By the Numbers: Best Friends Animal Society's Accounting Practices Under Scrutiny
Are In-Kind Donations Obscuring Financial Transparency and Misleading Donors About Real Program Impact?
Imagine donating to a cause you care deeply about, only to discover that the impact of your contribution is not as clear as you thought. For those passionate about animal welfare, understanding how nonprofits like Best Friends Animal Society manage their finances is crucial. Transparency in financial reporting not only influences public trust but also determines the real impact of your donations. Recent scrutiny has emerged over Best Friends' financial practices, particularly regarding in-kind advertising contributions. While these practices adhere to standard accounting rules, they might paint a misleading picture of how donor funds are truly utilized to support animal welfare efforts.
In-Kind Contributions and Accounting Practices
At the heart of the matter is how Best Friends handles in-kind advertising donations, which consist of donated media services like free ad placements and publicity. These contributions are recorded in the organization’s financial statements as both revenue and program expenses. For instance, the fiscal year 2021-22 financial statement reported nearly $100 million in such media donations, listed simultaneously as program expenses. This accounting approach inflates both reported revenue and expenses, potentially giving the impression that more resources are allocated to charitable programs than might actually be the case.
While this practice complies with Generally Accepted Accounting Principles (GAAP), it may not align with donor expectations. In the nonprofit sector, a higher proportion of program expenses is often interpreted as an indicator of an organization’s commitment to its mission. Critics argue that incorporating in-kind advertising into financial calculations can make the ratios seem more favorable than if based solely on cash expenditures.
Best Friends' accounting practices reduce the apparent share of expenses attributed to administrative costs, affecting how much of the budget seems to be directed toward animal welfare programs. Notably, over $4 million reportedly supports executive compensation and other administrative expenses. Without these accounting methods, the fundraising and administrative expense ratios could appear significantly larger, potentially raising concerns among donors regarding the actual impact of their contributions.
Audit Findings and CPA Insights
Recent audit findings reveal that Best Friends received around $186.7 million and $98.5 million in in-kind advertising contributions for the fiscal years ending September 30, 2023, and 2022, respectively. While reporting these donations as both revenue and expenses adheres to accounting standards, it raises concerns about transparency due to the unusually large scale of contributions, obscuring the true allocation of resources.
Concerns noted by a certified public accountant (CPA) and a financial analyst include:
Visibility of Advertisements: The CPA questioned the visibility and plausibility of these ads. Given their substantial value, these ads should be prominent, yet there is uncertainty about their frequency and location.
Dramatic Increase in Value: The doubling of in-kind advertising value within a year, following a steep upward trend from previous years, raises questions about the reasonableness of these increases without clear evidence of expanded advertising efforts.
Role as an Advertising Agency: If these figures are accurate, they could suggest that advertising might overshadow Best Friends' primary mission of animal welfare, potentially misleading donors about the organization’s true priorities.
Daily Advertising Value: To meet the reported figures, Best Friends would need to orchestrate an advertising blitz worth over $511,000 every day of the year. This staggering scale seems improbable without widespread visibility, prompting further questions about transparency and accuracy.
Financial Realities Versus Reported Values
For the fiscal year ending September 30, 2023, Best Friends reported total expenses of approximately $148 million, which includes all operational costs such as program services and management. Given that their reported in-kind advertising contributions were valued at $186.7 million, this discrepancy raises significant concerns about the valuation and frequency of these services.
Transparency and Its Implications
Transparency in financial reporting is essential for maintaining public trust and ensuring that donor contributions achieve their intended impact. Best Friends' practice of recording in-kind advertising as both revenue and program expenses raises significant transparency concerns. This approach can inflate program expense ratios, potentially misleading donors about the actual impact of their contributions.
Donors rely on these financial ratios to gauge how well a charity uses its funds, believing that a higher percentage of spending on programs indicates a greater commitment to its mission. However, when much of the reported program spending consists of non-cash contributions, it can distort the view of the organization’s priorities and the real need for direct financial support.
