More details on Food for the Poor’s settlement with Michigan Attorney General

Image courtesy of Adobe Stock.

Previous discussion on 10/4/18 provided details on a settlement between Food for the Poor and the Michigan Attorney General.

Prior post provided explanation of the FFP appeal claiming 95% efficiency, the cost of 6 cents to provide a meal, and joint cost allocation of speakers who go out to raise funds.

I have obtained and read a copy of the settlement agreement with the AG.  There are a few more details that are worth describing.

Penalties

The settlement agreement was effective 9/27/18. It was announced the next day.

FFP denies their appeals were misleading and denies any violation of state law. They also deny doing anything wrong.  The charity does recognize

“…that modifying its solicitations would better emphasize its impact, as well as achieve greater transparency. Food For The Poor worked with the Department to modify its solicitation materials and resolve the Department’s concerns.”

FFP agreed to pay $250,000 to two charities in Michigan which feed poor people. The charity also agreed to pay the AG $50,000 as reimbursement for their litigation costs.

Issues and resolutions

Efficiency claims 

The AG was concerned over this comment:

Our mailings cost so little, but do so much. Fundraising and other administrative costs comprise less than 5% of our expenses; more than 95% of all donations go directly to programs that help the poor.

Similar to the position of the California AG in their cease and desist order, the Michigan AG believes that comment could/would lead potential donors to think that 95% of their check would go to charitable purposes and only 5% of their check would go to administrative costs.

On a cash basis, the administrative costs are closer to 32%.  The AG pointed out in their C&D order that donors would be surprised to learn that 280 of 422 employees are involved in fundraising (numbers from cease and desist order).

FFP agreed not to use the “95% statement” in their fundraising contacts with Michigan citizens.

Cost per meal

FFP agreed to revise their presentation of the idea that 6 cents provides one meal.  The charity agreed to coordinate with the AG before sending any future appeal containing that type of claim.

The agreement specifies two graphics that may be used to communicate impact of the charity.

Interestingly, one of them breaks out GIK from cash gifts, with the cash gifts broken into three categories using specific labels:

  • Aid & distributions, provided by cash gifts
  • Fundraising costs
  • Administrative costs

The graphic specifies that dollar amounts, not percentages, be used to describe each of the four categories. All four categories are equal size.

Joint cost allocation of speaker costs

Finally, the charity agrees it will not allocate the costs of the speakers bureau to program. Exact wording is:

Going forward, FFP will not use joint cost allocations for these programs.

If you are curious how deep an AG can get into the accounting literature, go back to my previous post to see the depth of discussion in the C&D order about the requirements for joint cost allocation and application to the FFP program.

As an aside, for those of you who understand joint cost allocation concepts and have ever seen a presentation by a FFP speaker, assess for yourself whether those presentations met the requirements.

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