A favorite saying in business is that you have to spend money to make money. Charitable organizations, on the other hand, have to spend money to give money, and it turns out that some are woefully inefficient at channeling donations to the people they're supposed to help.
The nonprofit Charity Navigator website tracks such expenses via charities’ disclosure statements to the IRS to provide donors with an assessment of how well charities run themselves. Looking only at the supply side for the more than 5,500 charities that it tracks, the organization does not evaluate the impact on the recipients of funds, since that impact is often a subjective appraisal of "effectiveness." The statistics used in this list are from the most recent fiscal year's data on the Charity Navigator Web site at the time of publication.
But it is safe to say that all donors give money not to pay for office supplies and inflated salaries for executives (check out MainStreet's overview of the highest-paid charity CEOs), but rather to the programs that charities undertake to further their goals. It is with this philosophy that we highlight the 20 charities in the U.S. with the highest administrative costs, to show which groups take the most of each donated dollar for themselves, in some cases leaving less than half for the intended recipients of aid. For a look at those whose admin costs are next to nothing, check MainStreet's roundup of the 20 best charities in the U.S.
Whether it be rent on prime office space, generous pay and benefits for the board of directors, or the high fixed costs of running a summer camp, overhead like this reduces the impact of a charity no matter how that money is being spent. Donor beware…
20. Tucson Audubon Society
Administrative expenses: 42.8%
Well-known for its many programs focused on the protection of biodiversity and the environment, the Audubon society, based in Washington, D.C., has chapters across the country, run independently of the main office. Its affiliate in Tucson, Arizona, which fosters interest in and conservation of the bird population of southern Arizona, has seen its administrative costs skyrocket as the recession has eaten into its incoming donations. Partially due to Executive Director Paul Green’s inflated salary of $78,800, which accounts for more than 7% of the group’s expenses, the Tucson Audubon Society spends almost as much for its office as it does on the birds it aims to protect.
19. New Hampshire Audubon
Administrative expenses: 42.8%
Like the Tuscon Audubon Society, the New Hampshire Audobon has also struggled to maximize the amount of donations that go toward its environmental programs. Much of the administrative costs can be traced to the group’s seven visitor centers that it runs throughout the state, where staff organize classes, summer camps, and activities for children and adults. These fixed costs mean that in lean years for donations, it is hard for the New Hampshire Audubon Society to trim down their considerable administrative expenses.
18. Gospel to the Unreached Millions (GUM)
Administrative expenses: 43.1%
Based in Houston, this evangelical ministry is one of the least efficient in translating donations into international programs designed to spread its spiritual message. With administrative expenses topping 43% and fundraising expenses more than 38% of its total budget, GUM was able to disburse a mere 18% of incoming money to the targeted recipients of aid in its last reported fiscal year, 2006. Managing a budget of almost $1.5 million, GUM has a poor track record of directing that cash to its evangelical programs.
Administrative expenses: 43.7%
Psychiatric evaluation and treatment are a big business in the United States, with new conditions being identified and monitored seemingly every day. The American Psychiatric Foundation, based in Arlington, Va., tries to improve the public’s understanding of mental illness and to advocate for early intervention programs and treatment services through grants, research funding and awards. The group, which is the philanthropic arm of the American Psychiatric Association, has received consistently low ratings for its high administrative costs, which consistently reach more than $500,000 annually.
16. Marshall Heights Community Development Organization (MHCDO)
Administrative expenses: 44.1%
Poverty has long been a problem in Washington, D.C., where the Marshall Heights Community Development Organization seeks to improve the lives of the Ward 7 area of the district. Focusing mainly on affordable housing and adult education and job placement services, the MHCDO manages a budget close to $4 million. While its president, Michael Watts, pulls in an annual salary of more than $137,000, the group’s development of housing facilities and office space contributes to its high overhead costs and consequently low rating for operational efficiency.
Administrative expenses: 44.9%
Museums, which seek to educate and improve the lives of their visitors, play an important role in a modern society. The Please Touch Museum, founded in Philadelphia in 1976, targets children ages seven and below using play as an educational tool. With revenue of over $24 million in its last reported fiscal year (2008), the museum funneled just $2 million of that to its community outreach programs. A museum spokesman told MainStreet that the high administrative costs for the fiscal year were due to the one-time high cost of a major expansion and move.
