Posted on July 25, 2019
The mission of HeroBox is simple. Through its website at herobox.org, the charity matches deployed soldiers’ wish lists for comfort supplies with willing donors. Donors can choose to sponsor a soldier, referred to as a “hero,” monthly for their entire deployment, or on a one-time basis. Heroes create a profile with HeroBox where they maintain current contact information and a list of desired care package items for their matched donor to view. Donors purchase the requested items themselves, pay for the postage, fill out customs forms, and mail the items directly to their heroes. The process seems simple, clear, and transparent. Unfortunately, the same does not appear to be true for donors who support HeroBox directly with cash donations.
In response to donor requests for information about HeroBox, CharityWatch looked into the charity and uncovered many issues of concern. Highly unusual for a charity of its size, HeroBox has never been audited by outside accountants and has expressed no plans to produce an audit until 2020. The charity’s Executive Director, Ryan Housley, disclosed to CharityWatch that HeroBox’s state registrations are “incomplete,” and when asked, would not provide a list of states where HeroBox solicits donations. CharityWatch’s review of HeroBox’s annual tax filings reveals that it reports its financial activities using an accounting method atypical of a large charity, making it difficult for donors and others to understand how efficiently HeroBox is operating, the total of its debts, or whether the charity is in overall good financial health. In addition, HeroBox omitted from its 2017 tax filing key information about its non-cash donations and joint costs from combined educational campaigns and fundraising solicitations, which CharityWatch obtained only after contacting HeroBox with questions.
The lack of an audit is highly unusual for a charity of HeroBox’s size. Founded in 2009, HeroBox consistently reports raising contributions exceeding $1 million annually since 2012. The charity reported $2.3 million in contributions and $2.2 million in total expenses in 2017 according to its IRS Form 990 for that year. Given that about half of U.S. states require charities of HeroBox’s size to file audited financial statements with their periodic (typically annual) registrations as a condition of being allowed to solicit charitable contributions in their respective states, HeroBox’s lack of an audit is a red flag. When CharityWatch contacted Housley in February of 2019 to request a copy of HeroBox’s most recent audit, he responded, “This year  will be our first audit, which I will forward once complete.” But audits cannot be completed until after year-end, and most do not become available to the public until six to nine months later – sometimes longer. Optimistically, this means donors won’t have access to audited financial information about HeroBox until early- to mid-2020. It is particularly concerning that the charity is waiting until 2020 to produce an audit when most charities are currently (in 2019) in the process of having their fiscal 2018 audits conducted.
Audits are an important measure of accountability for two primary reasons: independence and reliability. An audit must be conducted and prepared by a professional, certified public accountant who is independent from the organization they are auditing. Audit procedures include reviewing a charity’s internal controls, potential conflicts of interest, appropriateness of accounting policies, related-party transactions, revenue concentrations, reasonableness of significant accounting estimates made by management, and more. Audits are performed to obtain reasonable assurance about whether a charity’s financial statements are free from material misstatements. The annual tax Form 990, by comparison, is often prepared by a charity’s staff, or by an outside accountant using information supplied by a charity’s staff that is not subjected to the same rigors that audit procedures require. A donor who relies on a charity’s Form 990, alone, for information about its financial efficiency or governance practices may not be getting a sufficiently complete picture of its operations or oversight.
CharityWatch also asked Housley if HeroBox solicits donations only in its home state of Georgia, in multiple states, or nationally, and if the charity is properly registered and in good standing in all states in which it is required to file. Housley did not provide direct responses to these questions, instead stating the following: “This is reference to all solicitation. We were approached by a company called Forthright a few years ago with an opportunity to handle our direct mail. They handle our registrations as well, but there was a miscommunication that let some of the registrations being [sic] incomplete. We are currently bringing all those current. ... We are in good standing with [the Georgia Secretary of State].”
But HeroBox is not in good standing with the Georgia Secretary of State (SOS). In March of 2019 CharityWatch contacted the SOS’s Securities and Charities Division to request a copy of the charity’s most recent registration. A few days later the Division responded, saying: “Please be advised that, after a thorough review of both your request and the Division’s files, it has been determined that our Division has no documents responsive to your request.” On April 24th, 2019 the Georgia SOS issued HeroBox an Order to “Cease and Desist all violations of the Georgia Charitable Solicitations Act of 1988.” The Order stated that the charity “is not, nor has it ever been, registered as a charitable organization with the Secretary [of State].” The Order also cites a “Letter of Caution” that the Division sent to HeroBox in 2015 explaining its filing requirements and alerting the charity as to its potential violations of state laws. According to the Order, this Letter “…requested Herobox to periodically update the [SOS] regarding its compliance status. Since receiving the Letter, Herobox has not registered as a charitable organization with the [SOS], nor has Herobox provided the [SOS] with any updates regarding its compliance status.” In addition to registration requirements, the Georgia SOS also requires HeroBox to submit a copy of its audited financial statements, which will not be available until 2020, according to Housley.
