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November 25, 2015

Where does $1 to the Ronald McDonald House go?

by Anne Paddock

The first Ronald McDonald House opened more than 40 years ago (1974) in Philadelphia when Dr Audrey Lane at the Children’s Hospital of Philadelphia saw a need for short-term lodging near the hospital for families of cancer patients. Since then, Ronald McDonald House Charities, Inc. (RMHC) – a public charity under both the IRS Code 501 (c) (3) and 509 (a) (3) – have opened 353 Ronald McDonald Houses, 196 Ronald McDonald Family Rooms in hospitals, and 50 Ronald McDonald mobile health units (Ronald McDonald Care Mobiles) along with providing grants to other non-profit organizations (hence, its 509 (c) (3) designation) and scholarships to students across the United States.

RMHC is a national organization that assists local independent chapters, who own and operate each house. Each local chapter is governed by a Board of Directors who are responsible for program development, standards, and operations. Ronald McDonald Care Mobiles are operated by contracts with healthcare organizations that also have a 501 (c) (3) status. The Ronald McDonald Family Rooms are operated by the local chapters. Grants are reviewed by the national organization while scholarships are recommended by local chapters and McDonald’s representatives.

RMHC can be viewed as an oversight/administrative/fundraising arm that collects funds and provides support to local chapters (and other non-profits) who each file their own IRS Form 990. The key to understanding the finances of the Ronald McDonald House is to look at the 990 of both the national (RMHC) and the local chapters, of which there are 156 in the United States. Texas (17), Pennsylvania (9), Florida (8), Ohio (8), New York (7), and California (7) have the most chapters – each of whom files its own Form 990. Analyzing the 990’s of 156 local chapters is not feasible in this forum but analyzing one (The Atlanta Ronald McDonald House Charities, Inc. or Atlanta RMHC, Inc.) along with RMHC’s 990 will give the reader a better understanding of how the cash flows from the top down.

A contributor does not have to look at any 990 to know that a $1 donation will go further if given directly to a local organization that bypasses a national oversight organization (but, of course there are benefits to an oversight committee in that they usually have strict guidelines in place to ensure funds are spent in accordance with the organization’s objectives). That said, RMHC reported the following information on their 2013 IRS Form 990 that covers the year ending December 31, 2013:

  • $37.6 million was collected in 2013, most of which ($31 million or 82%) came from contributions, fundraisers, and grants, followed by investment income ($6.1 million or 16%) and program service revenue ($.5 million or 2%).
  • $31.3 million was used for functional expenses of which $23.1 million (62% of revenue) was distributed as grants and other contributions. $8.2 million (22%) was used for administrative, program, and fundraising expenses.
  • The remaining $6.3 million (16%) collected went to their balance sheet which contributed to the organization’s fund balance increasing from $121.7 million to $134.9 million at year-end.

For analysis purposes, the focus will be on contributions collected ($31 million) and expenses reported ($31.3 million) since virtually the same amount of investment income was earned  ($6.1 million) as was set aside for the fund balance ($6.3 million).

RMHC administrative, program, and fundraising expenses were $8.2 million:

  • $3.1 million (10%) was used for other (unexplained) expenses.
  • $2.2 million (7%) was used for conferences, conventions, meetings, and travel
  • $1.4 million (5%) was used for legal, accounting, investment and bank fees, donation box expense, advertising, etc.
  • $1.2 million (4%) was used for office expenses and information technology
  • $0.3 million was depreciation (a non-cash expense)

In other words, a $1 contribution to RMHC was spent as follows:

$1.00:  Donation

-$0.04: Office expenses and information technology

-$0.05: Legal, accounting, fees, advertising, etc.

-$0.07: Conferences, meetings, conventions, travel

-$0.10: Unexplained expenses

-$0.26:  Sub-total Administrative, Program, and Fundraising Expenses

-$0.74: Distributed in grants to organizations

In summation, for every dollar donated to RMHC, 26 cents was spent on administrative, program, and fundraising expenses, leaving 74 cents to be distributed to organizations.

The amount of funds distributed to organizations – $23.1 million – warrants discussion. $6.8 million (29%) was given to organizations outside the US while $375,000 (2%) was given to individuals in the US. $16 million (69%) was given to organizations in the United States.

With regards to the funds distributed to organizations in the US ($16 million), it is worth noting the following information.

  • There are 156 independent local RMHC chapters in 48 states, the District of Columbia and Puerto Rico.
  • 131 contributions totaling $10.7 million (representing 46% of grant dollars distributed) were given to 131 local RMHC chapters while $3.1 million was given to 163 non-profits (with the largest contributions to Oral Health America ($539,767) and the American Red Cross ($230,000).
  • The remaining $2.2 million were contributions under $5,000 given to local chapters and other non-profits (that don’t have to be disclosed because each donation was less than $5,000).
  • Each of the recipient organizations have their own administrative, support, and fundraising expenses (and their own stream of revenue).