Administrative expenses: 45.2%
The Open University of Israel, which runs 70 study centers and over 600 online courses, is the largest university in Israel and serves Israelis and Jews around the world. Based in New York, the American Friends of the Open University of Israel is an advocacy group that supports Israeli communities in the United States and raises awareness of the contributions of the Jewish community in American society. The group raises funds for scholarships, research centers, and other educational goals, but its high administrative expenses in its last reported fiscal year have stood in the way of maximizing the group’s reach. Having received higher marks in the past, the AFOUI will surely take steps to more efficiently manage its budget of around $4 million.
UPDATE: AFOUI's administrative costs of 45.2% were based on their FY2007 numbers, which at the time of publication was the most recent fiscal year available on Charity Navigator. On June 1, the date of this article's publication, AFOUI added FY2008 numbers, which reported administrative costs of just 11%.
Administrative expenses: 45.4%
With almost $10 million in revenue in its last reported year of 2007, the Peter G. Peterson Institute for International Economics, a nonprofit, nonpartisan public policy research organization in Washington, D.C., plays a considerable role in shaping U.S. economic policy. Widely praised as being one of the few truly neutral research organizations in the field, the Peterson Institute takes considerable resources to run, with administrative costs totaling over $4 million of its 2007 budget of just over $9 million. With the global economy in crisis and issues such as climate change and renewable energy being debated on the world stage, the Institute’s highly-paid researchers are no doubt doing valuable work, though donors may be put off by how much of their dollars go to running the organization compared to the amount going to further its goals.
Administrative expenses: 45.8%
Like many historical landmarks, the Stan Hywet Hall & Gardens in Akron, Ohio is a window into the past. The former home of one of the founders of the Goodyear Tire and Rubber Company, it was built in 1915 and was turned over to a nonprofit organization in 1957. The site exists to educate the public about itself: the history of the land, the owners, and the local rubber industry. Maintenance of the property, as well as the $150,000 paid to its president and CEO, Harry Lynch, ate into the home’s budget of over four and a half million dollars in fiscal year 2007, which goes to educational programs for schoolchildren as well as the local population. Being the only historical landmark in Akron, known at one time as the “Rubber Capital of the World”, the Stan Hywet house is an important local resource whose impact would surely be even more substantial if it could reduce its administrative overhead.
Administrative expenses: 46.0%
Based in Phoenix, Arizona, VCLI is one of the smallest organizations on the list, as well as being one of the least efficient. With a budget of only around $100,000 in fiscal year 2007, the group spends almost half on administrative expenses stemming from the operational costs of running offices in Illinois, Alabama, Guatemala, and Cuba in addition to its headquarters in Arizona. The organization, led by the charismatic Ray L’Amoreaux (whose $24,000 salary represented 2.24% of expenses in 2007), seeks to help churches further their efforts to recruit more committed followers of Jesus.
10. The Center for Individual Rights has been removed from this list. Following the article's publication, CIR contested their inclusion and provided Charity Navigator with an updated itemized list of their administrative and program expenses. As a result of the update, CIR's administrative expenses for FY2008 dropped from 46.1% to 9.7% (as reflected in the functional expenses section of the CIR page on Charity Navigator).
Administrative expenses: 47.4%
Changed Lives is a Christian organization based in Tennessee whose message of Biblical values is broadcast streaming over the internet to followers around the world. Carried by speaker Ben Haden, who began his broadcasting career at NBC in 1967, Changed Lives features video lectures on a number of spiritual topics and distributes Bibles and other religious literature for free to its supporters. While the organization’s revenues have increased over the last three reported years, its overhead has more than kept pace, pushing administrative expenses to over 47 percent of the group’s 2008 budget of around $790,000.
Administrative expenses: 48.7%
Another evangelical organization, Vision New England works with a network of over 5,000 churches to advance its goal of supporting and improving upon pastors’ efforts to increase bring more New Englanders to faith in Jesus. It does this through seminars and prayer groups throughout the region. The group’s $1.4 million budget in 2008 was significantly lower than the previous two fiscal years, but a significant rise in administrative costs during that same period brought overhead costs up to 48.7 percent of total expenses.
