Wounded Warrior Project faces tough choices as it rebuilds following controversy
By DIANNA CAHN | STARS AND STRIPES Published: December 31, 2016
WASHINGTON — The nonprofit Wounded Warrior Project entered 2016 with a more than $400 million budget and reason to believe its meteoric growth would continue. It ended the year with detrimental losses following a scandal that led to the ouster of its two top executives in March.
And while the veterans charity has remained mum on projected 2017 revenue, there is little doubt that donations continue to fall.
The question is, by how much.
New CEO retired Lt. Gen. Mike Linnington took the helm in July promising transparency as he worked to right the ship. After the organization announced its first restructuring – laying off 15 percent of its 600-member staff – Linnington told news organizations that WWP lost $90-$100 million in revenue. He told Stars and Stripes at the time that he would release exact figures at the end of September, when the fiscal year came to a close.
Last week, Linnington declined to release the 2016 tallies or projections for the 2017 budget, which began Oct. 1. He said he was “still a rookie on nonprofit accounting,” when he spoke with the newspaper in August and said he would release the financials only after they were audited and filed with the IRS – likely next summer.
But an examination of WWP’s financials appears to indicate that the nonprofit could face big troubles in the coming year – losses so steep that it would be forced to choose between depleting its reserves or cutting critical programs for wounded veterans and their families.
“They are contracting,” said Doug White, a nonprofits expert and professor who was director of Columbia University’s Master of Science in Fundraising Management. He left his position in June to conduct an in-depth study of what happened at WWP. “There’s no way they can’t contract at this point.”
White was fascinated by the controversy surrounding WWP spending, which raised questions about how nonprofits raise and allocate money and how their success is judged. In a strongly worded report, he concluded that the vision of ousted CEO Steve Nardizzi and Chief Operating Officer Al Giordano – which involved aggressive and costly fundraising to exponentially grow the nonprofit – was sound, even good business for the organization. But he acknowledged Nardizzi’s flamboyant style led to damaging perceptions. White is working on a book about the organization and the issues.
Nardizzi and Giordano were fired after reports in the New York Times and on CBS in January portrayed lavish spending and a toxic organizational culture. The charity had been placed on the Charity Navigator watch list for having too small of a percentage of donations going directly to programming. Charity Navigator calculated that as much as 40 percent of revenue was spent on fundraising and administration. A forensic accounting of WWP’s financials found no wrongdoing, but distrust remained. As donors began pulling their support, the board removed the two leaders.
By mid-spring WWP donations were plummeting. The charity pulled its TV ads and went into a holding pattern until Linnington’s arrival in July. The ads have only recently resurfaced, but other than Linnington’s initial statements in August and September, WWP has divulged little about its financial situation.
There has been a lot of speculation about WWP’s numbers for 2017, and without transparency from the organization, there’s no way to be certain. But there are ways to assess nonprofit financial performance.
White said that pulling advertising has unseen repercussions for a nonprofit, stalling new donations and limiting the ability to recoup donors as monthly donations expire and aren’t renewed. He said the losses quickly build on themselves, leaving the nonprofit further behind.
With WWP out of the public eye, donor drop-off likely increased, he said. Without an aggressive campaign to restore fundraising, it’s reasonable to assume things have gotten worse, he said.
“My feeling is they are on a downward spiral at this point,” White said.
By the numbers
According to the latest financial documents available for Wounded Warrior Project -- the nonprofit tax form 990 for 2015 – the organization made $398.7 million. Nardizzi said the charity had projected a budget increase to $414 million in 2016 (plus $13 million from reserves to be used for the long-term care trust) and to $475 million in 2017.
By the time Linnington took the helm in July, Nardizzi said he believed the organization was on a trajectory to lose $200 million in 2017.
In August, the Chronicle of Philanthropy reported that Nardizzi had slammed the trustees of WWP for downplaying the financial crisis. Nardizzi told the Chronicle that during a conversation with Linnington in early July, the newly appointed CEO told him that the 2017 projections were even more dismal: revenue of just $185 million.
Linnington confirmed to the Chronicle that he’d spoken with Nardizzi, but said the figure was inaccurate. He told the magazine that it was too soon to predict the organization’s fundraising amount, and that 2017 revenue could be anywhere from $185 million to $355 million.
Nardizzi confirmed to Stars and Stripes that when he left in March, WWP had $250 million in reserves – an amount they believed was “enough to weather any storms,” he said.
Their plan was to transfer some of that into the trust created for WWP’s Independence Program, which provides lifetime home care for the most severely wounded. The organization was looking to grow programming and planned to add less to reserves.
That vision likely changed with the decline in WWP revenue. WWP ended 2016 with less revenue than budgeted and almost certainly an expectation for losses in 2017.
To help balance the books in 2016, the organization reduced staff in August and closed nine of-fices, saying it was making good on its word to be accountable for every dollar. But, looking at the charity’s financials, White said that would not have been enough to cover the losses. The halt in advertising helped refill the till – though that’s a double-edged sword for future revenue – and savings could have come from reducing the funds earmarked for the trust.
It is likely that part of the 2016 losses would have had to be covered from the reserves. And if funding continues to drop in 2017 at the same pace or greater, which White believes is the likely scenario, cuts will have to be far deeper in the coming year.
According to the WWP financial statements, its spending for management was $14.5 million in 2015, with nearly $75 million spent on fundraising and $262.5 million on programming. The remaining $47 million went into reserves.
The fundraising budget remained almost the same for 2016, but the organization can’t afford to make cuts there if it has any chance of regaining its donor base, White said. There could be some savings from not giving grants to groups that help veterans, although that involves a relatively small amount of money. Cuts to administration also don’t have much value.
The only two areas left to reduce: programming and reserves, White said.
As revenue and programs decrease, the ratio of fundraising or administration to programming skews, exacerbating the problem that Wounded Warrior Project had in the first place: not spending enough of its pie on programming.
One bright note: In September, after the layoffs and restructuring at WWP, Charity Navigator took the nonprofit off the watch list, giving it high marks for accountability and transparency, but lower marks for financials based on its high spending on fundraising.
Impact on families
WWP has remained silent on how it plans to reverse its ailing fortunes, but White and others said families who benefit from the nonprofit are concerned. Something will have to be cut, it’s just a question of who will get left without a chair at the table, he said.
“We don’t know what the current planning is at WWP,” he said. “We do know the recipients are asking the question, and that’s creating angst.”
On its website Wednesday, WWP announced all the programs and services it had offered in 2016. It said that the number of warriors registered with WWP had surpassed 100,000 for the first time.
“How are they going to pay for it?” White wondered about the increase.
White called on Linnington to lay out the facts for donors and warriors.
“He should come out more forthrightly right now,” White said. “People need a more real-time understanding” of how a charity functions.