St. Joseph’s Indian School (SJIS) claims that $67 out of every $100 raised “goes to Lakota children attending St. Joseph’s, families living on reservations and cultural and faith development,” according to the “St. Joseph’s Financial Report for the Year Ended June 30, 2020.” SJIS’s proclaimed program spending, however, is highly suspect given its history of using massive direct mail fundraising campaigns and the charity’s long-running refusal to provide audited financial statements to CharityWatch or answer our questions about its financial reporting. Due to SJIS’s religious status that exempts it from being required to file an annual tax Form 990 with the IRS, donors who want to know how the more than $100 million in revenue SJIS raised in fiscal 2020 was spent are left to rely on faith alone.
The above quote, attributed to a boy named “Josh Little Bear” by SJIS in the charity’s fundraising appeals, was part of a “massive national marketing campaign involving 30 million pieces of mail a year,” according to a 2014 CNN article. A representative of SJIS disclosed to CNN at that time that “Josh Little Bear” is not a real person but stated that the language in the fundraising letter “is a true story of the very real and challenging situations that far too many children face…”, according to the article. SJIS’s questionable fundraising tactics have not deterred donors from supporting the charity. Since the CNN article was published in 2014, SJIS has successfully increased its total revenue and support by nearly 61%.
An “F” Rated Charity
CharityWatch has been asking St. Joseph’s Indian School for a copy of its audited financial statements since 1997—a full 17 years before CNN investigated the charity’s fundraising claims. We made our most recent request in February 2022. SJIS has never provided CharityWatch with a copy of its audit. Our most current letter grade rating of SJIS is an “F” on our “A+” to “F” rating scale based on its fiscal year-ended June 30, 2004 audited financial statements—so long ago that a child born that fiscal year would now be old enough to vote. A private donor of SJIS forwarded this audit to CharityWatch, giving us a rare, but now outdated view into the charity’s finances. SJIS’s current CharityWatch rating is “?” due to our inability to obtain a more recent copy of the charity’s audit from public sources (because of its religious exemption), and SJIS’s refusal to willingly provide one to us.
On December 5, 2005, this same private donor sent to CharityWatch
a copy of a solicitation they received from St. Joseph’s Indian School that
included a small, rectangular box envelope, a keychain, a stapled pamphlet
describing the organization’s programs, a fundraising letter requesting
donations, and some other literature describing SJIS. These types of
fundraising materials can be expensive to design, print, organize, and mail,
and are the type of mailing packets for which charities often report related
expenses as promotion or outreach program costs in their financial reporting.
It surprises many donors to learn that accounting rules allow charities to include significant portions of their printing, postage, and mailing costs related to fundraising solicitations in their reported program spending. Intuitively, many people think of the materials they receive in the mail requesting donations to be part of a charity’s fundraising activities. This being the case, CharityWatch makes an adjustment and reallocates the costs associated with such mailings to fundraising expenses prior to computing our efficiency calculations and assigning a charity a rating. In this way, a donor can better understand what percentage of a charity’s annual cash spending is going to support programs that do not include any fundraising activities. Unfortunately, without access to a current copy of SJIS’s audited financial statements, CharityWatch lacks the information we need to make such calculations.
Religious Charities Avoid Accountability
Many donors are also surprised to learn that charities with a religious aspect to their mission are in many cases not required to file annual tax Forms 990 with the IRS or submit audited financial statements and other reports to state regulatory bodies that other charities are required to file each year. CharityWatch has encouraged our readers to contact charities with such religious exemptions to request copies of their audits and then forward them to CharityWatch for our analysis.
In response to our call, over the past several months a number of CharityWatch supporters forwarded to us financial information they received from SJIS. Unfortunately, this consisted of a pamphlet entitled “St. Joseph’s Financial Report for the Year Ended June 30, 2020.” Such pamphlets are self-reported, meaning, charities can include or exclude information from these marketing materials at will and frame financial data in ways that are exclusively flattering. Decision-critical information necessary to understand how efficiently a charity will use its cash donations on the specific programs for which donors are being solicited is often either obscured or completely omitted.