A closer look at Best Friends’ IRS Form 990 filings—required by all U.S. nonprofits—reveals discrepancies. These documents show the in-kind advertising entries reported differently from annual report figures. Such discrepancies may enhance donor appeal by presenting a stronger program expense ratio while creating a more compliant image for regulators, potentially confusing donors who rely on these documents to assess the organization’s financial health.
The implications extend beyond individual organizations to the broader nonprofit sector. When financial reporting appears less transparent, it undermines donor trust and raises questions about the integrity of financial practices across charities. Best Friends' significant use of in-kind advertising, accounting for 56% of reported expenses, highlights the need for rigorous public scrutiny and accountability.
The Bigger Picture
These questions underscore the importance of rigorous public scrutiny of nonprofit financial practices. Transparency and clarity are crucial for maintaining public trust; responses to these issues will likely be closely watched by supporters and watchdogs alike.
For the average donor, these accounting maneuvers may not seem overtly nefarious but can have profound implications. If donors cannot trust the figures presented, they may hesitate to support causes they care about. This situation creates broader concerns regarding the integrity of financial reporting in the nonprofit sector. The potential for misrepresentation not only undermines donor trust but also impacts the overall ecosystem of charitable giving.
The Call for Greater Transparency in Nonprofit Financial Practices
In an era where donor trust is paramount, the financial practices of organizations like Best Friends Animal Society merit careful scrutiny. While the handling of in-kind contributions complies with accounting standards, it can obscure the true impact of donations and lead to misunderstandings about financial contributions' effectiveness. These practices, if left unexamined, not only affect individual organizations but also influence the credibility of the entire nonprofit sector.
Donors are encouraged to advocate for transparency and accountability, seeking clear reporting that accurately reflects actual cash expenditures and the direct impact on mission-driven outcomes. Without this clarity, the integrity of charitable giving may be compromised, which could deter support for essential programs and services.
By fostering a culture of transparency in financial reporting practices across the nonprofit landscape, we can collectively enhance public trust. This commitment to clarity is essential for sustaining support and ensuring that each donation effectively advances the mission of animal welfare. Together, we can contribute to a charitable ecosystem where financial practices align with genuine dedication to meaningful outcomes, ultimately bolstering our contributions to the welfare of animals.
Disclaimer: This article reflects concerns raised regarding practices within the animal welfare sector. It does not claim definitive proof of wrongdoing by any mentioned organizations. The aim is to encourage dialogue and critical examination of current practices in animal control and welfare. Readers are urged to consider multiple perspectives and seek further information on this complex issue.
Ed Boks is a former Executive Director of the New York City, Los Angeles, and Maricopa County Animal Care & Control Departments, and a former Board Director of the National Animal Control Association. He is available for consultations. His work has been published in the LA Times, New York Times, Newsweek, Real Clear Policy, Sentient Media, and now on Animal Politics with Ed Boks.
Don’t steal from the animals please
Back in 1995 the Chronicle of Philanthropy published a major study of direct mail donors, which either discovered or confirmed that most low-level charitable donors & quite a few high-level donors, though they don't admit it, don't really give a damn about getting results, because they do little or nothing to follow up on fundraising claims. What motivates most donors, the research discovered, was primarily the feel-good they got from contributing to a cause, and secondarily, getting thanked. This, to me, was rather discouraging, since I was already seven years into what became 25 years of annually reviewing, abstracting, & verifying the IRS Form 990 claims made by more than 150 major animal charities per year, in hopes at least some donors really would care about getting bang for their bucks. Soon afterward, after the 1995 No-Kill Conference in Phoenix, I visited Best Friends for the first time & mentioned the findings published by the Chronicle of Philanthropy to Michael Mountain, then the president of the organization. He said something like, "You mean we could just raise money & not actually do anything but send out thank-you notes, & people would still send money?" Michael at the time seemed to think that was outrageous. He was replaced as president in 2005, though, & from an ethical perspective Best Friends seems to have been going downhill ever since.