Product placement in a comic strip puts the focus on a well-promoted online charity venture. But a look at the financial statements suggests that there may be bottlenecks ahead as the organization tries to scale up.
The Sunday Doonesbury comic strip features a confrontation between baby boomer father Rick Redfern and his Gen Y son Jeff (who is 25 & still living with his folks) over how Jeff is wasting his time online. Jeff puts Dad in his place by pointing out:
I spent the morning in my office at my private foundation on Second Life, where my avatar raised nearly $600 which I then took to donorschoose.org to buy textbooks for a class I adopted.
DonorsChoose (EIN 13-4129457 Form 990) operates a web site where teachers in public schools can post proposals for funding learning materials or activities. Potential donors can scan the proposals and fund them as they wish. Donors Choose then purchases the materials or activities and delivers them to the teacher. Then there's follow up with thank you letters from students and the teacher, photos, and an expense report. (I'm picking up this information from the organization's June 30, 2006 financial statement, available on its web site.)
The brilliant thing about DonorsChoose is that it gets teachers to do an enormous amount of work for extremely small grants, and yet DonorsChoose and founder Charles Best gets the attention and the credit. Mr. Best, no longer a teacher, now spends its time working on bigger deals: DC is on the verge of closing on $11 million in funding from Pierre Omidyar (EBay), David Filo (Yahoo), longtime Vinod Khosla (a venture capitalist) and Reed Hastings (Netflix).
The June 30, 2006 Form 990 shows that organization took in $7.8 million in contributions and paid out $2.6 million in student resources. The expense side is listed in a separate schedule on page 16 of the Form 990 rather than on line 22 or 23 on page 2, which is where I would have expected to find it (along with a schedule showing who received the grants and how much).
The additional contribution cash went to the bank, and the financial statement on page 6 shows that cash has gone from $1.3 million in June 2004 to $2.3 million in June 2005 and $4.2 million in June 2006. I'm wondering whether this could be an indication of a bottleneck in the operation in converting the cash donations into purchases for the teachers. (The purchasing process, it seems to me, will be a major challenge with the organization's business model and with its ultimate accountability. I see serious risks here.)
Let's also note some of the organization's peculiar financial practices. Here's how the organization's financial statement defines program services (with my emphasis added):
Program Services include student resources and delivery, and student resource advocacy. Student resources and delivery are amounts paid to process proposals, acquire and deliver project materials to the classroom, and to provide feedback to the donor. Student resource advocacy consists of outreach to schools and to citizen philanthropists.
With an accounting footnote, the organization has defined activities that I think most people would consider administrative activities, donor relations, and promotion of DonorsChoose to be program activities. DonorsChoose is hardly alone in taking such a broad definition of program activities, and they deserve a little bit of credit for honestly disclosing it. But I think it's misleading.
Another issue with the Form 990 is that it was due four and a half months after the end of the fiscal year in June, 2006, which would have been November 15. There's an extension requested to February 15 (the IRS grants a 90 day extension with no questions asked). Then there's another extension request, and the return was not filed until March 20, 2007. I don't think that a nearly nine month delay in financial statements is acceptable for an organization that will be primarily acting as a conduit for large volumes of donor money. (As director of finance for a $30 million relief agency with worldwide offices, I was always able to produce audited financial statements for the board within three and a half months after the end of the fiscal year and a Form 990 before the first IRS deadline.)
The pay structure at DonorsChoose is modest (at this point), with founder Mr. Best at $116,000 plus $1,586 benefits, Treasurer/Chief Operating Officer Alfonso Malabag at $120,240 plus $16,244 in benefits, and chief marketing officer Brita Lombardi at $110,570 plus $3,434. Note that the financial position currently earns more than the founder/president, which is entire appropriate, reflecting the essentially fiscal character of this venture. But I would hope that by the next return we see the Mr. Malabag's jobs broken out to separate the financial from the operational responsibility.