A recent report by the non-profit Charity Watch reveals that charities often list expenses under the “program” category in their audits and tax filings that most donors wouldn’t expect to be part of the programs they intended to support with their donations.
Charity Watch explains that on IRS tax Form 990 or audited financial statements, organizations must report how much they spent in three primary areas: on programs, management, and fundraising.
However, charities sometimes include costs in the “program” category that may not be what donors expected their money to go towards.
As an example, Charity Watch points to the Boy Scouts of America (now rebranding as Scouting America). In the organization’s 2022 tax filing, it reported spending over $2.5 billion in total, with $2.2 billion of that categorized as “insurance claims” under program expenses. The claims, of course, infamously relate to sexual abuse claims. The Boy Scouts’ financial statements mention a “loss contingency” of $2.4 billion due to these claims.
On top of that, the Boy Scouts spent $96.3 million on bankruptcy expenses, which was listed as a management expense, and $75 million on insurance, most of which was also categorized as a program expense.
Given that most of the Boy Scouts’ program spending in 2022 was related to these abuse claims, some might think the charity would receive low ratings from charity evaluation organizations. But that’s not the case.
For example, Charity Navigator gave the Boy Scouts a rating of 88%, or 3 out of 4 stars. This rating is based on factors like Accountability & Finance (74%), Leadership & Adaptability (10%), and Culture & Community (16%). Charity Navigator stated that the Boy Scouts had a program expense ratio of 90.72%, meaning they spent 95.4% of their 2022 expenses on what they define as “programs.” This includes the sexual abuse claims. Although Charity Navigator warns donors to be cautious and links to news alerts, this does not seem to significantly impact their overall rating.
The Boy Scouts also received a Platinum seal of transparency from Candid (guidestar.org) for 2024. Candid’s ratings don’t rely on financial data like program spending ratios. Instead, they’re based on self-reported information from the charity itself. Charities can claim their profile on Candid’s site and submit details to earn higher ratings. Because of this, a charity’s efficiency with donations doesn’t affect their Candid rating.