For example, the Atlanta RMHC, Inc. collected $8.9 million (most of which were contributions although it is important to note the organization actually lost $140,724 from their two major fundraising events – a dinner and golf tournament) in 2013 according to the Form 990 (2013) which does not allow the organization to consider the actual contributions made from the event (to better match income and expenses of the event).

Atlanta RMHC reports $3 million in expenses, of which $2.3 million were cash expenses (nearly $700 thousand or 7% was depreciation – a non-cash expense) spent as follows:

  • $1.05 million (12%) on officer compensation, salaries, wages, benefits, and payroll taxes
  • $310 thousand (4%) on fundraising, advertising, promotion, conferences, conventions, travel, donor recognition, etc
  • $288 thousand (3%) on office expenses, information technology, occupancy
  • $252 thousand (3%) on cleaning, linens, support, maintenance, and repairs
  • $248 thousand (3%) on accounting, investment management fees, interest, payments to affiliates, insurance, other, etc
  • $150 thousand (2.0%) was given to 83 individuals (paid directly to their respective colleges for scholarships)

The remaining $5.9 million (66%) went to the organization’s balance sheet contributing to the increase in the fund balance from $20.8 million to $27 million.

So, a $1 contribution made to the Atlanta RMHC, Inc. in 2013 was spent as follows:

$1.00: Donation

-$0.12: Salaries, wages, benefits, payroll taxes, etc.

-$0.04: Fundraising, advertising, promotion, conferences, conventions, meeting, travel, etc.

-$0.03: Office Expenses, information technology, occupancy

-$0.03: Accounting, investment management fees, insurance, interest, payments to affiliates

-$0.22:  Sub-total Administrative, Program and Fundraising Expenses

-$0.03: Cleaning, linens, support, maintenance and repairs

-$0.02: Scholarship grants

-$0.66: To Fund Balance

-$0.07:  Depreciation, amortization (non-cash expense) which appears to have been used to pay off a mortgage

$0.00

In short, a $1 donation was used to pay 22 cents in administrative, program, and fundraising costs, 3 cents in cleaning, linens, support, and repairs, 2 cents in scholarship grants, 7 cents to pay off the mortgage, and 66 cents to strengthen the balance sheet by adding the money to the fund balance.

If a $1 contribution was made to the national organization (RMHC) then 26 cents would have been taken out to cover administrative expenses at the national level, leaving 74 cents. If that 74 cents was then given to the Atlanta Ronald McDonald House Charities then an additional 16 cents (74 cents x 22% of every dollar) would have been taken out for the local chapter’s administrative, program, and fundraising expenses. 4 cents (74 cents x 5%) would have been taken out for scholarship grants and the cleaning, linens, maintenance and repairs of the house. 49 cents (74 x 66%) would have gone into the local chapter’s fund balance while 5 cents (74 cents x 7%) would have been used to pay off the mortgage.

In summary, a $1 contribution to RMHC whose proceeds were given to the local Atlanta chapter would have been spent paying 42 cents in administrative, program, and fundraising expenses at the national and local levels. Nearly half (49%) would have been saved and invested for future use with the remaining 9 cents used for scholarship grants, the cleaning and maintenance of the house, and paying off the mortgage.

Each of the 156 local independent RMHC have different income streams and expenses which is why it is so important to not only look at the national RMHC 990 but also the local chapter’s 990. A contribution will go further if given directly to the local chapter because the administrative expenses at the national level (26 cents of every dollar) are avoided. The same holds true with local non-profits. RMHC at the national level gave $3.1 million to 163 non-profits, including the Red Cross. A donor dollar will go further by giving directly to one of the 163 non-profits listed on the 990 then by giving the dollar to RMHC because again, administrative dollars are avoided at the distribution level. Each charity still has their own administrative, program, and fundraising expenses but at the least, a donor won’t be paying for two levels of these expenses.

Bottom Line:  So where does your $1 contribution to the Ronald McDonald House go? Well, that depends on whether you give the dollar to the national organization or a local chapter. The national organization – RMHC – used 26 cents of every dollar to cover administrative, program, and fundraising expenses. If you want your dollars to go further, give directly to a local chapter but read the local chapter’s 990 first to make sure the organization is spending donor dollars in line with your charitable philosophy.

Ronald McDonald houses provide a much needed service for families but I don’t want the majority of my contribution going to administrative, program, and fundraising expenses or placed in a fund balance (unless those funds are going towards building another Ronald McDonald house).

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