April 27, 2010
"Non-Profit" Adoption Agencies?
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Nonprofit Adoption Agencies Often Profit Someone Other Than Children, Families
AJC investigation: Big portions of agency budgets go to top executives
The Atlanta Journal-Constitution
April 26, 2010, by Alan Judd
By law, private adoption agencies in Georgia are supposed to operate as nonprofit organizations.
The law, however, doesn’t preclude big salaries for the agencies’ executives, or self-dealing by their corporate officers or high overhead costs that don’t benefit the children the groups are supposed to help.
For many private adoption and foster care agencies, nonprofit status in the child protection business leaves plenty of room for lucrative rewards, according to an investigation by The Atlanta Journal-Constitution.
The newspaper’s review of federal tax returns and other public documents found numerous examples where top executives’ compensation accounted for one-fourth to one-third of agencies’ budgets. In many instances, administrative costs exceeded expenses on direct services for children.
For example, Faithbridge Foster Care Inc., in Alpharetta, spent $293,311 in 2008, according to the tax return it filed for that year with the Internal Revenue Service. It paid its executive director $70,325. It spent another $4,200 to rent a building the director owns (on an annual basis, the rent payments would total $16,800). It paid $40,971 to rent office space from a company belonging to the chairman of its board.
Altogether in 2008, the agency devoted almost 40 percent of its budget to its top officers.
Another agency, Dayton, Ohio-based Phoenix Homes Inc., which operates a branch in Snellville, paid $1.8 million in 2008 to a management company belonging to the nonprofit’s president. Phoenix also paid its president about $200,000 in salary and other compensation. A vice president who also works for his boss’s management firm collected $117,000 in salary from the nonprofit.
Families First Inc. of Atlanta paid six employees more than $100,000 each in 2008, according to tax documents. It also paid about $32,000 to a board member’s company for investment services; meanwhile, the value of the portfolio the firm managed for the agency dropped by almost $1.1 million.
Many executives of adoption and foster care agencies say government budget cuts and fewer charitable contributions have left them strapped for money. Financial troubles recently forced the Catholic Diocese of Savannah to announce it would close St. Mary’s Home, which has housed foster children since 1875.
The agencies’ finances — especially concerning how they spend, rather than raise, money — is a touchy topic for many nonprofit executives. Most of those contacted recently declined to discuss the matter.
A lack of industry standards and government rules enable people running such agencies to spend freely for their own benefit, said Pablo Eisenberg, a senior fellow at Georgetown University’s Center for Public and Nonprofit Leadership.
“What you’re finding is certainly the trend in nonprofits,” Eisenberg said. “An increasing number of people are pushing for a kind of free market in nonprofits.”
He described directors who don’t challenge excessive spending as “totally incompetent.”
“There’s no accountability,” Eisenberg said. “There are no guidelines by the IRS, even on self-dealing. It’s just appalling.”
Big salaries, overhead
For many agencies, the free market approach especially applies to executive salaries.
For example, Chinese Children Adoption International, which has an Atlanta office, paid its top two officers — who are married to each other — a total of about $410,000 in 2006, the latest year for which its tax returns are available. The total budget for the agency, headquartered in Centennial, Colo., was $5.2 million.
Similarly, in 2007, Open Door Adoption Agency Inc. of Thomasville paid a total of $201,000 to its two top executives, also a husband and wife, out of a $1.2 million budget.
Some agencies devote significant portions of their budgets just for one executive’s salary. For instance, Alpharetta-based AAA Partners in Adoption Inc. told the IRS that its executive director’s total compensation for 2008 was $107,747 — one-fourth of all its expenses that year.
The adoption and foster care agency Bethany Christian Services, based in Grand Rapids, Mich., with offices in Atlanta and Columbus, paid 72 employees at least $50,000 in 2007, according to its tax returns. The chief executive earned $169,000, while the agency’s vice president collected $178,000.
Bethany had a total budget of $9.1 million. However, $7.2 million, or almost four of every five dollars, went to management expenses. Another $1.2 million covered fund-raising costs — far more than the $694,000 that went to programs that directly served children.
The agency put more into employee pension plans than into children’s services.
Bethany collected $803,225 from the Georgia Department of Human Services for supervising foster children in 2009, state records show. The state money covers administrative costs as well as direct services to children.
Faithbridge, where the executive director and the board chairman received 40 percent of all spending, received about $75,000 from the state in 2008. The agency said in tax documents that the public money helped offset $145,969 in expenses for placing foster children. In its tax documents, the agency said it “partnered” with state agencies to “provide foster homes for children and return children home to extended families.”
Bill Hancock, the agency’s executive director, did not respond to messages requesting an interview.
Faithbridge disclosed to the IRS its dealings with its officers. But it generally avoids public scrutiny.
“The organization,” Faithbridge says in tax documents, “does not make its governing documents, conflict of interest policy and financial statements available to the public.”
For many agencies, especially those that rely on public money, the financial outlook has dimmed.
The state has cut payments to many agencies because of deep budget shortfalls. Consequently, some organizations say they are struggling to survive.
For eight years, Morningstar Treatment Services based its annual budget on state payments to house 58 children in its Youth Estate group home near Brunswick. But now the state pays only for 48 children, and Morningstar is “taking a $60,000 to $70,000 hit a month,” said Barry Kerr, the agency’s chief executive officer.
“I don’t think there’s an administrator you could interview who would not say it’s not having a significant impact,” he said.
Morningstar spends relatively little on fund-raising — $186,000 of a $10 million budget in 2008. Executive salaries also trail those at many other agencies; Kerr’s salary and expense reimbursement totaled $115,000 in 2008. The only self-dealing the agency reported to the IRS involved the payment of $51,304 to a consulting firm owned by a Morningstar employee.
As public money becomes scarcer, some agencies have tried to get more private funding. For instance, The Bridge, a group home in northwest Atlanta, has increased its reliance on private donors to an amount equal to one-fourth of its annual budget, said Tom Russell, the agency’s chief executive officer.
Even so, only about 5 percent of its spending goes into fund-raising efforts.
By contrast, Georgia Agape Inc., an Atlanta foster care and adoption agency, spent $273,000 on fund-raising in 2008, or 17 percent of its total budget — even though it relies heavily on government appropriations.
This is the final installment in a four-part series on the regulation of privately operated adoption and foster care agencies in Georgia.
For today’s article, The Atlanta Journal-Constitution examined federal income tax returns for most of the 336 private foster care and adoption agencies licensed in Georgia. Federal law allows public inspection of nonprofits’ tax returns. Most of those documents are available free online from organizations such as the Foundation Center (www. foundationcenter.org) or GuideStar (www.guidestar.org).
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