United Way Scandal Puts Charities Under Scrutiny : Fund raising: O.C. group advocating guidelines for such agencies hopes public awareness will help its cause.

It was the last thing in the world that United Way of Orange County President Merritt Johnson wanted to see, but there it was, splashed across the front pages of newspapers nationwide:

William Aramony, president of the United Way of America, one of the nation’s most well-known charitable groups, was apparently living a lavish lifestyle, replete with Florida condos and transatlantic Concorde trips.

Allegations were also made about Aramony’s hiring and management practices, but most attention seemed to center on his $390,000 annual salary and benefits package.

The developments could not have come at a worse time for the nonprofit community, most of which is currently gripped by the triple banes of a crippled economy, sinking donations and soaring caseloads. How would the public, already buffeted by disclosures concerning S&L; and congressional check-bouncing scandals, react?

Local United Way affiliates, including Orange County’s, moved quickly to distance themselves from the national branch, vowing to withhold membership dues until the matter is cleared up and hoping that damage would be limited.

“I was shocked and really angry,” said Johnson, recalling his reaction after seeing a facsimile copy of the Washington Post story that broke the scandal. The copy was among many hurriedly sent out to United Way affiliates by the national office.

“I was really frustrated to think that events 3,000 miles away that were not under our control could affect our donations and attitudes towards our local United Way,” he said.

But the scandal has reached further than the United Way, placing all nonprofit agencies under more scrutiny than has been leveled at them for years.

* The Washington-based National Charities Information Bureau, which evaluates the financial operations of more than 300 national charities, is now considering whether to include salary and benefit levels in its assessments.

* Officials with the Financial Accounting Standards Board, based in Norwalk, Conn., are hoping the scandal will assist in efforts to impose uniform accounting procedures for all nonprofit agencies.

* Local United Way officials are considering whether to follow the lead of other chapters that have launched in-depth surveys of public sentiment about the scandal.

* Nonprofit agencies nationwide are receiving requests, not just from journalists but from the public at large, to see annual reports and obscure documents such as the IRS Form 990 that details operating and fund-raising expenses, salary and benefit levels and what money is actually devoted to charity.

While some nonprofit agencies welcome the openness, there is fear that media scrutiny could harm fund raising for all charities and ultimately diminish services for the needy.

“To frighten the public about contributing to nonprofits--considering the attitudes fostered about the needy by some of our elected officials in the last decade--could have the direct effect of harming poor people in this county,” said Sister Kristan Schlichte, executive director of Catholic Charities.

Shadowing all is the fact that there are no real guidelines to make sense of charity operations. If, for example, a board of directors decides that a salary of $250,000 is appropriate for its executive, there is nothing to prevent it.

“It’s probably fair to say that most of the general public has not really thought of this question before,” said James Greenfield, senior vice president for development and community relations at Hoag Hospital in Newport Beach who is also a local member of the National Society of Fundraising Executives.

“These internal financial matters are usually the province of a board of directors, and it is very rare to get inquiries. The public has a high degree of trust in nonprofits. It’s a fragile relationship that can be destroyed overnight,” he added.

Indeed, some agencies are worried that merely looking at the bottom line could be misleading. Questions about salaries, for example, could hamper the ability to recruit a professional staff. Moreover, most nonprofit agencies have different missions and go about raising money in different ways. Even location can make a difference.

“If we took an organization in Fargo, N.D., and compared it to one in Los Angeles in terms of the staff time it takes to raise dollars, there would be a considerable difference because they don’t have the company base that we do here,” Greenfield said.

And, he said, he has noticed that Southern California charities engage in more benefit types of fund-raisers than elsewhere.

“It has to do with what people are comfortable with,” he explained. “For example, when Orange County began to develop 25 years ago, there weren’t too many nonprofits or occasions for them to get together, so volunteers found that benefit events were an enormous avenue.”

The problem is benefit events are a costly way to raise money for charity. Indeed, Greenfield predicted that the one continuing legacy of the United Way of America scandal will not be salaries but renewed scrutiny of the costs of fund raising.

One likely outcome is that the public will wish to direct donations to charities with the lowest overhead. The losers will be newer agencies, which tend to have higher operating costs than more established ones and agencies that provide more personal, one-on-one services. In both cases, charities providing vital services could be harmed.

