Raising Billions for Charity Without Spending a Dime

Lois Lerner, director of the IRS’s Exempt Organizations Division, told Scripps that a Charitable Spending Initiative is underway to look at fundraising costs and other indicators of tax rule noncompliance. “We are very, very interested in that,” she said.

Nonprofits have a strong incentive to underreport their overhead costs, Scripps said. United Way, for example, recommends against making donations to groups that spend more than 25% of donations for overhead expenses.

The study found that nearly one-third of Goodwill Industries’ 127 major affiliates reported raising a total of $387 million at no cost. The organization, like others contacted by Scripps reporters, said it would rethink its reporting practices.

“It is important to be clear and transparent,” Goodwill Industries International president and CEO Jim Gibbons said. “If this is even perceived as misleading, well, that’s not what the Goodwill brand stands for.”

Smaller charities also acknowledged underreporting of overhead expenses, Scripps reported.

The report said it had turned up a number of charities that were able to make compelling arguments for “zero” overhead costs because unpaid volunteers had raised the funds. But most underreporting groups had a hard time defending the practice, it said.