Invisible Children: A Transparent Case Study

By now, we have all probably been exposed to Invisible Children, a civil rights, social action and advocacy organization formed in 2004. Invisible Children recently skyrocketed to fame because of a “social media experiment” they perpetuated (namely the Kony 2012 Video).

The video’s message is to “make Joseph Kony famous.” According to Wikipedia, Joseph Rao Kony is the head of the Lord’s Resistance Army (“LRA”), a Ugandan guerrilla group. While initially enjoying strong public support, the LRA turned on its own supporters, supposedly to “purify” the Acholi people and turn Uganda into a theocracy.

The video went viral quicker and broader than any previous socio-political internet clip, with over 100,000,000 views on YouTube and Vimeo. Joseph Kony is now, seemingly, famous.

The response to the video has been surprisingly polarizing. The initial public reaction was overwhelmingly one of compassion. A spirited debate was sparked regarding the issues in Uganda and whether Invisible Children’s intervention and assistance in a long standing Ugandan social and political conflict was beneficial or harmful.

Not surprisingly, the instant publicity surrounding the video generated an intense amount of scrutiny upon Invisible Children and the founders of the entity. Many who have scrutinized Invisible Children have voiced concerns over their operations, governance and charitable purposes. Some wondered whether the organization was effectively and efficiently spending the substantial amounts of donations and support which they had received in recent years. In order to seek answers to these questions, the first place to look was the entity’s Form 990, a readily available public document which can legally be accessed by anyone for any reason.

Review of the Form 990: More Questions than Answers

So what does Invisible Children’s most recent Form 990 reveal? For the tax year ending June 30, 2011 Invisible Children reported $13,765,180 in gross revenue as compared to gross revenue of $8,253,941 in the previous year. No doubt that this is a very impressive revenue growth rate.

However, inspection of the Statement of Functional Expenses (Part IX of the Form 990) reveals that for the tax year ending June 30, 2011, Invisible Children incurred $8,894,632 of expenses. Of these total expenses, Invisible Children reported that approximately 80% of such were program service expenses. The program service expenses were broken down as follows (as a percentage of total program service expenses):

  • Grants to Invisible Children NGO in Central Africa: $2,810,681 (39%)
  • Filmmaking: $1,209,162 (17%)
  • Compensation: $1,074,589 (15%)
  • Travel: $852,820 (12%)
  • Office/Occupancy: $448,947 (6%)
  • Other Expenses $363,818 (5%)
  • Depreciation: $197,836 (3%)
  • Professional Services: $205,531 (3%)

The key question which arises here is how exactly did Invisible Children further their exempt purposes with all the significant expenditures (61% of their total program service expenditures) not related to their grantmaking activities. It leaves one to wonder whether Invisible Children truly was getting an appropriate impactful charitable “bang for the buck” commensurate with the significant amount of donations and other support which they received.

Invisible Children also owns a significant amount of fixed assets ($1,262,892):

  • Computer equipment: $751,000
  • Transportation Equipment: $288,762
  • Video and Camera Equipment: $177,769
  • Furniture & Fixtures: $45,361

Without knowing more, one is left to wonder how ownership of these assets furthers Invisible Children’s charitable purposes. $751,000 of computer equipment seems excessive for an entity with 45 employees ($16,000 of computers per employee). Additionally, ownership of $288,000 of transportation equipment seems excessive for an entity focused on advocacy that also reported over $850,000 of travel expenses.

The three Officers of Invisible Children each make under $90,000, (as reported on Part VII of the Form 990) which certainly seems to be reasonable. However, there are still questions regarding the insider compensatory practices of Invisible Children, for example, is it accurate that they did not provide any benefits or perks to their insiders and why is the top financial official for Invisible Children not reported on Part VII of the Form 990 as is required?

Additionally, a review of the Form 990 for Invisible Children yields questions regarding whether the entity possesses a truly independent Board of Directors. There are seven voting Board members, however three of those seven are compensated as employees. Additionally, Invisible Children completed Schedule L of the Form 990 to report an insider transaction with a non-employee Board member. Accordingly, it is possible that four of Invisible Children’s seven Board members are not independent (violating California law for charitable entities operating in California). This also raised questions regarding how Invisible Children can appropriately ensure that their insiders are being reasonably compensated.

Other potential areas of concern upon a review of the Form 990 for Invisible Children include the possible under-reporting of the entity’s lobbying expenditures ($0 reported for the past five years, despite claims in the “Kony” video that there is both direct and indirect lobbying carried on) and erroneous reporting regarding the entity’s arrangements with the few independent contractors whom they engage.

What Can We Learn from Invisible Children

Invisible Children has been launched into the spotlight because of their very own PR efforts. There has been a lot of critical evaluation of the entity and those in charge of the entity. However, we have to highlight that this is yet another example of the ‘system’ working. Invisible Children may have founders and a board of directors, however the entity is not owned by any of those aforementioned groups. A charity is deemed to be owned by the general public. And as is the case with any business enterprise, it operates for the benefit of its owners. As a result, charities operate for the benefit of the general public, and as such, charities need to be accountable to the general public.

As a result of being accountable to the general public, a significant amount of a charity’s documents are considered to be public documents, including the entity’s Forms 990 for the past three years. The Form 990, being an information return, is much more than just a tax filing; it is essentially the public’s window into an exempt entity’s operations, including: who is in charge of the entity and how to contact them, how much insiders are compensated, how the organization generates revenue and then expends it, how the entity is governed, how far-reaching its operations are and how many people the entity employs.

May organizations have a “less is more” approach to the Form 990. However, a well prepared Form 990 should not just comply with the minimum requirements, but also try to answer questions as opposed to creating more of them. The Form 990 has sections and schedules created solely to allow an entity to provide narratives that can explain their operations to the casual viewer. The 990 should not be seen as “just another annual tax filing”, but as a way to communicate with donors and the public…essentially a PR document used to showcase all the achievements of a charity.

For Invisible Children, the required transparency of their Form 990, could prove to be quite detrimental if they do not have adequate responses to the many questions which have been recently raised.

The questions and observations regarding Invisible Children are in no way an endorsement or criticism of the entity, however, it does demonstrate how a sudden rise to fame can shine the brightest of spotlights on a charitable entity.