At a time when regulators have forced companies to come clean with investors on many fronts, at least one area has largely escaped scrutiny donations to charities.
Public companies get billions of dollars in tax breaks for charitable contributions, but the Securities and Exchange Commission does not require that the donations be disclosed to shareholders. And filings to the Internal Revenue Service are confidential.
A Business Journal review of corporate contributions found that many large companies in Los Angeles either don’t keep track of their donations or are unwilling to disclose what they give.
Of the 300 largest public and private companies, just a dozen responded to inquiries from the Business Journal. Only the 990 forms that corporate foundations are required to file with the IRS were used in constructing the Business Journal’s list; millions of dollars in donations given through other means were excluded.
“About half of all corporate philanthropy is not disclosed to the public,” said Rick Cohen, executive director of the National Committee for Responsive Philanthropy, a non-profit watchdog group in Washington. “Many corporations give through their foundations, and then there are other gifts from the president’s office or the marketing department that either are too controversial or inconsequential to report.”
But change may be coming.
Last week, the Senate Finance Committee held hearings on proposals to reform non-profits. The IRS, several state attorneys general and a few watchdog groups are questioning how corporations and non-profits account for their tax-exempt dollars. Last year, the IRS increased the amount of resources it devotes to examining non-profits.
“Enhancing accountability of the nonprofit sector depends on the availability of data,” William Josephson, New York’s assistant attorney general in the charities bureau, said in Congressional testimony last year. He claimed that 25 percent of Form 990s filed by non-profits are incomplete, inconsistent or even false. “We will not be able to take full advantage of available information without fundamental changes in the way it is collected, processed, and disseminated.”
Savvy giving
Corporate foundations, which rely on a single donor for their money, can be savvy about getting the biggest bang for their buck from philanthropy.
Amgen Foundation Inc., the second-largest corporate foundation in Los Angeles with $111.5 million in assets, last year arranged a partnership with the Public Broadcasting System in which the Amgen Inc.-controlled entity donated $1 million to be a sponsor of an upcoming four-part series on the health care system.
“This work is seen as an integrated way of demonstrating what Amgen stands for and how we want to make an impact,” said Jean Lim, vice president of the Amgen Foundation, which gave away $10.9 million in 2003, the latest year that figures were available.
The foundation also gave to an assortment of some 60 non-profits with grants of $500,000 to $1 million to seven groups including Boys & Girls Clubs of Conejo & Las Virgenes Inc., the California Science Foundation, Patient Advocate Foundation, Safety Net Foundation, UCLA Medical Center, UC Santa Barbara Foundation and University of Washington.
But many companies have no systems or controls in place to track tax-deductible donations of cash or services. The gifts can be counted in different ways. Often, charitable donations are treated as an operating expense, because the tax treatment is essentially the same.
“It’s a tough slog comparing these things because it’s not apples to apples,” said Lim. “There’s no consistency. You find people are valuing these things in their own ways.”
Watchdog groups are trying to increase scrutiny of foundation boards to ensure they are not doling out grants to themselves. Some non-profit groups have been criticized for paying six-figure salaries to trustees and foundation executives for part-time work. In addition, some private foundations count fees and expenses as part of the 5 percent minimum they must give to charity as required by the Tax Act of 1969.
“We have been looking at more politically oriented donations, which are tax deductible, but tend not to go through the foundation,” said Cohen. “There is a problem of lack of disclosure because foundations do not tell the whole story.”
Large givers
Other large corporate foundations in Los Angeles include Northrop Grumman Foundation, American Honda Foundation, Nestle USA Foundation and Times Mirror Foundation, which all gave away between $1 million to $2 million in 2003.
Mattel donates 2 percent of its pretax profits to charities. Mattel Children’s Foundation paid $5.8 million in grants last year.
Miyoko Oshima, president of Southern California Grantmakers, an association of 150 private foundations, said it is nearly impossible to track the amount of money given away by corporations. “Companies decide differently how they want to give,” she said. “And companies can donate to politicians on their own, but non-profits cannot.”
She added that even the Form 990s that large corporate foundations (and non-profits) file “are not always easy to understand.”
One of the fastest-growing areas in philanthropy has been “health care conversion foundations,” which often are created when a non-profit hospital or HMO is bought by a for-profit company. Federal law requires that proceeds from the sale of assets of such tax-exempt entities must go to a charity serving the same mission.
The 1996 purchase of non-profit Blue Cross of California by Wellpoint Health Networks resulted in the creation of two gargantuan non-profit foundations California Endowment Inc. and California HealthCare Foundation.
Robert Cameron, a director with the consulting firm LECG, conducted a study of the two foundations in 2003 when Maryland considered approving the sale of CareFirst Blue Cross/Blue Shield to Wellpoint Health Networks Inc.
“There’s an amazing lack of data on these health foundations, it’s largely a black hole,” he said. “No health foundation that we interviewed had a strong performance measurement to measure how well they are doing. There’s no cost-benefit analysis of what they do and no oversight.
“We raised a lot of red flags and came to the conclusion that it’s hard for us to figure out what Blue Cross has been doing that’s remotely charitable in the last 10 years,” he said.
Wellpoint Health Networks, merged in November with Anthem Inc. and, now based in Indianapolis, started a separate corporate foundation in 2000.
Based in Thousand Oaks, the Wellpoint Foundation has become the largest corporate foundation by asset size in Southern California.
The bulk of its $1.8 million in grants given in 2003 went to 39 nonprofits, including the United Way and American Red Cross in Ventura County, as well as the American Enterprise Institute for Public Policy Research, the Urban Institute, the Brookings Institution and the Ronald Reagan Presidential Foundation.
Michael Chee, a spokesman for Blue Cross in Los Angeles, said Wellpoint established its own foundation “as a vehicle to facilitate our charitable views and endeavors outreach, education and primarily trying to address the uninsured problem.”
He said the grants awarded by the foundation in 2003 were all for health care-related issues.
