small charity that serves 500 poor people per year may need to pay $8,000 for its annual financial audit. A larger charity that serves 3,000 poor people per year may need to pay $10,000 for its annual financial audit. The first charity spent $16 per person served for the overhead cost of its audit, while the second spent far less at only $3.33 per person served. Charity rating methods suitable for larger organizations often cannot be fairly applied to much smaller charities given that the latter lack the economies of scale necessary to operate at the same level of efficiency. Small charities that assist underserved populations, that are fulfilling an unmet need, or that are new or in the process of scaling up to a larger size may still be worthy of donors' support despite CharityWatch's inability to rate them due to this comparability issue.