Where Does $100 to the Navy-Marine Corps Relief Society Go?

The Navy-Marine Corps Relief Society (NMCRS) primarily provides financial assistance (interest free loans and grants) to members (and their families) of the Naval Service although the organization also provides educational and other assistance. Established in 1904, NMCRS is based in Arlington, Virginia.

In the most recent years (2015 and 2016) the organization raised about $23 million a year and spent about $29 million – about $6 million more than they raised – which was partially offset by unrealized gains on investments and changes in  pension-related charges. Consequently, NMCRS maintained a net fund balance of $96 million from year-to-year.

Given that NMCRS brings in about $23 million a year and spends about $29 million annually, it is surprising to learn that the organization only gave $2.5 million (about 11% of revenue) out in grants in 2016.  So where was the rest of the revenue spent? The Form 990 (2016) submitted to the IRS reports revenue was spent as follows:

• $19.2 million (83% of revenue):  Salaries, Benefits, Pensions, Payroll taxes
• $ 2.5 million (11% of revenue):  Grants
• $ 2.1 million (9% of revenue):  Office, IT, Insurance, and Interest
• $ 1.5 million (6% of revenue):  Other Expenses (no detail provided)
• $ 1.1 million (5% of revenue): Nurses, Human Resources, Volunteers, Thrift Store, Layettes
• $ 1.0 million (4% of revenue):  Travel and Conferences
• $ 0.9 million (4% of revenue):  Fees for Services (accounting, legal, and investment management)
• $ 0.8 million (3% of revenue):  Loans Written Off
• $29.1 million (125% of revenue):  Total Expenses (not including depreciation)

As illustrated above, NMCRS spent $6 million more than they raised but had the resources (in the net fund assets) to cover the shortfall although the excess expenses were offset by the unrealized gain on investments and a change in pension liabilities.

Based on the expense information listed on the Form 990, $100 in revenue was spent as follows:

$100: Revenue

-$  83:  Salaries, Benefits, Pensions, Payroll taxes

-$   9:  Office, IT, Insurance, and Interest

-$   5:  HR, Nurses,Volunteers, Thrift Store, Layettes

-$   4:  Travel and Conferences

-$  4:  Fees for Services (accounting, legal, and investment management)

-$   3:  Loans Written Off

-$  6: Other Expenses

-$ 11:  Grants

-$125:  Total Expenses and Grants

As illustrated above, for every $100 in revenue, NMCRS spent $125.  Other important points to consider include:

NMCRS reports total assets of $126 million, most of which ($91 million) are in publicly traded securities and loans receivable ($21 million).  With $30 million in liabilities (primarily pension-related liabilities), the organization had $96 million in net fund assets at year-end.

NMCRS employed 255 individuals in 2016 at a cost of $19.2 million (or an average of $75,000 each). 14 persons received more than $100,000 in compensation with the President and CEO – Charles S Abbot – the mostly highly compensated employee at $347,968.

Non-profits categorize expenses based on three functions:

• Program Services (including grants)
• Management
• Fundraising

NMCRS reported $29.5 million in total expenses (or $29.1 million without depreciation). The organization allocated expenses as follows:

• $25.1 million of expenses (or 85% of expenses):  Program Services
• $2.9 million of expenses (or 10% of expenses):  Management
• $1.5 million of expenses (or 5% of total expenses):  Fundraising

Within those expenses, the total staff costs were $19.2 million allocated as follows:

• $16.7 million or 87% of staff costs:  Program Services
• $ 1.5 million or 8% of staff costs:  Management
• $ 1.0 million or 5% of staff costs:  Fundraising

So, if Program Services account for $25.1 million in expenses (of which $16.7 million are staff costs) then we need to look at the type of program services provided and the expenses for those services. On page 2 of the IRS Form 990, the four Program Services expenses (totaling $25.1 million) are listed:

• $23.6 million (or 94% of Program Service expenses):  Financial Assistance
• $ 0.7 million (or 3% of Program Service expenses):  Volunteer Program
• $ 0.6 million (or 2% of Program Service expenses):   Other (visiting nurse, budget counseling, thrift store, layette)
• $ 0.2 million (or 1% of Program Service expenses):  Education Program

Within the Financial Assistance Program – the primary service NMCRS provides – it is important to make the distinction between the services they provide:

• Making Grants: NMCRS made $2.5 million in grants which were expensed;
• Making Loans: NMCRS made $42 million in loans in 2016
• Servicing Loans: Customers paid back $42 million in loans and wrote off (expensed) about $800,000 in loans. At year-end there were $21 million in loans outstanding.

All of the above simply tells you this:

The largest outlay of expenses was for Program Services ($25.1 million or 85% of expenses) and that within Program Services, most of the expenses – $23.6 million or 94% of program service expenses – were for the Financial Assistance Program.

Staff costs across all three areas (Program Services, Management, and Fundraising) totaled $19.2 million with $16.7 million (or 87% of staff costs) allocated to Program Services.

It is unclear what the staff costs were for the Financial Assistance (within Program Services) but since Financial Assistance expenses were 94% of Program Service expenses, it is not unreasonable to estimate 94% of Program Service staff costs or $15.7 million (.94 x $16.7 million) were for Financial Assistance.

$15.7 million represents 82% of total staff costs ($15.7 million/$19.2 million). Given a staff of 255 individuals and an average compensation of $75,000, then an estimated 209 individuals ($15.7 million/$75,000 or 82% of 255) were working in Financial Assistance. The question then becomes: why were 209 employees at a cost of $15.7 million needed to make $42 million in loans, collect $42 million in loan payments, provide $2.5 million in grants, and write off less than $1 million in loans? The answer may be because of the number of outstanding loans (about 44,000 with an average principle balance of $500) but given that loan administration is a highly automated function, there must be other reasons.

NMCRS does have offices outside the US but these offices appear to be minimally staffed compared to offices in the US:

• 9 offices in East Asia and the Pacific with 7 employees, agents and independent contractors
• 9 offices in Europe with 5 employees, agents, and independent contractors
• 1 office in Central America and the Caribbean with no employees, agents, or independent contractors
• 1 office in the Middle East and North Africa with no employees, agents, or independent contractors

In summation, NMCRS is a labor intensive organization that spent $15.7 million on staff for a Financial Assistance program that provided $42 million in loans, $2.5 million in grants, and provided loan administration servicing  by processing $42 million in loan payments leaving a year-end loan balance of $21 million. In other words, NMCRS is spending nearly $16 million annually on staff to make $42 million in loans, $2.5 million in grants, and process $42 million in loan payments (and that’s without considering all the other overhead expenses).

To read the IRS Form 990 (2015 and 2016) click here.