During a typical six-month season, the environment in National Football League (“NFL”) stadiums can easily be characterized as masculine. However, during the month of October, players take the field in pink sweatbands, cleats, and chin straps; play with a pink, embellished pigskin; and even wipe their sweat with a pink towel. The referees also take part, blowing their pink whistles when a player in a pink-accented jersey does something that runs afoul of the game. This is the NFL’s way of supporting breast cancer awareness month alongside a multitude of other companies and nonprofits. During October, a breast-cancer-research “superfan” could purchase almost any product allegedly supporting the cause including dish soap, measuring cups, Snuggies, and bike helmets. If that fan is hungry, they can pick up a pink bucket of fried chicken from KFC. Breast cancer awareness month motivates companies to capture consumer dollars with a promise (even if implied) to raise funds for breast cancer research.
However, do all of these products actually benefit the research they claim to support? Last year, the National Cancer Institute, which receives its funding in part from voluntary organizations, private institutions, and corporations, reported spending $631.1 million on breast cancer research. This is more than double the amount spent on any other cancer research. Perhaps the most well-known nonprofit, Dallas-based Susan G. Komen for the Cure grossed $311.9 million in 2010. These are just two examples of the contributions that add up to the estimated $6 billion raised every year for breast cancer research. The money donated to breast cancer research has been instrumental in facilitating recent advances including the development of sophisticated digital mammography; the discovery of genetic markers, which allow women to take preventative measures; and the creation of new drugs to help treat the disease.
Being such a profitable industry, breast cancer awareness has also been the target of charity scammers. Preying on the public’s beneficence and counting on a lack of due diligence, these “sham nonprofits” pop up everywhere, and not just in the breast cancer context. For example, the Central Asia Institute, a nonprofit supported by President Obama for funding education in Pakistan and Afghanistan, has come under fire with allegations of misusing funds. Unfortunately, scammers are not opposed to taking advantage of benevolent consumers in the wake of tragedy. Notably, sham charities have cropped up in the aftermath of 9/11, Hurricane Katrina, and the Haiti Earthquake.
In addition to misusing unsuspecting consumer’s sympathy funds, these sham nonprofits may also enjoy benefits from state and federal governments. First, a “nonprofit” is a state law concept with the benefits afforded to nonprofit-status companies varying by state. To obtain nonprofit status in Illinois, for example, a company needs to organize under one of the thirty-three allowable purposes, such as a charitable, social, or benevolent purpose.
After being incorporated, a company can apply for a federal tax exemption through the Internal Revenue Service (“IRS”). For a company to be exempt under § 501(c)(3), it is generally required that the company is organized and operated exclusively for an exempt purpose (i.e. charitable, religious, educational, or scientific), the company does not attempt to influence legislation as a substantial part of its activities, the company does not participate in any campaign activity for or against political candidates, and the company’s earnings do not inure to any private shareholder or individual of the company. To make things easier for the filing company, there are services available (for purchase) to assist in the process. Finally, in addition to the federal tax exemption, another major benefit of obtaining § 501(c)(3) exemption status is the ability to accept contributions and donations that are tax-deductible to the donor.
A nonprofit can also benefit from a state tax exemption. In Illinois, a nonprofit can mail a request to the Illinois Department of Revenue to have their sales taxes exempted from purchases through their company. Additionally, if an Illinois nonprofit qualifies for federal exemption status, the company is likewise exempted from paying Illinois income tax. As described above, to qualify for federal exemption status, a nonprofit company must go through the IRS and qualify under the Internal Revenue Code § 501(c)(3), which exempts the nonprofit from federal income tax requirements. Thus, § 501(c)(3) exemption status can make a nonprofit completely tax exempt, just through filling out the proper paperwork.
Given the relative ease of starting nonprofits, consumers have to be careful where they entrust their donations. Though it is good practice for charities to make their financial records accessible to the public, most do not. The IRS makes available all tax returns (“990s”) for nonprofits they recognize. These are available on guidestar.org. However, since the tax returns are usually back dated a year or two, this information is usually not available for the younger nonprofits and the nonprofits that form in the wake of tragedies. Additionally, these tax returns can be filled out by anyone. There is no auditing requirement, and the returns do not have to be filled out or certified by an accountant. Finally, the average consumer might not be able to get a good sense of a company’s financial status by just looking at the tax return form.