CharityWatch’s Questions Go Unanswered
In our February 2022 letter addressed to SJIS president,
Mike Tyrell, and Chairperson, Terry Johnson, we requested that they send us a
copy of SJIS’s audit and responses to governance questions found on pages 6 and
12 of the IRS Form 990 tax return. While it is true that public charities with
“church” status are exempt from filing an annual tax Form 990 with the IRS each
year, many such charities, in the interest of being transparent with their
donors and the public at large, will complete a pro forma 990 that includes
responses to critical governance and financial questions. For example,
CharityWatch rates the four territories of the Salvation Army, Catholic Relief Services, and other charities that have been granted a similar exemption but
choose to respond to CharityWatch’s requests for their audits and/or Forms 990.
In our letter, CharityWatch also asked SJIS about its
reported expenses of $13,562,102 for “Education Activities” and $15,576,786 for
“Promotion of Lakota Cultural Heritage” on its fiscal 2020 “Financial Report.”
Together these expenses account for 57.5% of SJIS’s reported total program services
spending in fiscal 2020. Due to SJIS’s history of producing and mailing large
volumes of fundraising materials to donors, it is particularly important for
CharityWatch to understand if it is including any fundraising expenses in these
line items. In the only SJIS audit that CharityWatch has ever had access to
(fiscal 2004), the charity reported that it included $4,422,105 worth of joint costs
for “informational materials and activities that included fund-raising appeals”
in its reported program expenses, which represented over 29% of the $15,072,526
total. Over 95% of the reported “Promotion of Lakota Cultural Heritage”
expenses consisted of these joint costs reported in fiscal 2004.
With respect to the above cited expense line items,
CharityWatch requested the following information from SJIS in our February 2022
letter, but received no response:
Please indicate what portion of these line items consist of
joint costs from a combined educational campaign and fundraising solicitation
(SOP 98-2, ASC 958-720), and please provide a functional allocation detailing
how these joint costs, if any, were allocated among program, management and
general, and fundraising. In addition, please communicate if any additional
joint costs are included in the figures contained in the SJIS “Financial Report”
for fiscal 2020.
In December 2014, CharityWatch sent St. Joseph’s Indian School a similar inquiry asking detailed questions about its fiscal 2014 self-published “Financial Report.” One question was related to the $11,771,584 it reported spending on the line item “Promotion of Lakota Cultural Heritage.” This line item accounted for 39.8% of its reported total program services spending for that fiscal year. Due to SJIS’s reporting history, it is unclear what portion of this reported program spending contains fundraising expenses. SJIS did not respond to our questions.
The Importance of an Audit
Unlike a self-published “Financial Report,” an audit is
conducted by independent certified public accountants according to Generally
Accepted Auditing Standards (GAAS) and is presented according to Generally
Accepted Accounting Principles (GAAP) in the United States. Audits test the
effectiveness of a charity’s internal controls and assess if the charity’s financial
information is fairly presented and free of material misstatements. The audit
process includes inspecting a charity’s assets and examining its accounting
records, including source documents (e.g., invoices, expense reports, cancelled
checks), journal entries, and chart of accounts. Before expressing an opinion
on a charity’s financial health and conformity (or non-conformity) with GAAP,
an independent CPA conducts analytical procedures to identify possible problems
with its financial records and investigates them. Analytical procedures may
include comparing different sets of operational and financial information,
reviewing the consistency of historical relationships, and examining trends in
financial ratios to identify any unexplained variances.
A charity sending a donor its self-published “Financial Report” pamphlet in response to a request for its audit is like a student sending their professor the grade they assigned themselves for the semester in lieu of turning in their final exam. It is in no way equivalent.
Charities that enjoy religious exemption from public disclosure of their governance practices and financial activities to state and federal regulatory bodies can choose to provide their audited financial statements to CharityWatch and other members of the public if they want to. They can also choose to answer questions about how much they are spending each year to send fundraising materials to potential donors. CharityWatch encourages donors to consider a charity’s willingness to be transparent with the public as a major factor in their giving decisions.
As the only independent charity watchdog in the United States, CharityWatch relies on your support to fund our in-depth research and analysis in order to bring you the charity ratings and reports that you can rely on to help you make more informed and intelligent giving decisions. We hope you will consider making a donation to CharityWatch today:
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