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Prominent Military Charity Receives a 1-Star Rating from Charity Navigator

   Oct 13, 2023

When it comes to measuring a charity’s program impact or financial efficiency, Intrepid Fallen Heroes Fund (IFHF) stands out as an organization whose accomplishments are easy to observe. It has consistently received high marks from CharityWatch for financial accountability, governance, and transparency since we began rating the organization in fiscal 2007, and currently receives an “A+” rating—our highest score—based on our analysis of its fiscal 2022 audited financial statements and IRS Form 990. Some donors might therefore be confused by the 1-Star rating the charity currently receives from Charity Navigator, an organization that publishes ratings on nearly 200,000 charities.




 The mission of Intrepid Fallen Heroes Fund is to build critically-needed centers for treating United States military personnel suffering the effects of traumatic brain injury (TBI) and post-traumatic stress (PTS). Based on CharityWatch’s analysis of its financial operations, it does just that.

 

·      In 2007 Intrepid Fallen Heroes Fund completed the construction of the Center for the Intrepid, a world-class, state-of-the-art physical rehabilitation center at Brooke Army Medical Center in San Antonio, Texas.

 

·      In 2010 Intrepid Fallen Heroes Fund officially turned over to the United States Department of the Navy the National Intrepid Center of Excellence, a 72,000 square-foot facility located at Walter Reed National Military Medical Center in Bethesda, Maryland. The Center of Excellence is dedicated to research, diagnosis and treatment of traumatic brain injury and post-traumatic stress.

 

·      Since fiscal 2014, seven Intrepid Spirit Centers have been built in the following locations to extend care to the home bases of many of the troops suffering the effects of traumatic brain injury and post-traumatic stress: Fort Belvoir, Virginia; Camp Lejeune, North Carolina; Fort Campbell, Kentucky; Fort Bragg, North Carolina; Fort Hood, Texas; Joint Base Lewis-McChord, Washington; and Camp Pendleton, California. In 2020 construction of a Spirit Center at Eglin Airforce Base was completed, and construction of another Spirit Center at Fort Carson, Colorado began. Intrepid Fallen Heroes Fund continues fundraising for an additional Spirit Center to be constructed at Fort Bliss, Texas.  

 

How Charity Navigator Computed Intrepid Fallen Heroes Fund’s 1-Star Rating

 

So why does Intrepid Fallen Heroes Fund receive only 1 out of 4 stars from Charity Navigator? According to Charity Navigator’s website, “This charity's score is 50%, earning it a One-Star rating. This overall score is calculated entirely from a single beacon score, weighted as follows: 100% Accountability & Finance.” Charity Navigator states on its website, “We currently provide ratings for nearly 200,000 charitable organizations.” With respect to its rating process, Charity Navigator’s website states that throughout the year it receives “the annual tax filings (Forms 990) that charities submit to the IRS,” and that it “leverage[s] several fields in the IRS Form 990 to generate scores for charities’ Accountability & Finance beacons.” Charity Navigator requires at least three years of data “to receive a score,” and it includes “some additional metrics,” depending on a charity’s size and age.                       

 

Nonprofit trade associations like Charity Navigator rely on some combination of computer automation and crowdsourcing to produce ratings on tens of thousands of charities—an approach that is sorely inadequate given the complexity, inconsistency, and incomparability of charity financial reporting. In addition, relying on a charity’s tax filing alone, rather than also analyzing its audited financial statements, can result in ratings that are not representative of what a charity is accomplishing—CharityWatch has identified many F-rated charities that receive 3-star or 4-star ratings from Charity Navigator. In the case of Intrepid Fallen Heroes Fund, this unfortunate 1 out of 4 stars rating may have resulted from Charity Navigator relying on simplistic computer-automation to produce its score.  

