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March 2, 2017


Where does $100 to Operation Smile Go?

by Anne Paddock

Operation Smile is a non-profit 501 (c) (3) that provides corrective surgery to children and young adults in developing countries who are born with cleft lip, cleft palate or other facial deformities. Established in 1982, Operation Smile was founded by Dr. William Magee,Jr.  (a dentist and plastic and craniofacial surgeon) who serves as the organization’s Chief Executive Officer and his wife Kathleen McGee, who serves as the organization’s President. Their daughter, Kristie Porcaro also serves as the SVP of US and Global Philanthropy of Operation Smile.

The 2015 IRS Form 990 (2015) for the year ending June 30, 2016 reveals the organization collected $61.5 million, most of which were contributions, including $4.4 million of non-cash contributions. Operation Smile spent $42.5 million or 69% of revenue on program service expenses, $7 million (11% of revenue) on management expenses, and $16 million (26% of revenue) on fundraising. In total the organization spent $65.5 million (excluding depreciation) or about $4 million more than they collected – and were able to because they had $32.3 million in their net fund balance at the beginning of the year and which was reduced to $27.1 million at year-end.

A donation of $100 was spent as follows:

$100:  Donation

-$ 26:   Fundraising Costs

-$ 11:    Management Costs

 $ 37:    Subtotal Fundraising and Management Costs

 $ 63:   Amount Remaining

-$ 69:   Program Costs

– $  6:   From Net Fund Balance to Pay Costs over and above revenue collected

 $   0

In order to fully understand how a donation is spent, the expenses need to be analyzed outside of the broad classifications of program, management, and fundraising because within the three categories are expenses that may not be direct program expenses. For instance, $9.9 million was spent on “public awareness” and $2.4 million in unexplained “other” expenses in the program category  So, another way to look at the way $100 was spent is to look at the specific costs:

$ 100:  Contribution

-$  37:   Public Awareness, Professional Fundraising, and Advertising

-$  20:   Salaries, Pension, and Other Benefits

-$  14:   Grants to Foreign and Domestic Organizations

-$  10:   Mission Supplies

-$  10:   Travel

-$   6:   Office Expenses

-$   6:   Other Expenses (unexplained)

-$   2:   Legal, Accounting

-$   1:   Interest, Insurance, Bad Debt Expense

-$106:  Total Expenses

As illustrated above, the organization had to rely on funds in their fund balance to meet the excess money spent on expenses. For every dollar collected, Operation Smile had to use 6 cents from their fund balance to meet expenses.

The IRS Form 990 (2015) also reveals the following:

  • The seven mostly highly compensated staff were provided nearly $1.8 million and include the founder and CEO, Dr. William Magee ($549,134), his daughter, the VP of US and Global Philanthropy, Kristie Porcaro ($184,527), the COO, Ernest Zinn ($284,497),the Chief Program Strategist, Richard Vander Burg ($236,189), the VP of Finance, Kimberly Getz ($157,265), the Senior VP of Medical Affairs, Ruben Ayala ($183,388), and the SVP of Ent App and Tech, Christopher Bryant ($152,107).
  • Operation Smile allows the CEO (Dr. William Magee), President (Kathleen Magee), COO, and Chief Program Strategist to upgrade to Business or First Class Travel. For domestic flights more than 5 hours, upgradeable fares may be purchased and for travel more than 8 hours internationally, Business Class fares may be purchased for the above persons in said positions.
  • Operation Smile used MDS Communications, a telemarketing firm in Meza, Arizona for fundraising. MDS Communications raised $1.6 million and retained $1.3 million (81%), providing about $300  thousand ($19%) to Operation Smile. Russ Reid Company of Pasadena, California was also used by Operation Smile to fundraise. They collected $25.6 million, retained $1.4 million (6%) , giving $24.2 million (94%) to Operation Smile. E-mail marketing by a company named M & R resulted in $975,000 in revenue. $165,000 (17%) was retained by M & R with the remainder, $810,000 (83%)  to Operation Smile.
  • The highest paid contractors were:  Russ Reid ($1.6 million) for fundraising counsel, MDS Communications, Inc. ($605 thousand) for tele-fundraising services, Merkle Response Services ($440 thousand) for keying and caging, Strategic Fundraising ($407 thousand) for tele fundraising services, and Blackbaud ($382 thousand) for consulting services related to fundraising.
In summation, fundraising and public awareness costs take $37 out of every $100 donation to Operation Smile, leaving $63 to the organization. Another $6 is taken for other expenses which are unexplained leaving $57.  Of additional concern is that the CEO receives more than a half million dollars in compensation (and he appears to work outside the organization as a surgeon and educator) and that he and his wife, the President (who does not take a salary according to the IRS Form 990) fly Business and First Class in accordance with the organization’s rules. Their daughter is also employed by the organization (and paid nearly $200,000) to work in philanthropy. And, finally the organization appears to heavily compensate telemarketing firms for fundraising. For donations made directly through these firms, a portion of the donation which appears to range from 11% – 94% is taken with the proceeds then given to Operation Smile.
To read the IRS Form 990 (2015 for the year ending June 30, 2016) click here.
10 Comments Post a comment
  1. Regina
    Jul 23 2018

