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 83% of its expenses on Programs in 2020, according to its IRS Form 990 tax filing. However, CharityWatch's analysis of Planet Aid's 2020 tax filing and audited financial statements shows it spending only 15% 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 global warming and climate change." It argues that if it did not collect these items they would end up in a landfill. In 2020, Planet Aid spent approximately $19.6 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 to needy people the vast majority of the clothing and other goods it collects--it sells the items. In 2020, Planet Aid brought in over $22 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 tens of millions of dollars would end up in a landfill if it did not collect them.
According to the Planet Aid audit of December 31, 2020 (Note 1, Operations and Nonprofit Status):
"... The Organization's revenues are derived from used clothing contributions that are sold worldwide, government contracts, corporate grants, private contributions, and solar revenue. The Organization also has a retail store in the Baltimore, Maryland area. Donated clothing and other goods are sold to the general public at this location."
According to the Planet Aid audit of December 31, 2020 (Note 12, Concentrations):
"... Approximately 15% of the Organization's sales for the year ended December 31, 2020, was to one customer.
"In 2020 and 2019, a significant amount of sales were made to certain 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 59% and 49% of its sales were concentrated in the "Central America" market in 2020 and 2019, respectively.
According to the Planet Aid audit of December 31, 2020 (Note 5, Contracts and Grants, Paycheck Protection Program):
"During 2020, the Organization applied for and was awarded a loan of $2,665,700 from the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) through a bank. The funds were used to pay certain payroll costs, including benefits as well as rent and utilities during a covered period as defined in the CARES Act. A portion of these funds may be forgiven, as defined in the agreement, at the end of the covered period and the remainder of the funds will be due over a two-year period with interest at 1%. The balance of the note that is not forgiven, if any, plus interest, will be due in equal monthly payments through the maturity date as defined by the bank. The forgiveness calculations are subject to review and approval by the lending bank and Small Business Administration (SBA). In addition, because the Organization was awarded a loan over $2 million, the loan will be subject to an audit by the SBA. In the opinion of management, the results of such reviews (and audit), will not have a material effect on the financial position of the Organization as of December 31, 2020, and on the changes in its net assets for the year then ended.
"The Organization believes there is not more than a remote chance this loan will not be forgiven and, therefore, is accounting for it as a conditional grant... It is determined that this grant is conditional upon certain performance requirements and the incurrence of eligible expenses. Amounts received are recognized as revenue when the Organization has incurred expenditures in compliance with the loan application and CARES Act requirements. As of and for the year ended December 31, 2020, the Organization recognized $2,665,700 of grant revenue as all funds had been spent for their intended purpose. The Organization has not accrued interest as of December 31, 2020, since it expects the interest to be forgiven."
According to the Planet Aid audit of December 31, 2020 (Note 15, Subsequent Event):
"Subsequent to year-end, the Organization applied for and received a second draw PPP loan totaling $2,000,000. The second draw PPP loan has the same general loan terms as the first draw PPP loan (see Note 5 [cited separately, above]). A portion of these funds may be forgiven, as defined in the agreement, at the end of the covered period and the remainder of the funds will be due over a two-year (or five-year) period with interest at 1%."
According to the Planet Aid audit of December 31, 2020 (Note 11, Contingencies):
"The COVID-19 outbreak in the United States has resulted in the closures of many businesses and a marked reduction in economic activity. While this disruption is currently expected to be temporary, there is considerable uncertainty around the duration. While the Organization does not expect this matter to materially impact its operating results, the related financial impact and duration cannot be reasonably estimated at this time."