Cooking the Books: How Nonprofits Make Inflated Claims About Their Fundraising Success
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There’s a dirty little secret in high-stakes capital campaign fundraising that donors and the public know little or nothing about: Creative accounting makes it appear that many charities raise far more money than they actually do.
With ever-bigger campaign goals, exaggerated fundraising totals are increasingly commonplace, development experts say. Such practices sully the fundraising profession’s reputation by flouting established guidelines for reporting contributions. And they make it impossible for organizations to compare fundraising across similar institutions, a potent tool in improving returns.
More than a dozen senior development officers and consultants interviewed for this article declined to name specific charities with falsely inflated campaign totals—or admit they ever exaggerated fundraising results themselves. But every person said that embellished campaign claims, misleading fundraising reports, and outright falsifications are a fact of life in the charity world.
Exaggerated Claims Make Headlines
Inflated fundraising figures aren’t confined to capital campaigns; they occur in other newsworthy cases. For example, federal investigators have been looking into claims by Jane O’Meara Sanders, the former president of Vermont’s Burlington College who’s married to Senator Bernie Sanders.
In 2010, to obtain loans to purchase a new building and land for the college valued at $10 million, Sanders told lenders that the college had $2.6 million in gifts and pledges. After the college defaulted on its loans, investigators found that it had received only $676,000 in contributions from 2010 through 2014. Sanders abruptly left her position in 2011, and Burlington College, its finances in disarray, shut down for good last year.
Exaggerating contributions “is so commonplace that people talk freely about it, but it is not something you should be doing,” says Kent Dove, a former senior fundraiser at Indiana University.
To avoid overcounting gifts at Indiana, Dove says, “we sat down before the campaign to determine what would and would not be counted. We shared that with the board and all development staff. It greatly diminished the temptation to exaggerate.” Another safeguard: “A major gifts officer could not assert a number without there being a check on that gift by a senior development officer, usually me,” says Dove.
The Gold Standard
To be sure, many institutions follow strict ethics and reporting guidelines in calculating and broadcasting campaign results. Stanford University, for example, is widely cited as the gold standard for reporting how much it raised in its most recent capital campaign, $6.2 billion on a $6 billion goal.
But “overcounting definitely goes on, and these ever-larger billion-dollar-plus campaigns are one big reason,” says Phil Adcock, a seasoned fundraiser now retired from the University of Alabama.
There are at least 40 ongoing campaigns to raise at least $1 billion in higher education alone, according to Tuoyang Mu, a campaign data analyst who tracks fundraising trends for Boston University. In recent years, he says, the multibillion-dollar goals have spread from private, elite institutions to public ones like the University of Washington, now on a quest to raise $5 billion.
With the big numbers come growing demands on fundraisers to deliver. “They have pressure to run numbers the way the CEO wants,” says Bill McGinly, president emeritus of the Association for Healthcare Philanthropy. “There are all sorts of pressures. People want to inflate the numbers, particularly if they are measured on the numbers.”
How to Misrepresent Fundraising Results
Fundraisers can exaggerate campaign contributions in numerous ways, McGinly and other experts say. Among them:
Counting revenues that are not charitable gifts, such as government contracts or tax credits.
Counting gifts twice, once toward the overall campaign goal and again by the department, program, or project to which donors directed their campaign contribution.
Valuing in-kind donations such as real estate or historic artifacts higher than an appraiser would.
Reaching back to count estate gifts that came in long before the start of a campaign.
Ignoring official guidelines by including bequest pledges from young donors that take decades to realize.
“The consistency and transparency we crave goes lacking because the guidelines are inconsistently applied, or they are modified or even ignored in order to achieve the desired outcomes by the professional fundraiser, management, and even competing interests within the institution,” McGinly says.
Problem: No Universal Standards
Part of the problem is the fact that, while there are official guidelines for counting contributions, they are not mandatory. And adding to the confusion, there are four different versions issued by the Association of Fundraising Professionals, the Council for the Advancement and Support of Education (CASE), the Association for Healthcare Philanthropy, and the National Association of Charitable Gift Planners. So far, there’s no single set of guidelines for everyone to follow.
