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United Way paid some salaries through in-house programs

For years, United Way of Central Carolinas has bragged that 85 cents out of every dollar raised supports charities.

Now, the board's chairman says that's not accurate.

In fact, the figure is closer to 75 cents. That means almost a quarter of every dollar stays with United Way – pushing the limits of what experts deem acceptable overhead for nonprofits.

The difference lies with a handful of in-house programs run by agency staff. Together, they have received millions of United Way dollars over the years but little of the scrutiny given other charities the agency helps.

Under United Way guidelines, money spent to operate those programs – including hundreds of thousands of dollars in salaries – has been counted as charitable activity, the same as money given to the 91 traditional agencies United Way supports.

The in-house programs have effectively kept millions of dollars from being counted as overhead. That has allowed United Way to appear to be sending a larger share of its donations to needy groups than it actually is.

In fact, at least two experts who have studied United Way tax filings say that may be their purpose.

“Dubious accounting at best,” said Dan Farrell, an accounting expert who reviewed the records at the Observer's request. He says the programs are likely “hiding some of the parents' expenses.”

An Observer investigation shows that spending on the four has increased sharply in recent years, even as the mission of the largest one has grown increasingly murky.

United Way Chairman Carlos Evans now says he wants to know more about the in-house programs, and he wants to cut the money they receive.

This isn't the first time the Charlotte United Way's calculations have been criticized. The agency reclassified millions of dollars in 2002 after the Observer raised similar questions about its overhead. Agency leaders say they were not manipulating their administrative costs or trying to deceive donors. They say they were following accounting guidelines set out by the United Way of America.

Even so, Evans says things are about to change.

“I think the ultimate goal I have is to convince people we're going to be totally transparent,” he said, “that everybody's going to have a real clear picture of what percentage of dollars goes to charities … and whether (in-house) programming is a good investment.”

Evans hopes such reforms can help restore public confidence in an agency that's been battered over executive pay. Many donors expressed outrage after learning longtime President Gloria Pace King received a pay package worth $1.2 million last year. The agency's annual campaign, which raised $45.3 million last year, has been crippled by public anger and a struggling economy.

The board, which approved King's pay package, fired her in September, and is now searching for a new CEO. King could not be reached for comment.

Jane McIntyre, head of the YWCA Central Carolinas, said United Way's current way of calculating overhead probably is misleading donors. She applauded Evans and other officials for the change.

“I think they're trying hard to be public with things and be up front with donors,” said McIntyre, a United Way board member who represents the charities the agency supports.

Overhead at charities

Charities watch overhead rates carefully, knowing donors want their money spent on good works rather than administrative expenses or salaries. Overhead rates of about 25 percent or less are considered acceptable. Under the changes proposed by Evans, the local United Way's overhead would be between 23 and 24 percent.

In 2007, the United Way gave its four in-house programs about $3 million. Their shares of United Way dollars have grown far faster than those of the traditional agencies that depend on United Way.

Central Carolinas follows guidelines recommended by United Way of America when calculating overhead, according to Evans and the agency. Evans says those rules on classifying overhead “don't paint the full picture” of the share of donations that reach charities.

“That is how United Way of America looks at it,” said Evans, a Wachovia executive. “Just to be real clear, that's not the way the (Charlotte) board will look at it going forward in the future.”

Efforts to get comment from the United Way of America were unsuccessful Friday.

Three former United Way employees told the Observer that Charlotte's programs effectively understated administrative costs.

“Eighty-six percent does not go to agencies. That's what United Way wanted people to believe,” said John Quillan, a United Way executive for nine years before being fired, he said, for missing a deadline for a report.

King's in-house pay

The Observer reported last month that United Way allocated 71 percent of King's $1.2million pay toward in-house programs in the last budget year. That was by far the highest share in a survey of 16 of the agency's peers, and it allowed the United Way to reduce its overhead by more than $850,000.

Experts say it's highly unlikely – one expert called it “disingenuous” – that the head of an agency as large as Charlotte's United Way would spend the bulk of her time managing programs that account for a fraction of the agency's overall budget.

Mack McDonald, United Way's senior vice president of business operations, said the agency does not manipulate overhead. He said the agency is strict about keeping costs low, but does so by adjusting spending. He called it reasonable that King spent two-thirds of her time involved in programs.

“She spent some time, quite a bit of time, with these volunteer projects,” he said. “She'll go out and work on some of the projects.”

It's not the first time the agency's overhead has been questioned.

A 2002 Observer analysis raised questions about whether the agency lived up to its efficiency claims.

After the paper began analyzing United Way spending, it made a major accounting change, reclassifying about $2million – much of it salaries and benefits from King and other employees – that had been counted as overhead.

Evans, the chairman, says he is determined to show the public he's serious about reforms. He has opened board meetings to the public, and has pledged that the board's minutes will also be made available.

The focus, he said, must be on helping the 91 charities the United Way supports.

“Every dollar you spend on programming and fundraising is a dollar that doesn't go to the agencies,” he said.

Donors “need to know that things have changed and people are taking a fresh look at things.”

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