Aug 15, 2021
Invisible People is a public charity "dedicated to educating the public about homelessness through innovative storytelling, news, and advocacy," according to its website. It inspires action and raises awareness in support of policy change and thoughtful dialogue around poverty in North America and the United Kingdom, operating a nonprofit newsroom solely dedicated to addressing issues of homelessness. Craig Newmark Philanthropies has been a consistent supporter of Invisible People, making grants to the organization of $25,000, $50,000, and $50,000 in 2019, 2020, and 2021, respectively.
CharityWatch is unable to provide a rating for Invisible People based on its fiscal year ended 12/31/2020 due to the charity's small size. CharityWatch's inability to provide a rating for Invisible People at this time does not imply a negative or positive evaluation. According to its 2020 IRS Form 990, Invisible People raised $457,458 in contributions and reported $249,709 in total expenses in 2020. Though Invisible People was formed in 2009, it reports raising just $1,225,658 in total contributions during the five-year period of 2016 through 2020, which averages to less than $250,000 annually (IRS Form 990, Schedule A, Part II, Section A).
The financial reporting of small charities is often not comparable to that of larger ones for several reasons:
Cash Basis Accounting
Smaller charities tend to report their financial activities using the cash basis rather than accrual basis method of accounting. Though the IRS allows charities to use cash basis accounting to prepare their annual IRS Form 990 tax filings, the cash basis accounting method is not acceptable under Generally Accepted Accounting Principles (GAAP) in the United States. Accrual basis accounting reports revenue as it is earned and expenses as they are incurred, providing a more complete picture of an organization's assets and liabilities (resources owed to outside parties), and a better measure of how efficiently it is operating. Cash basis accounting is a less reliable method for assessing a charity's financial health or measuring its financial efficiency because it reports revenue and expenses based on the timing of when cash deposits or payments are made, which can be arbitrary and open to manipulation. Charities often opt to use the cash basis method of accounting when they are newly formed or small in size because using cash basis is more simple than using accrual basis and requires less accounting expertise to maintain.
In its 2020 IRS Form 990, Invisible People reports using the cash basis method of accounting to prepare the Form 990 (IRS Form 990, Part XII, line 1).
Lack of Independent Audited Financial Statements
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.
In its 2020 IRS Form 990, Invisible People 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).
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.
CharityWatch reached out to Invisible People via mail and email in July 2021 with several questions about its 2020 IRS Form 990 financial reporting. As of August 6, 2021, Invisible People has not responded to our requests for information. Among our questions were the following:
· In an effort to understand how Invisible People's reporting requirements might change for fiscal year 2021, CharityWatch asked if it anticipated that its contributions would grow significantly (to $1 million or more) in 2021.
· CharityWatch observed that Invisible People reported Other Fees for Services expenses of $106,473, all of which is allocated to program service expenses. This accounts for over 42% of Invisible People's reported total expenses for the year 2020. On the Supplemental Information schedule of the Form 990 (Schedule O), Invisible People reports that $54,017 of this amount is for "IP writers" and $51,859 is for "Outside Services." CharityWatch asked Invisible People to provide a description and some additional details about these expenses in order to help donors better understand what types of activities are included in this spending.
· In its 2020 IRS Form 990, Invisible People reported $0 in fundraising expenses despite raising a reported $457,458 in contributions that same year. In the opinion of CharityWatch, when a charity reports $0 for fundraising expenses in a year that it raises contributions, this can be a red flag that the reporting is not correct since it is very rare for a charity to be able to raise contributions without spending any money to do so. To this end, we asked Invisible People to clarify how some of its expenses are characterized and allocated.
· When a charity provides grants or other direct assistance to individuals, these expenses are generally reported on specific lines designated for this purpose in a charity's IRS Form 990. Reporting on these specific lines of the tax form can trigger requirements for a charity to file additional schedules that include more detail about the number of grants made, the dollar amounts or non-cash values of those grants, and whether they were received by individuals or other charities. In its 2020 IRS Form 990, Invisible People reports spending $19,128 in "Direct Assistance to Individuals" on a line designated for "Other expenses" rather than on the lines specifically designated for "Grants and other assistance." CharityWatch asked Invisible People about its choice to report the $19,128 as "Other expenses" rather than as "Grants and other assistance."
If Invisible People responds to CharityWatch's questions in the future, we may update our information at that time.