Restructuring Looms For Wounded Warrior Project
August 16, 2016 Mark Hrywna
Details of a restructuring at Wounded Warrior Project (WWP) are expected to be announced next month as newly released financial documents indicate total revenue reached almost $400 million in the most recent fiscal year, which ended in September.
The Jacksonville, Fla.-based charity does not believe that recent media coverage will have a “material adverse effect” on financial position, operations or cash flows, according to notes filed with its consolidated financial statements.
WWP released its annual Internal Revenue Service (IRS) Form 990 and audited financial statements on Monday. Total revenue was $398.7 million, up 16.5 percent or about $56.6 million from $342.06 million the previous year, according to the 990, which WWP has typically filed in the spring in recent years.
The tax form, however, covers the fiscal year from October 2014 through September 2015 – long before the charity came under scrutiny about its spending practices in reports by CBS News and The New York Times.
The reports eventually led to the board reviewing spending practices and other expenses last year. Eventually, Chief Executive Officer Steven Nardizzi and Chief Operating Officer Al Giordano were dismissed despite outside reviews and audits that presented no evidence of wrongdoing. Some policies were changed related to travel and other spending but the attention still piqued the interest of U.S. Sen. Charles Grassley (R-Iowa), who asked the charity for more information and reportedly met with new CEO Michael Linnington last week.
Linnington was announced as the new CEO in June and took over July 18. In recent weeks, he’s made reference during interviews to anticipated pay and staff cuts but hasn’t been made available to The NonProfit Times. A spokeswoman for the organization said Linnington is undergoing an initial 60-day assessment and would be available once that is complete. He also wanted to review financials prior to being filed.
The 990 listed 599 as the total number of individuals employed in calendar year 2014. For the first time, the tax form is prefaced by five pages of program accomplishments and impact as well as challenges and needs faced by those served by Wounded Warrior Project.
WWP made reference to the inquiries in notes to its consolidated financial statements. “Negative media stories in January 2016 regarding the Organization prompted inquiries and requests for documents from Senator Grassley on behalf of the Committee on the Judiciary and from other parties. The Organization responded to these inquiries and requests, and management does not believe they will have a material adverse effect on the organization’s financial position, results of operations or cash flows.
“The Organization is in the process of evaluating programs and services to ensure that they are delivered with even greater efficiency, as well as assessing its organizational structure to ensure that it maximizes all resources available. Management anticipates that certain roles will be eliminated as a result of this assessment and details of the restructuring will be announced in September 2016. Management does not believe the restructuring will have a material adverse impact on the accompanying consolidated financial statements.”
In recent news reports, Nardizzi has estimated that revenue for WWP this year is likely to be closer to $200 million. He did not return an email message seeking comment.
Total functional expenses were reported as $351.675 million for 2015, including $262.468 million in program services, $14.476 million in management and general, and $74.73 million in fundraising. WWP reported joint costs of $77.332 million, including $47.148 million in program and $30.184 million in fundraising.
Brian Mittendorf, a professor of accounting and management information systems (MIS) at The Ohio State University’s Fisher College of Business, blogs about nonprofit accounting and has followed the situation at WWP. While many of the financial trends remained the same, the biggest difference he noticed was that the organization previously referred to financial statements to determine program spending ratios but this year shifted to Form 990.
Asked about the shift in policy, a WWP spokeswoman said: “We made the switch recognizing the IRS Form 990 is referred to more frequently by donors, other charitable groups, charity watch groups and the public. We hope this shift will align conversations on charity financials and allow us to focus on the impact of our programs” and how they serve veterans and their families.
How program spending ratios were calculated was part of the media firestorm and confusion early this year. WWP had claimed 80 percent of spending on program, based on audited financials, while others, including charity watchdogs, more frequently cited a figure closer to 60 percent, based on Form 990. Financial statements use Generally Accepted Accounting Principals (GAAP) while Form 990 is not consolidated and also employs Joint Cost Allocation. WWP’s previous CEO was a vocal critic of Charity Navigator’s ratings based on spending rather than impact, as well as its policy to count all Joint Cost Allocations as fundraising expense.
“The 990 is definitely misleading because $54 million of the $262 million in program expenses were transfer to a subsidiary. They’re not doing anything wrong on the 990, it’s reporting for a legal entity; GAAP requires you to file for the consolidated entity,” Mittendorf said. Using Form 990, the $54 million transferred to the long-term trust is included within the $262 million classified as program expense, making for a ratio of 75 percent. Without it, program expense would be more like 60 percent.
Program service expenses of $262.468 million included $164.874 million specifically classified for three program service accomplishments:
- $72.019 million, independence program;
- $50.455 million, alumni association; and,
- $47.405 million, combat stress recovery.
WWP made 32 grants of more than $5,000 to other organizations, totaling $84 million. The largest was $54 million to Wounded Warrior Project’s Long-Term Support Trust. The trust now stands at about at $91.834 million, according to financial statements. WWP transferred about $28 million and $9 million in the previous two years, respectively, and also received contributions last year of $734,113 toward the trust.
Though no funds have been distributed yet, the trust was established in 2013 to provide funds to ensure “services including life-skills training, home care, transportation, and residential options remain available to he severely wounded” at risk for institutionalization. WWP previously had said it aims to raise $500 million over five years for the trust, with another $500 million in investment earnings over 20 years.
About $21.4 million of the grants awarded last year were $5.35 million each to Emory University, Massachusetts General Hospital, UCLA Health Sciences Development, and Rush University Medical Center. The grants were for a new program launched last year. The Warrior Care Network aims to connect veterans and their families with world-class, evidence-based mental health care. They provide veterans with “multi-week, intensive outpatient programs and individualized care.” WWP has conditional financial commitments of $20.7 million per year for the next two years, according to its consolidated financial statements.
Of the remaining $9.2 million in grants, four organizations received at least $1 million:
- Operation Homefront, San Antonio, Texas, $2.465 million;
- American Red Cross, Washington, D.C., $1.938 million;
- Community Foundation for the Central Savannah River Area (CSRA), Augusta, Ga., $1.8 million; and,
- Centerstone Military Services, Nashville, Tenn., $1 million.
What’s likely to be an easy target for some critics is Schedule J of the Form 990: highest compensated employees. As president/CEO last year, Nardizzi earned total compensation of $457,839, including base compensation of $342,766 and bonuses and incentives of $88,000. Each of the 12 executives listed on the 990 received bonus and incentives, ranging from $18,667 to $88,000 and totaling $465,727.
Editor’s note: The original version of this story was updated on Aug. 17 at 11:43 a.m. to reflect responses from Wounded Warrior Project.