“There is simply not a universal standard to apply,” says Mark Larkin, president of Florida’s Boca Raton Regional Hospital Foundation. “It makes it hard to understand what is really going on in fundraising. I wish [charities] would report the same way; it would lead to less confusion.”
As evidence of overcounting in capital campaigns, several fundraisers cite Voluntary Support of Education (VSE), an annual report by the Council for Aid to Education that, among other data, publishes the amount of cash and in-kind donations actually received by colleges and universities every year.
“You’ll have this big campaign going on, but you look at the VSE, and you see that the institution’s endowment and cash receipts grew very little,” says Adcock, the retired Alabama fundraiser.
Campaign Inequalities
The VSE report shows wide variations in cash contribution amounts universities report, even as they run big multibillion-dollar campaigns with the same monetary goal. A case in point is the quest to raise at least $6 billion in ongoing campaigns at Harvard University and the University of Southern California. Stanford closed its own $6 billion drive in fiscal 2011, which ended August 31 of that year.
As it embarked on the “silent” phase of its campaign in 2011, Harvard reported raising more than $639 million that year, while USC started its quiet phase the year before with just over $426 million raised in 2010. Donations at USC actually fell the following year when the institution publicly announced its campaign: In 2011, USC reported a little more than $402 million in donations.
That same year, Stanford reported more than $709 million in contributions, and in 2012, one year after its campaign officially ended, the university’s cash donations surged to more than $1 billion as donors paid off their campaign pledges and made other gifts.
USC recently announced that it reached its $6 billion campaign goal 18 months ahead of time, and is now extending the drive to 2021. That announcement drew criticism from multiple fundraisers. One senior development officer told Inside Philanthropy that USC’s campaign reminds her of the Wells Fargo scandal in which bank employees created fake accounts to meet sales quotas.
But USC’s top fundraiser, Al Checcio, rigorously defends his university’s campaign performance. “We follow guidelines based on CASE standards,” he says. “If you add up the VSE figures, you will see that we have more than $4 billion in cash raised with the remainder in pledges. We don’t have to inflate anything.” USC, he adds, is “responsible to the integrity of our institution and our donors.”
Does It Matter?
Even if campaign returns are inflated, does it really matter? Experts say it does, because comparisons of fundraising among institutions of similar size are impossible as a result.
Yet such comparisons have great value in increasing contributed income, says McGinly of the Association for Healthcare Philanthropy. He led an effort to recruit member hospitals and medical centers to join a benchmarking group of institutions that agreed to count fundraisings costs and returns the same way.
That exercise led to some valuable insights that greatly improved fundraising returns for participants like Mark Larkin who, before moving to Boca Raton in 2015, was a longtime fundraiser for CentraCare Health in St. Cloud, Minnesota. By comparing CentraCare with similar institutions in the benchmarking program, Larkin realized that one key to increased giving was hiring more staff members to work with donors. As a result, he gradually added 11 new development officers. Donations grew from $400,000 to an average of $7.2 million in the last seven years of Larkin’s CentraCare job.
Larkin credits the benchmarking comparisons for CentraCare’s success. “Having this information made it much easier to convince the board and C-suite to invest in more staff and show them how long it takes to ramp up,” he says. “It is helpful to put some science behind the art of fundraising.”
“Lots of Fears”
Unfortunately, such success stories are more the exception than the rule, because charity officials resist following guidelines for reporting their fundraising costs and returns, says McGinly of the Association for Healthcare Philanthropy.
“There are lots of fears out there,” he says. “Many professionals feel these guidelines will be used as something punitive rather than the tools they are for gathering support for the investment that needs to be made to increase philanthropy.”
That’s one reason why, when it comes to big capital campaigns, “a president and chief advancement officer can really get creative, and it is very possible to cook the books,” says Scott Nichols, chief fundraiser at Boston University. In campaign accounting, he adds, no one gets audited.
Holly Hall is a Contributing Editor at Inside Philanthropy. To share more information with her on this topic, contact her at: hollyh@insidephilanthropy.com. To comment publicly on the article, please visit Facebook.com/InsidePhilanthropy/
