No Defense for Bad Accounting
Celebrating its 60th anniversary this year, Defenders of Wildlife (DW) once again receives a "D" rating from AIP based on recently received 2005 financial information. At first glance, the tax form gives the appearance of a fairly efficient group, reporting $19 million out of its $25.6 million in total expenses going to programs. However, upon closer inspection, it turns out that about half of reported program spending consists of direct mail and other combined educational campaign and fundraising solicitation costs, reported as joint costs in the group's tax form.
An AIP member sent us a solicitation she received from the group which included five colorful greeting cards with envelopes, a small page of address labels, an informational letter containing multiple requests for a contribution, a "members'-only" offer for their choice of a kitchen apron or wind chime containing the organization's insignia, and a "Contribution Reply Form." On the back of each greeting card appears a paragraph of facts about the animal whose photo appears on the front of the card, along with an address to the organization's web site where donors may obtain more information on what they can do to help save the animal. Once the costs associated with such mailings and other joint costs are subtracted out of program expenses, DW spent only about $10.9 million, or 43% of its total expenses on its programs.
In 2004, auditors for DW issued a report to the group's board of directors containing multiple recommendations with respect to how DW reports and accounts for certain expenses. One recommendation states, "Defenders currently includes membership development expenses as a program expense on the Form 990. Although we do not prepare the Form 990, we recommend that Defenders discontinue this practice and group membership development with fundraising or general & administrative expenses on the Form 990." This is sound advice considering that a charity's membership development is the cost of obtaining members or donors — not a program. Joe Zillo, V.P. of Finance for DW takes a different view. "The costs are not fund raising, since the plan is not to raise net income but to build Defender's grass roots memberships," he said in response to our inquiry. However, he indicates the practice may not be set in stone, saying, "I and the Board Audit Committee will be reviewing this position during the fiscal year."
Another recommendation made by DW's auditors refers to the group distorting its fundraising efficiency by accounting for its direct mail expenses in a different financial period than the resulting contributions. It states, "Defenders policy is to expense direct mail costs as incurred and not in the period to which the mailing relates. This practice can materially misstate direct mail costs in any one fiscal year. We recommend Defenders record direct mail costs in the period in which the mailing is sent." The auditors had other recommendations, including a concern with DW recording certain direct mail costs as program expense even though they should have been reported as fundraising.
In response to AIP's inquiry, DW claims that it did adopt some of the recommendations outlined by their auditors in the 2004 report, and has taken steps to better comply with certain accounting and reporting standards. However, donors should not be fooled. The group is not spending donors' dollars any more efficiently than it has in previous years.