MinistryWatch Issues a Donor Alert for Food for the Poor Due to Deceptive Donor Solicitations and History of Misusing Donor Funds
December 13, 2018
In March 2018, Food for the Poor, based in Coconut Creek, Florida, one of the largest international relief and development charities in the U.S. and, therefore, also one of the largest Christian ministries in the country as well, received a cease and desist order from the California Attorney General for employing deceptive solicitation practices. The primary charge made by the State of California was that Food for the Poor’s claim that 95% of donations go directly to helping the poor was deceptive.
Forbes Magazine recently named Food for the Poor (FFP) one of the 10 largest charities in the U.S. with annual donations totaling over $948 million in 2017. In California alone, FFP collected cash donations of over $38 million from over 700,000 donations from 2012 through 2015. But cash donations are not the problem, instead, FFP has misrepresented its finances due to improperly valuing non-cash donations, typically referred to as gifts-in-kind.
According to the cease and desist order, the problem centers on FFP’s failure to use Generally Accepted Accounting Principles (GAAP) on their IRS Form 990s in regard to properly valuing gift-in-kind donations. This failing then skews their program spending in a way that artificially supports the ministry’s claim that 95% of donor funds are spent helping the poor. The gifts-in-kind referred to are actually primarily pharmaceuticals, not food. FFP often receives donations of large quantities of pharmaceuticals from drug companies and then distributes them, primarily in the Caribbean and Latin America. According to GAAP, gifts-in-kind donations from pharmaceutical companies must be recorded on FFP’s financial ledgers at the "fair market value" of the item, which is defined as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." Since pharmaceutical companies prohibit the distribution of the drugs they donate to FFP within the U.S., in order to not damage their market in the US, the market value of these medicines in the U.S. is not the market to be considered according GAAP practices. The appropriate price to be used to value these gifts is the fair market value in the country where the medicines eventually were distributed, which is almost always a significantly lower amount.
The difference between these valuations can be massive. The California Attorney General’s report gives an example from a 2013 shipment FFP made to Guatemala: "Food for the Poor valued the pharmaceuticals Ciprofloxacin and Tramadol at $553,627 (total), using U.S. prices; using appropriate international prices the total value was less than $46,000" (pg. 5). These skewed values are then reported on their 990s. While FFP reported annual revenues between $900 million and $1.2 billion between 2012 and 2015, pharmaceutical donations accounted for over 50% of that figure. By using the incorrect US valuations on the donated medicines FFP makes its work look much larger and much more financially efficient than it actually is.
These incorrect valuations also cause FFP to misstate how they report their program expenses. For example, on their printed mailings the organization claims, "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." However, this 95% includes both cash and gift-in-kind donations. The overvalued pharmaceuticals and other medical supplies account for well over 50% of FFP’s program expenses (the report states it is between 56% and 73%), but gifts-in-kind can obviously not be used to cover cash overhead or fundraising costs since they are not cash donations. Lumping both cash and non-cash donations gives the impression that individual cash donations go almost entirely to direct support, but the truth is that only about 67% of cash donations are used to fund programs to help the poor (pg. 8-9). Thus, the report calls the statement "unfair and deceptive and created a likelihood of confusion or misunderstanding in the minds of potential donors who received solicitations" (pg. 9).
Food for the Poor has appealed the California order and issued a public statement defending against accusations these donations were accounted for incorrectly. FFP claims "using U.S. market pricing for donated medicines is consistent with the accounting practices used throughout the sector and that we have done nothing wrong." Further, FFP highlights they believe they are valuing these gift-in-kind donations correctly and their external auditors do as well. Clearly, there is a difference of opinion about how to interpret GAAP when it comes to gifts-in-kind between California’s Attorney General and FFP’s auditor. Whichever entity is technically correct, it is still quite clear that the California Attorney General’s complaint is a valid one. Even so, FFP also stands by their efficiency ratios, although MinistryWatch could no longer find any reference to the 95% figure on their website at the time of writing this Donor Alert. However, a similar case against FFP in Michigan led to a settlement with the state in October 2018, with FFP paying a fine of $300,000 (which went largely to local food ministries as well as covered some of the state’s investigative costs) and required FFP to cease using the 95% claim as well as other deceptive language in its donor solicitations, although FFP continues to deny the figure is deceptive.
As noted earlier, FFP has appealed the California Attorney General’s order, but it seems very likely the California case will end the same way as the Michigan case since it is hard to see exactly how FFP could defend its actions when it has already settled with Michigan over the very same issue.
Additionally, this very same issue of improperly valuing pharmaceutical donations had arisen several years back with a number of other Christian ministries, who then ceased using this misleading valuation methodology. It is hard to believe FFP was unaware of this issue at that time and failed to take corrective actions itself. Therefore, FFP’s claim this is the normal way of doing business in the charitable sector seems to ignore earlier complaints over this very same practice with other Christian ministries.
Sadly, this is not the first time FFP has come under fire for questionable financial practices. In an article from 2012, the Palm Beach Post detailed how President Robin Mahfood, who earlier stepped into FFP leadership after his brother Ferdinand was caught diverting $275,000 from the charity to two female employees he had been romantically involved with, had himself paid out $1.9 million from FFP’s funds to five relatives from 2003 to 2007. The charity also did business with companies run by Mahfood’s family until 2008. While these particular concerns have been resolved, it shows a pattern of questionable behavior and deception when it comes to this ministry’s finances.
Finally, an issue like this highlights the importance of donors seeking counsel from donor advocates like MinistryWatch when evaluating potential ministries to support. Although charities will often publish their 990s and self-report on the effectiveness of their program, there are ways they can present this information that gives an incomplete picture of exactly how the charity spends your money. An article on the lawsuit published by CharityWatch helpfully explains this:
"The Order against Food For The Poor highlights two of the primary reasons our ratings exclude the value of gifts-in-kind: (1) we want to help donors understand how efficiently their cash donations are being raised and spent by charities; and (2) the reporting and valuation methods related to gifts-in-kind can be subjective and may vary significantly from one charity to the next."
MinistryWatch agrees with this assessment by CharityWatch, and we advise donors who have been, or are considering giving, to Food for the Poor to prayerfully consider donating to other similar ministries which can be identified in our MinistryWatch database. It is also worth noting that Food for the Poor is not an ECFA member, another indicator this ministry may be more prone to misbehavior which adherence to the ECFA membership standards would not allow. For a Christian ministry of its large size to not be a member of the ECFA is particularly worrisome signal to donors. Given its history of financial misdeeds, poor governance and misleading donor solicitations, we believe donors can more effectively bless those in need by giving to other Christian ministries with similar goals. Accordingly, we are removing our financial efficiency rating on Food for the Poor and issuing this Donor Alert as a means of alerting potential donors to Food for the Poor about these concerns.