    Greed in non profit organizations such as this have made me wary about giving. Extravagant fundraising is not what should be a first priority from funds donated.

  2. Valerie
    Nov 14 2018

    I really wanted to give money to those poor children I saw on TV, my heart goes out to them. However, when I read that only a fraction of my donation would actually go to them I held back. I don’t understand any person saying they are giving their expertise to help out needy people and all the while lining their own pockets instead. This to me is not a charity. A charity gives to needy people not take from them.

  3. Dec 9 2018

    I fully agree with Valerie: I have given a couple of times, but no more. My heart goes out to these unfortunate children. Wish someone else would take up the cause who are not driven by power and money but want to make a real difference with as much as 85% going towards the cause.

  4. Mary Shidaker
    Feb 9 2019

    I watched the ad for operation smile last November/December. I have seen this program before but for some reason I got online and gave! No questions asked!! A few days later I went online to find out where my money actually went. I could kick myself for being duped. I give to another organization where 86% of what I give go to the children or their community. I will not be giving to this organization again after learning how the founders and others are benefiting financially.

  5. Jane, Richard Kruszelnicki
    Apr 14 2019

    We have been paying for 4 cleft pallet operations each year for many years now. Finding out that most of the money is going for administration costs, leaves me very dissappointed and angry. I am ready to opt out, unless you will prove to me where my money is spent otherwise. It is suppose to heal children, not fill Ceo’s pocket and his families as well. Charity is charity, no less by any means. Stop abusing this wonderfull cause. If your inpiration is to do charity work,
    Then try to remember the golden rule, charity begins at home.
    Yours truly,

    Jane and Richard Kruszelnicki Edmonton, Alberta, Canada

  6. CFS
    May 19 2019

    Never fails to frustrate persons that will contribute to the health of needed children, but greedy individuals like the founders of this organization only look at self enrichment in the name of the needed. The poor and dissadvantaged children are the ones that pay the price of this greedy SOBs. I planned to contribute to the welfare of the hildren but not to the exessive salaries of the top two individuals and the extravagant cost of fundrising. God bless the children and bring his justice over the greedy.

  7. M. Wong
    Jun 16 2019

    This is a very good cause and senior management deserves accolades for their accomplishment, but on the other hand, this is not a commercial business. I hope that senior management can show even more compassion for those helpless kids by cutting their own salaries by 50%

  8. Laura from Toronto Ontario Canada
    Aug 12 2019

    I was duped once, twice but not a third time. If the founders/snr mgmt give up 50% of his Salary or bonus I will go on power saving so I could give more..

  9. David
    Aug 14 2019

    I really want to continue giving the a great cause, but I can’t, from looking at 81% of contribution go into the fundraiser’s pocket.

  10. Ellen Alpart
    Sep 1 2019

    Disgusted by leaders of operation smile…we gave every year and to read of the compensation given to their leader who is also a surgeon working on jis own,his daughter and first class travel etc…They tug at our heartstrings and need to be exposed for their greed for such worthwhile
    poor children…beyond disgusting!

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