“It is unrealistic today (to consider only overhead costs), especially with charities that are trying to get at the root causes of problems,” said Samuel Boyce, director of Newport Beach-based Street People in Need. “If you’re dealing with programs that include counseling or require caseworkers, the trend is towards hiring people rather than depending on volunteers alone.”

Added Schlichte: “The public shouldn’t confuse overhead with the salaries of professional staff involved in providing direct services.”

But charity watchdogs argue that operating expenses are an area of legitimate concern. According to standards of the National Charities Information Bureau, a minimum of 60% of funds should go to direct services. More than 80% of charities that voluntarily submit their records to the bureau for inspection meet that standard, said spokesman Daniel Langan. The agency publishes a “wise-giving guide” based on the evaluations.

Langan said it is primarily high-pressure, boiler-room type operations that do not measure up. But some charities try to disguise fund-raising costs by assigning them to other categories--for example, by claiming that mailed fund-raising appeals are a form of public education.

And Langan conceded that it can be difficult for his organization--let alone for the layman--to evaluate financial statements of various organizations because they fall under different accounting standards.

Categories covered include providers of health care services, colleges and universities, voluntary health and welfare organizations and all other nonprofit agencies.

According to Ronald Bossio, a project manager with the Financial Accounting Standards Board, major reporting discrepancies include:

* How contributions are accounted. For example, some groups report restricted gifts as revenue when they receive them, others only after they are spent. Some agencies report in-kind donations, others do not.

* The content of financial statements. A college and a hospital, for example, may apply different definitions for the same terms or be required to provide more or less details in their statements.

The board is working to set uniform standards for all nonprofit agencies as to which financial documents should be required to be made available to the public. Currently, the IRS Form 990 must be produced on demand, but it is left to the individual group to decide whether to provide other internal financial statements and audits.

Locally, there is also a drive to set uniform guidelines for charity reporting. Several of the county’s leading nonprofit organizations have formed a group called Charities for Truth in Giving to push for a countywide ordinance that would regulate solicitations and other charity operations.

“I think there is a recognition that in this economy, the public can’t afford to spend their money unless they know it is going to the right places,” said the group’s director, Bonnie Gillman.

Charity directors say that concerns stemming from the United Way controversy amount to more than just damage control or preservation of reputations: Those most likely to suffer the repercussions are those in society most in need of help.

“To be able to measure how a life is saved at Children’s Hospital or how a life is changed at the Women’s Transitional Living Center, that is why people give,” said Johnson of the United Way of Orange County.

Checking the Charities

A random selection of 10 of Orange County’s largest charity organizations indicates vast differences in such financial yardsticks as percentage of revenue actually devoted to charity and compensation of chief officers.

Charity Chief Executive Salary and Benefits United Way of Orange Merritt Johnson $122,480 County Goodwill Industries George Kessinger $109,808 YMCA * Gerald Nutter $102,900 Boy Scouts of America Buford Hill Jr. $149,413 American Red Cross George Chitty $104,764 Catholic Charities Sister Kristan Schlichte $46,000 Children’s Hospital Thomas Penn Jones *** ** None Foundation of Orange County American Cancer Society Jacqueline F. Horan $61,000 American Heart Assn. Joyce Severson $52,000 Orangewood Foundation William Steiner $85,263

Charity Revenue Devoted to Charity % United Way of Orange County $19,710,976 $14,554,184 (74%) Goodwill Industries $10,767,501 $8,431,882 (78%) YMCA * $9,373,521 $8,329,227 (89%) Boy Scouts of America $5,523,891 $3,591,645 (65%) American Red Cross $2,586,513 $2,146,560 (83%) Catholic Charities $2,845,893 $2,423,510 (85%) Children’s Hospital Foundation of $4,186,123 $3,314,945 (79%) Orange County American Cancer Society $2,404,933 $1,851,798 (77%) American Heart Assn. $2,308,000 $1,777,000 (77%) Orangewood Foundation $2,075,879 $847,357 (41%)

* Based on 1989 fiscal year

** No paid foundation staff

*** He is also CHOC ceo.

Source: Agencies and Internal Revenue Service Form 990, Return of Organization Exempt From Income Tax Researched by Carla Rivera / Los Angeles Times