 

 

Understanding Accounting & Reporting Rules Is Essential for Charity Ratings

 

In its fiscal year-ended April 30, 2022 tax filing, Intrepid Fallen Heroes Fund reported that it incurred total expenses of $1,141,781. Of that amount it reported that $372,859 or 32.7% was spent on the charity’s programs; $399,963 or 35% was spent on management and general; and $368,959 or 32.3% was spent on fundraising. While the charity’s program spending may appear low at first glance, an accountant’s understanding of Generally Accepted Accounting Principles (GAAP) and a financial analysis of the charity’s audited financial statements quickly dispels any confusion.

 

As part of our financial analysis, CharityWatch’s analysts make adjustments to figures reported by a charity in its tax filing and/or audited financial statements for accuracy, consistency, comparability, and completeness to better reflect for donors how efficiently a charity is spending the donations it receives. We do not rely on computer automation or a charity’s tax Form 990 alone when computing our ratings for a few reasons:

 

·      IRS Forms 990 often contain information that is inaccurate, incomplete, inconsistent, or incomparable.

 

·      IRS Forms 990 are not audited.

 

·      IRS Forms 990 are sometimes reported on a cash basis of accounting rather than an accrual basis, which can distort how efficiently it is operating.

 

·      IRS Forms 990 are self-reported by the charity rather than subjected to the scrutiny of third-party auditors who must adhere to Generally Accepted Auditing Standards (GAAS). Even when a charity’s tax filing is prepared by an accounting firm, it is not subjected to GAAS and is not presented according to GAAP which requires certain disclosures not found in the IRS Form 990. 

 

 

In the opinion of CharityWatch, a qualified accountant analyzing a charity’s audited financial statements in conjunction with its tax Form 990 is essential for assessing how efficiently or effectively it is operating.

 

Due to accounting rules, the millions of dollars Intrepid Fallen Heroes Fund spends on constructing its medical facilities, typically over a multi-year period, are not reported by the charity as a program expense in the year the funds are spent on construction. Rather, the program and other expenses from construction costs are recognized in the year the charity conveys ownership of a completed medical facility to the U.S. Army, U.S. Navy, Department of Defense, or other agency charged with staffing and operating the facility.

 

Meaning, a rating system that does not incorporate a deep understanding of accounting and reporting rules into its methodology might assign a charity like Intrepid Fallen Heroes Fund a low score. This is not because the charity is spending too much on overhead or otherwise operating inefficiently, but rather due to how it is required to report its program spending in its tax filings. This could explain Charity Navigator’s 1-Star rating of a charity that spent over 90% of its expenses on program-related activities in fiscal 2022. 

 

A qualified financial analyst who possesses an understanding of IRS and GAAP reporting rules can easily observe that Intrepid Fallen Heroes Fund is honoring its donors’ intentions by spending the vast majority of the resources it receives building medical facilities for veterans and military personnel. By contrast, when simplistic computer-automation is used to calculate a charity's program spending ratio, Intrepid Fallen Heroes Fund unfairly appears to deserve a failing grade.

 

 

How CharityWatch’s Rating of Intrepid Fallen Heroes Fund Was Computed

 

Intrepid Fallen Heroes Fund provides services to severely injured military personnel. Since CharityWatch began rating the organization in fiscal 2007, we have concluded that it spends the vast majority of the donations it receives on the construction of research, diagnosis, treatment, and other medical facilities.

 

On the balance sheet of its fiscal 2022 audited financial statements, Intrepid Fallen Heroes Fund reported an increase in Construction in Progress of $11,324,593. CharityWatch added this amount to its reported program and total expenses of $372,859 and $1,141,781, respectively and determined that the charity spent 94% of its budget on program-related spending in fiscal 2022. Based on our analysis of the charity’s audited statement of cash flows and audit notes, CharityWatch also determined that no facilities were conveyed to the military in 2022, meaning, no additional adjustments were required to be made to this 94% computation. Intrepid Fallen Heroes Fund earned an A+ rating from CharityWatch based on our analysis of its fiscal 2022 financial reporting.

 


Conclusion

 

When donors are making giving decisions they want to know if their donations will be used efficiently and effectively in making an impact on the causes they are interested in supporting. CharityWatch believes that our A+ rating of Intrepid Fallen Heroes Fund answers this question for donors in a way that Charity Navigator’s 1-star rating does not.

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