Over $2 Billion in Sexual Abuse Claims Expenses Reported as a “Program” Expense

Donors often see percentages or pie charts in a charity’s marketing materials and fundraising letters communicating what portion of its expenses was spent on programs versus overhead. These are typically designed to inspire donor confidence to encourage you to give. Most often these percentages are derived from a charity’s IRS tax Form 990 or audited financial statements, which require charities to report how much they spent on programs, management, and fundraising each reporting year. The problem is that charities often include expenses in the “program” column of their audits and tax filings that most donors would not consider to be the programs they were intending to support with their donations.

For example, Boy Scouts of America (Boy Scouts), soon to be rebranded as Scouting America, reported more than $2.5 billion in total expenses in its 2022 tax filing. Of this amount, over $2.2 billion consisted of “insurance claims” expenses, all of which were reported as program expenses. The charity’s consolidated audited financial statements, which include the financial activities of related legal entities in addition to those of Boy Scouts, state with respect to sexual abuse claims that “The Bankruptcy Court concluded in the Confirmation Opinion that the aggregate valuation of the abuse claims was most likely between [$2.4 billion and $3.6 billion],” and that the charity accordingly recorded a “loss contingency” of $2.4 billion in fiscal 2022.

Boy Scouts spent an additional $96.3 million on “Bankruptcy Expense” in 2022, which it allocated as a management and general expense, and $75 million on “Insurance,” allocating $74.7 million of this amount to program expense and the remainder to management and general and fundraising expense.

Charity Navigator & Candid

Given that over 93% of Boy Scouts’ 2022 reported program spending of $2.4 billion consisted of $2.2 billion in sexual abuse claims expenses, most donors might expect this charity to have received negative scores from charity rating organizations. This is because many donors take such ratings at face value without an understanding of what they measure or represent.

For example, Boy Scouts received a rating of 88%, or 3 out of 4 stars, from Charity Navigator, which calculates its charity ratings based on “multiple beacon scores,” weighted as follows: 74% Accountability & Finance, 10% Leadership & Adaptability, and 16% Culture & Community. Charity Navigator reports that Boy Scouts had a “program expense ratio” of 90.72%, stating that its “Program Expense Ratio is determined by Program Expenses divided by Total Expense (average of most recent three IRS Forms 990). This measure reflects the percent of its total expenses a charity spends on the programs and services it exists to deliver.”

Charity Navigator reports that Boy Scouts spent 95.4% of its expenses on its programs in 2022, meaning, it treated the charity’s sexual abuse claims expenses as “the programs and services it exists to deliver” when computing its program expense ratio. While Charity Navigator does flag the charity by noting that donors should “proceed with increased caution” and linking to several news alerts, these sentiments do not appear to be reflected in either its final rating or Charity Navigator’s computed program percentage for Boy Scouts.

Boy Scouts also receives a Platinum seal of transparency from Candid (at guidestar.org) for 2024. Candid does not use financial metrics such as program spending ratios to determine if a charity deserves a bronze, silver, gold, or platinum rating. This is why charities such as Boy Scouts are able to achieve platinum status for 2024 before the year has concluded and financial reports are issued. Rather, Candid’s seals are assigned to charities based on self-assessments. A charity logs into guidestar.org, claims its profile, then adds self-reported information to the website. A charity climbs the ladder to receive better seals in exchange for completing self-assessments and adding other information to the site. How efficiently a charity spends the donations it receives is not a factor in determining which seal it is assigned.

F-Rated Charities Receive Top Ratings & Seals

CharityWatch has identified many F-rated charities that receive top ratings and seals from Charity Navigator and Candid, respectively.

The above chart contains select examples of charities to which CharityWatch has assigned “F” grades as of 10/7/2024. See Our Process for more information about how CharityWatch’s grades are calculated. Charity Navigator’s ratings and Candid’s seals were retrieved from those websites between 9/10/2024 and 9/23/2024 and reflect each charity’s current rating or transparency seal as of the date retrieved. Visit charitywatch.org, charitynavigator.org and guidestar.org to view the most current ratings and profiles published on each website.

CharityWatch’s ratings are based on an in-depth analysis of a charity’s single or consolidated audited financial statements and the tax filings of the nonprofits included in those statements, and are conducted by degreed accountants with a deep understanding of charity financial reporting. Our process includes an analysis of in-kind goods and services, which charities often overvalue. We analyze related party transactions and follow Generally Accepted Accounting Principles (GAAP) by eliminating them from our end calculations of Program % and Cost to Raise $100. We also analyze “joint costs,” in which charities are allowed to report joint educational / fundraising campaign expenses as program expenses even when all the money spent goes to for-profit professional fundraising companies. 

Conclusion

When encountering charity ratings, pie charts, and program percentages in charity fundraising and marketing materials or elsewhere, donors are encouraged to be cautious and take steps to understand how this information is computed and from where it is derived before relying on it to make giving decisions.