Luckily, there are other resources available to help consumers decide which nonprofits are best for their donations. Charity Navigator evaluates nonprofits and advises consumers on which nonprofit will take their dollar the furthest in terms of how much money is spent on actual services versus overhead and salaries. The Better Business Bureau (“BBB”) offers resources similar to guidestar.org, but also allows consumers to file complaints against national charities. After a complaint is filed, the BBB will forward the complaint to the organization and request that appropriate action is taken. In 2010, the BBB reported that for all of the complaints against national charities 50% could not be settled while 16.7% were unable to be pursued. As an additional practice in dealing with complaints, the BBB states that it will review all issues, and possibly will include these reviews in their written reports.
There are several other ways to ensure charitable funds are not misused. First, consumers should demand transparency when it comes to nonprofit organizations. The IRS requires exempt organizations to provide annual returns. Individuals can request an exempt organization’s materials from the IRS directly.
Second, consumers should skip the generic pink ribbon merchandise (Susan G. Komen for the Cure and other nonprofits have only trademarked their own distinct versions). Since nobody owns the rights to the pink ribbon design, any company can sell pink ribbon-branded products implying support of the cause even if they do not offer much financial support at all. This aversion to generic support should be applied to the support of other causes too. For example, the Oriental Trading Company offers many different breast cancer pink ribbon products (a few are Susan G. Komen for the Cure-trademarked, but most are generic) and “support our troops” products, with proceeds benefitting… the Oriental Trading Company. Recently, the rapper Jay-Z came under fire for his “Occupy All Streets” T-shirt, which mimics the Occupy Wall Street (“OWS”) movement’s phrase and, as a result, was assumed to be financially benefitting the movement. However, an OWS spokesman told Business Insider magazine that the movement would not see any profits generated by the T-shirt sales. After Jay-Z was accused of trying to profit from the protests, the T-shirt disappeared from Jay-Z’s website. These examples demonstrate that just because a product is cause-branded it does not necessarily mean that the profits support that cause.
Third, consumers should either donate directly to affected people they wish to support or invest in long-standing companies proven to be helpful to society. Guide Star, described above, offers lists of organizations deemed to be worthy of donations. Additionally, Great Nonprofits allows members to rate and comment on different nonprofits. Finally, a consumer can call the BBB and inquire specifically about a nonprofit organization’s past complaints.
Fourth, consumers could donate things other than money. Nonprofits spend lots of money on overhead costs, including salaries. If more people donate their time through volunteering, those costs would, in theory, go down. Also, instead of donating money, consumers could elect to donate goods either to charitable organizations or directly to those in need. That way they know exactly where their money is going (the goods), and where the goods are going (those in need). Again, consumers should do their research ahead of time, even when donating time or goods to ensure that their efforts are going to the cause they are truly trying to support.
Lastly, if someone is thinking about starting a nonprofit organization, they should ensure awareness of the business responsibilities and planning that goes into forming a company. Businessmen and philanthropy executives Charles R. Bronfman and Jeffrey R. Soloman conduct their philanthropy as a business, “with discipline, strategy and a strong focus on outcomes,” and credit that philosophy to their success. If a well-intentioned but inexperienced individual starts a nonprofit they may try to mimic a larger, well-known nonprofit. This may lead to funds being wasted on informational brochures that are already available to the public or exorbitant funds being spent on events. While this is not a suggestion to dissuade those interested in starting a nonprofit, one should first think about how to ensure that one’s time, money, and passion is well invested.
During the holiday season, nonprofits and charities benefitting those less fortunate can be inescapable. Santa Clauses outside of grocery stores ringing their bells for the Salvation Army and the Toys for Tots bins are just two examples. Charitable giving should not be obstructed by selfish organizations, but rather charitable giving should be catalyzed by generous organizations. A consumer can best help by first informing themselves about what their money is being used for. Taking the time to do this can make somebody’s holiday season that much brighter, somebody’s chances of living that much better, and somebody’s hardships that much more manageable.