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 85% of its expenses on Programs in 2018. However, CharityWatch's analysis of Planet Aid's 2018 IRS Form 990 filing and audited financial statements shows it spending only 25% 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 2018, Planet Aid spent about $25 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 2018, Planet Aid brought in over $33 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, 2018 (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, 2018 (Note 12, Concentrations):
"... Approximately 10% and 13% of the Organization's sales for the years ended December 31, 2018 and 2017, respectively, was to one customer.
"In 2018 and 2017, 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 41% and 27% of its sales were concentrated in the "Central America" market in 2018 and 2017, respectively.
According to the Planet Aid audit of December 31, 2018 (Note 4, Construction In Process):
"Construction in process as of December 31, 2018, consisted of a deposit made towards the purchase of new equipment. The equipment is expected to cost approximately $150,000 and is expected to be placed in service in 2019. Construction in process as of December 31, 2017, consisted of costs incurred to install solar panels on the roof of the building located in Milford, Massachusetts. The project was completed and placed into service in 2018 and was financed through a mortgage note payable...and operating net assets."
According to the Planet Aid audit of December 31, 2018 (Audit Note 13, Solar Power Agreement and Solar Renewable Energy Credits):
"On February 21, 2017, the Organization entered into a twenty-year agreement with the [Massachusetts] Municipality. The Organization will sell net metering credits produced from the solar installation (see Note 4) [cited above] to the Municipality. The agreement contains a five-year extension option. The panels are expected to generate approximately 610,000 to 670,000 net metering credits from the Organization's solar generating facility each year. The net metering credit price is set at 77.5% of the actual net metering credits. The Organization guarantees to produce 70% of the estimated net metering credits as documented in the agreement.
"In addition, the energy generated qualifies for Massachusetts Solar Renewable Energy Credits (SRECs). SRECs are transferable certificates authorized by relevant governmental agencies that are minted and accounted for within the New England Power Pool Generation Information System. The certificates are marketed and sold to qualified purchasers by an agent.
"In September 2017, although the project was not yet fully operational, it was able to generate limited activity. The Organization began to sell net metering credits to the Municipality based on the agreed-upon price. The project was fully operational in 2018 and generated a full year of revenue. Solar revenue of $62,004 and $19,205 is included in interest and other revenue in the accompanying [audited] statements of activities and changes in net assets for the years ended December 31, 2018 and 2017, respectively. The revenue from the sale of SRECs generated revenue of $101,556 for the year ended December 31, 2018, [and] is included in interest and other revenue in the accompanying [audited] statement of activities and changes in net assets."
According to the Planet Aid audit of December 31, 2018 (Note 5, Contracts - Federal):
"The Organization had a three-year contract with the USDA under Food for Education program (FFE 1) for 3,600 metric tons (3,600,000 kilograms) of a corn soy blend (CSB) valued at approximately $5.25 million, plus approximately $16.16 million for handling, storage, distribution, and the costs of administering and monitoring food assistance programs. The program was closed in 2017.
"The Organization has a five-year contract with the USDA under Food for Education program (FFE 2) for 4,810 metric tons (4,810,000 kilograms) of CSB valued at approximately $4.70 million, plus approximately $27.13 million for handling, storage, distribution, and the costs of administering and monitoring food assistance programs.
"In 2018 and 2017, the Organization recognized $8,289,728 and $7,801,265, respectively, for the donated commodities that were transported and distributed to schools in Mozambique as well as the handling, storage, and distribution cost incurred under the FFE programs...
"In 2017, the Organization also recognized $140,406 from the USDA to cover general and administrative expenses. ... In 2018, these amounts were no longer contained in a separate contract and were included in the contract amounts noted above.
"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, 2018 and 2017, or on its changes in net assets for the years then ended."