Moneybox

Inflated Expectations

What’s going on with foreign affairs nonprofit Food for the Poor?

Paper currency showing a spilled bottle of expired pills.
Photo illustration by Slate. Photos by Thinkstock and Spoon Graphics.

This piece is part of the Slate 90, a series that examines the multibillion-dollar nonprofit sector. Read all the Slate 90 stories here, and view the Slate 90 nonprofit rankings here.

The International section of the Slate 90 features no shortage of household-name charities: Americares, World Vision, Save the Children, the International Rescue Committee. Each of these nonprofits has revenue in the hundreds of millions of dollars; many of them get most of their funding directly from international governments.

But at the very top of the league table, with 2015 revenue of nearly $1.16 billion, there’s a charity called Food for the Poor, which you could be forgiven for never having heard of.

Food for the Poor is a fervently Christian organization, based in Coconut Creek, Florida, that fundraises the old-fashioned way: lots of photographs of suffering children, backed up with poignant “stories from the field.” Its goal: to send rice, beans, canned goods, and medicine (plus the Gospel) to impoverished people in the Caribbean basin. Could it be that like Dave Ramsey, Food for the Poor is only a phenomenon in the Bible Belt? Well, perhaps. And perhaps not.

Chart of Slate 90 rankings
Figures are 2015 revenue. Rankings by Slate and GuideStar.

Because if you drill down into the charity’s IRS return for 2015 or its 2015 Annual Report (see Page 14), the overwhelming majority of the organization’s revenues come not from cash donations but from donated goods it’s sending to feed and heal the poor. Only 10.7 percent of its headline revenue number came from real money donated by those responding to its hard-sell television advertisement. While that amounted to a respectable $123 million in 2015, it is dwarfed by $1.03 billion in “noncash contributions.”

Now, thanks to a cease-and-desist order filed in March of this year by California Attorney General Xavier Becerra, we know that that $1.03 billion may not accurately reflect the value of those noncash contributions. In the order, which seeks the revocation of Food for the Poor’s charity status as well as payment of more than $1 million in penalties, Becerra unpacks the billions of dollars’ worth of donations that Food for the Poor has reported over the years.

Becerra’s intervention may, as a practical matter, represent the only way the nonprofit is held accountable for its actions: State attorneys general are on the front lines of regulating charitable organizations and oftentimes are the only regulators providing oversight over charities. It does not appear that the attorney general in Florida, where Food for the Poor is based, has taken action against the organization, at least as of yet. Becerra has oversight jurisdiction because Food for the Poor solicits millions of dollars in California donations every year.

In 2012, according to Becerra’s order, Food for the Poor sent to Nicaragua a shipment of simvastatin, a statin used to prevent the liver from creating harmful cholesterol. The charity valued the pills, which were nearing their expiration date, at $924,671. At the same time, a charitable soul inclined to purchase the products in Nicaragua and give them away could have bought the exact same pills, nowhere near their expiry date, for less than $5,000. The following year, Food for the Poor sent to Guatemala a shipment of the antibiotic ciprofloxacin and the painkiller tramadol that it valued at $553,627—but whose value “using appropriate international prices” was “less than $46,000.”

As Becerra describes it, Food for the Poor’s scheme is pretty simple. A pharmaceutical company has a near-expiry supply of a drug that sells for very high prices in the U.S. Donating the drugs to individuals in the United States would represent a significant loss of income for the company: Those patients would have otherwise paid full price, or as close to full price as their insurers, benefit managers, and other programs would allow. Simply destroying the drugs would also represent a loss on investment. And the company can’t sell the pills into open markets overseas, because they’re too close to expiry.

Donating to Food for the Poor provides a solution of sorts to this conundrum. The pills can be donated to a charity in the U.S., with the explicit proviso that they are prohibited from being distributed domestically. That charity in turn asks Food for the Poor whether it can find a partner in Latin America or the Caribbean that will accept them as a donation. Once that “beneficiary” is found, the drugs are sent directly to their final destination, without being handled by Food for the Poor. And yet, somehow, Food for the Poor ends up recognizing a massive in-kind donation, valuing the medicine at U.S. retail prices rather than at the amount it would fetch overseas.

In a statement, Food for the Poor, which is appealing the order, claims that “using U.S.
market pricing for donated medicines is consistent with the accounting practices used throughout the sector.” But that’s true only if the medicine in question is not explicitly prohibited from being distributed in the U.S.

By overinflating its in-kind contributions, Becerra notes, Food for the Poor can claim to be much more efficient than it really is. The charity claims prominently on its homepage that 95.6 percent of “expenditures” were on programs, while just 4.4 percent were on fundraising and administration. That is the type of ratio that earns a nonprofit a highly favorable efficiency score from Charity Navigator and reassures donors that their money is being put to good use, feeding the poor. But Food for the Poor’s ratios are a function of using a highly inflated denominator. If you look at the hard cash that was donated to Food for the Poor in 2015, it comes to $123 million. Out of that, the charity spent more than $24 million on payroll, as well as $9 million on office expenses, $2.5 million on travel, and $13 million on advertising.

The upshot is that 1 of every 3 cash dollars donated to Food for the Poor in 2015 was spent on either management or fundraising—and that’s using the charity’s own expansive definition of what counts as a “program service expense.” In reality, according to Becerra’s order, a large chunk of those “program service” expenses were gussied-up fundraising: The organization sent speakers to churches around the country, spreading word to congregations about Food for the Poor’s work and soliciting donations. Food for the Poor claims that none of the expenses associated with that program count toward fundraising costs, “because FFP does not select the members based on their likelihood of giving, but rather, to accomplish FFP’s mission by praying together.” (Becerra maintains that Food for the Poor has admitted that it chose congregations according to their giving history.)

Becerra’s cease-and-desist order is targeted at Food for the Poor, but the allegations in the order also raise questions about the pharmaceutical companies that donated the drugs. It seems improbable that Food for the Poor would report billions of dollars in donations while its donors reported that they donated vastly smaller sums. It’s therefore possible that large pharmaceutical companies were claiming substantial charitable deductions—and reducing their taxes accordingly—for drugs that were worth a fraction of those costs in the countries where they ultimately were donated. That practice, if it’s taking place, would seem morally dubious, at best. In the end, Food for the Poor may have, ironically, delivered Money for the Rich.

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