On its website HeroBox states as its mission, “…to ensure that every American hero receives the physical and moral support they deserve.” Housley failed to answer CharityWatch’s question about which states the charity solicits in. However, the scope of HeroBox’s mission, the charity’s multi-million dollar size, and Housley’s acknowledgment that some of HeroBox’s state registrations are “incomplete,” seem to indicate that the charity solicits nationally vs. only in Georgia. Forty-one U.S. states require that charities register as a condition of being allowed to solicit charitable contributions within their borders. Many of these states require a copy of a charity’s IRS Form 990 to be included as part of meeting filing requirements. And yet, in its tax filings for 2009 through 2011, and 2013 through 2017, HeroBox reports that the only state where it is required to file its Form 990 is Georgia. In its 2012 tax filing HeroBox reports that its Form 990 is not required to be filed in any states. If HeroBox is soliciting contributions nationally, this means its Form 990 reporting is incorrect. It could also mean that the charity is out of compliance with many state charitable solicitation laws that could subject it to penalties, as well as potential cease and desist demands, from multiple states.
One function of the required public disclosure of charity financial information is to create transparency for donors and other stakeholders so they can make more informed decisions about a charity in consideration of its financial efficiency, governance policies, fundraising practices, solvency, and reporting compliance. While it is not unusual for very small or new nonprofits to lack a comprehensive knowledge of state level reporting requirements, HeroBox is neither small nor new. In addition, CharityWatch obtained evidence suggesting that HeroBox has been aware since at least 2013 that registration is required in some states as a condition of being allowed to solicit contributions there. An Order from the state of Pennsylvania dated July 25th, 2013 ordered HeroBox to “cease and desist from soliciting contributions in Pennsylvania until such a time as HeroBox provides the Bureau with all previously requested information and Herobox duly registers or provides information that it is excluded or exempt from registration…” A “miscommunication” with HeroBox’s outside fundraiser does not sufficiently explain why Housley has failed to bring the organization into compliance with state level solicitation regulations, or why he signed years of tax filings that report Georgia as the only state in which HeroBox is required to file a copy of its Form 990.
On its website HeroBox gives the appearance of financial transparency by posting copies of its IRS Forms 990 for every year since the charity’s inception in 2009 through 2017. But CharityWatch’s analysis of these tax filings, coupled with Housley’s responses to our questions, reveals HeroBox to be lacking in accountability on several fronts. For example, according to Schedule O of its 2017 IRS Form 990, the charity does not make its governing documents, conflict of interest policy, and financial statements available to the public during the year. While not an IRS requirement, HeroBox’s unwillingness to share basic governing documents and policies with the public is particularly concerning given that the charity has never been subjected to an independent audit. In addition, because some basic data appeared to be missing from HeroBox’s 2017 tax filing, CharityWatch asked Housley to provide information about non-cash donations the charity received that year, and an accounting of any expenses the charity incurred in 2017 from activities that included a combined educational campaign and fundraising solicitation. To Housley’s credit, he promptly supplied CharityWatch with the information. To his discredit, this information should have been included in HeroBox’s Form 990 in the first place so that the general public –not just CharityWatch – would have access to timely, complete, and accurate information.
With the exception of very small nonprofits, most charities report their financial activities on an accrual basis of accounting. In simple terms, this means that expenses are reported when incurred, irrespective of when they are paid; and revenue, including contributions, is recognized when earned or pledged, irrespective of when cash happens to flow into a charity’s bank account. Accrual-based accounting is the method used for charity audited financial statements in order to comply with Generally Accepted Accounting Principles (GAAP) in the United States. This method is favored because it provides a more complete picture of a charity’s operating efficiency and financial health. In its tax filings for 2012 through 2017, HeroBox reports that the accounting method used to prepare its Form 990 was cash basis, not accrual. Due to this atypical reporting choice on the part of HeroBox, CharityWatch is unable to compute a letter grade rating for this charity that would reflect how efficiently it is operating, or that would be comparable with the other nonprofits that CharityWatch rates.
Given our many concerns about HeroBox’s financial reporting, CharityWatch encourages donors to exercise caution if considering donating to HeroBox. For a list of highly rated veterans charities that have also met CharityWatch’s governance and transparency standards, see our Top-Rated list.