News this morning of a Federal Trade Commission civil fraud case against four “cancer” charities in Tennessee is a good time to highlight a wonderful investigative tool out there that we have been using for non profit investigation1.jpg

Based on the fact that they get tax exemptions, charities have to make their tax returns public. Tax returns are something we rarely get to see early on in a case, but the exception is usually when a charity is involved.

We love it when we have to look at a person who may be wealthy and secretive as far as his for-profit businesses work, but who has to open things up a bit if he’s decided to give money away through a tax-exempt vehicle.

Looking at tax returns is easy. We have a free account at Guidestar which lets us see most of the tax returns of U.S. non-profit organizations. These are usually Form 990, but there are other useful forms that accompany the 990 filing.

While the cancer charities alleged this week to be fraudulent had made it on to lists of bad charities compiled by watchdog groups and were the subject of news articles, there would have been no need to wait for others to evaluate the charities if you had had access to the tax returns. The really good news is that unlike the Form 1040 most of us fill out, the 990 is short and straightforward. You don’t need to be an accountant or have TurboTax to understand it.

Take the 2012 return for Cancer Fund for America, one of the organizations the FTC has targetted. This was an endeavor that took in $13 million, but paid out $3 million to independent telemarketers to raise funds and a total of $4 million for “professional fundraising services.” That may be fine, but with four compensated “key employees” in the whole organization and all that money going to independent contractors, why would this organization need to spend $1 million a year in office expenses?

That would be a hefty rent for a small operation in Central London or Madison Avenue in New York, but in Knoxville, Tennessee?

Such is the joy of being able to investigate based on uncomplicated forms written in English, and not Accounting. A million bucks a year for an office for four executives and a huge telemarketer bill to outside contractors may be explainable, but any prospective donor should ask to see photos of the office (and an employee count) before writing that first check.