7. Charleston Area Medical Center Foundation (CAMCF)
Administrative expenses: 48.8%
West Virginia’s Charleston Area Medical Center Foundation raises money for the hospital from which it gets its name, with donations in 2007 totaling over $26 million. Representing a 10 percent increase over the previous year’s revenue, the group’s $2 million program expenses that year, however, represented a 19 percent decrease in the money distributed to further the hospital’s research and community outreach goals, bringing it to number 7 on the list.
Administrative expenses: 55.1%
There has always been a lot of money in horse racing, and the New York-based National Museum of Racing and Hall of Fame has attracted some of that cash to further its goal of bringing the history and excitement of thoroughbred racing to the widest possible audience. With a 2007 budget of over $2 million, the museum provides educational program for children and adults, and organizes trips to horse races for interested groups. Unfortunately, over half of its expenses that year (as well as the previous year) went to administrative overhead, fueled in no small part by salaries paid to its director and acting director, together representing almost 10 percent of total expenses.
*Note: Following publication of this article, the Cherokee National Historical Society revised its filings to correct for "errors made by an outside accounting firm hired by the CNHS" and is now ranked as a four-star charity on CharityNavigator, the site's highest ranking.
Administrative expenses: 58.2%
Dedicated to preserving the history and traditions of the Cherokee people, the Cherokee National Historical Society, based in Oklahoma, is the fifth-most inefficient charity in the United States. With administrative expenses of over 58 percent of total expenditures dwarfing the 39 percent spent on programs in fiscal year 2007, the group saw its administrative costs almost triple from the previous year. While the cultural center that it runs has been a resource for Cherokee history since 1963, its skyrocketing overhead does not bode well for the group’s future efforts at fundraising and outreach.
4. Union Rescue Mission, Little Rock
Administrative expenses: 62.1%
Arkansas’s Union Rescue Mission is the first charity on the list whose administrative expenses reached over 60 percent of total expenses for the last reported year. The Mission’s goals are of the highest importance, targeting hunger, victims of abuse, and people struggling with addiction in Arkansas and her neighboring states, which it pursues through the efforts of a few key Baptist reverends. The massive increase in administrative costs in fiscal year 2008 over the previous year, according to Executive Director William Toffett, were due more to accounting issues than operational costs, suggesting that the group’s recent poor performance is not indicative of fundamental inefficiencies in the mission itself.
3. National Council of Negro Women (NCNW)
Administrative expenses: 64%
Serving as an umbrella organization for 39 national and local advocacy groups for women of African descent both in the U.S. and abroad, the National Council of Negro Women coordinates its activities with partners in 34 states. The Council also runs four research and policy centers in its efforts to develop best practices in addressing the health, educational, and economic needs of African-American women. Unfortunately, all of these centers take a lot of resources to run, and with administrative costs upwards of $4 million in 2007, there is comparatively little left over in the group’s approximately $6 million budget for programs.
Administrative expenses: 66.3%
Long-respected for its role in improving the lives of disadvantaged and impoverished young people in Harlem, New York, the Boys Choir of Harlem went all the way to the White House, performing for sitting presidents since Lyndon Johnson. The group, which for 30 years turned neighborhood kids into performing singers, ended in disgrace last year after a child abuse accusation and the death of its founder in 2007. Drowning in debt with high administrative costs soaking up much of its ever-decreasing budget, the Harlem Boys Choir suffered the most dramatic fall from grace of any group on the list.
Administrative expenses: 68.0%
Topping the list of America’s worst charities is an organization that spent more than $1.6 million dollars on its administrative expenses in 2007, over twice what it spent the previous year. The American Tract Society, based in Texas, distributes religious literature to spread its message around the world. With a history of low ratings from Charity Navigator, the group’s administrative expenses have consistently outpaced the amount of donations coming in. While the group receives income from other sources than contributions, donors to the American Tract Society may be surprised to know that the recipient is the most inefficient in the country at maximizing the impact of its donations.
Check out MainStreet's recent story about lining up tax deductions through charitable giving.
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