Charity Review

  • Issued: November 2013
  • Expires: October 2015

Operation Smile

Standards Not Met

  • 3
  • 4

888-677-6453

6435 Tidewater Drive
Norfolk, VA 23509

http://www.operationsmile.org

888-677-6453

6435 Tidewater Drive
Norfolk, VA 23509

http://www.operationsmile.org

Standards Not Met

This organization does not meet one or more of the 20 Standards for Charity Accountability. Click the conclusions section below for more information.

Standards For Charity Accountability

Governance

  1. Board Oversight

    Oversight of Operations and Staff: Standard 1

    Description
    Organizations shall have a board of directors that provides adequate oversight of the charity's operations and its staff. Indication of adequate oversight includes, but is not limited to, regularly scheduled appraisals of the CEO's performance, evidence of disbursement controls such as board approval of the budget, fund raising practices, establishment of a conflict of interest policy, and establishment of accounting procedures sufficient to safeguard charity finances.

    The organization meets this standard.

  2. Board Size

    Number of Board Members: Standard 2

    Description
    Soliciting organizations shall have a board of directors with a minimum of five voting members.

    The organization meets this standard.

  3. Board Meetings

    Frequency and Attendance of Board Meetings: Standard 3

    Description
    An organization shall have a minimum of three evenly spaced meetings per year of the full governing body with a majority in attendance, with face-to-face participation. A conference call of the full board can substitute for one of the three meetings of the governing body. For all meetings, alternative modes of participation are acceptable for those with physical disabilities.

    OS does not meet this Standard because:

    • While the board of directors held three meetings during the fiscal year ended June 30, 2013, one meeting was held in person and two meetings were held over the phone. In addition, the meetings were not evenly spaced throughout the year and were all held with a four-month period.

  4. Board Compensation

    Compensated Board Members: Standard 4

    Description
    Not more than one or 10% (whichever is greater) directly or indirectly compensated person(s) serving as voting member(s) of the board. Compensated members shall not serve as the board's chair or treasurer.

    OS does not meet this Standard because:

    • Three members out of the 10 member board of directors (30%) are compensated either directly or indirectly. Two board members are relatives of paid staff members. In addition, the Chair of the Board is compensated directly.

    In response to the Alliance's findings for Standard 4, OS states:

    "The organization was founded 30 years ago by Dr. William Magee and his wife Kathy who could not turn away from the hundreds of thousands of children worldwide suffering from correctable facial deformities. Their children shared their passion for philanthropy and creating an impact on global healthcare, and they helped to expand the organization. One of the co-founder's children is now an employee of the organization, as she shares their same drive. In addition, two of Operation Smile's employees are related to a board member, because they too share a family commitment to expand access to healthcare for impoverished populations. To avoid potential conflicts, none of the employees who are related to a board member report to a related family member and they are located in different physical location from their related family member. All of these individuals, as well as all of Operation Smile's employees and volunteers throughout the world, are dedicated to Operation Smile's mission. In that regard, the Magees have a life-long appointment to the Board of Directors."

  5. Conflict of Interest

    Conflict of Interest: Standard 5

    Description
    No transaction(s) in which any board or staff members have material conflicting interests with the charity resulting from any relationship or business affiliation. Factors that will be considered when concluding whether or not a related party transaction constitutes a conflict of interest and if such a conflict is material, include, but are not limited to: any arm's length procedures established by the charity; the size of the transaction relative to like expenses of the charity; whether the interested party participated in the board vote on the transaction; if competitive bids were sought and whether the transaction is one-time, recurring or ongoing.

    The organization meets this standard.

Measuring Effectiveness

  1. Effectiveness Policy

    Board Policy on Effectiveness: Standard 6

    Description
    Have a board policy of assessing, no less than every two years, the organization's performance and effectiveness and of determining future actions required to achieve its mission.

    The organization meets this standard.

  2. Effectiveness Report

    Board Approval of Written Report on Effectiveness: Standard 7

    Description
    Submit to the organization's governing body, for its approval, a written report that outlines the results of the aforementioned performance and effectiveness assessment and recommendations for future actions.

    The organization meets this standard.

Finances

  1. Program Expenses

    Program Service Expense Ratio: Standard 8

    Description
    Spend at least 65% of its total expenses on program activities.

    The organization meets this standard.

  2. Fund Raising Expenses

    Fund Raising Expense Ratio: Standard 9

    Description
    Spending should be no more than 35% of related contributions on fund raising. Related contributions include donations, legacies, and other gifts received as a result of fund raising efforts.

    The organization meets this standard.

  3. Accumulating Funds

    Ending Net Assets: Standard 10

    Description
    Avoid accumulating funds that could be used for current program activities. To meet this standard, the charity's unrestricted net assets available for use should not be more than three times the size of the past year's expenses or three times the size of the current year's budget, whichever is higher.

    The organization meets this standard.

  4. Audit Report

    Financial Statements: Standard 11

    Description
    Make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles. When total annual gross income exceeds $500,000, these statements should be audited in accordance with generally accepted auditing standards. For charities whose annual gross income is less than $500,000, a review by a certified public accountant is sufficient to meet this standard. For charities whose annual gross income is less than $250,000, an internally produced, complete financial statement is sufficient to meet this standard.

    The organization meets this standard.

  5. Detailed Expense Breakdown

    Detailed Functional Breakdown of Expenses: Standard 12

    Description
    Include in the financial statements a breakdown of expenses (e.g., salaries, travel, postage, etc.) that shows what portion of these expenses was allocated to program, fund raising, and administrative activities. If the charity has more than one major program category, the schedule should provide a breakdown for each category.

    The organization meets this standard.

  6. Accurate Expense Reporting

    Accuracy of Expenses in Financial Statements: Standard 13

    Description
    Accurately report the charity's expenses, including any joint cost allocations, in its financial statements. For example, audited or unaudited statements which inaccurately claim zero fund raising expenses or otherwise understate the amount a charity spends on fund raising, and/or overstate the amount it spends on programs will not meet this standard.

    The organization meets this standard.

  7. Budget Plan

    Budget: Standard 14

    Description
    Have a board-approved annual budget for its current fiscal year, outlining projected expenses for major program activities, fund raising, and administration.

    The organization meets this standard.

Fund Raising & Info

  1. Truthful Materials

    Misleading Appeals: Standard 15

    Description
    Have solicitations and informational materials, distributed by any means, that are accurate, truthful and not misleading, both in whole and in part. Appeals that omit a clear description of program(s) for which contributions are sought will not meet this standard. A charity should also be able to substantiate that the timing and nature of its expenditures are in accordance with what is stated, expressed, or implied in the charity's solicitations.

    The organization meets this standard.

  2. Annual Report

    Annual Report: Standard 16

    Description
    Have an annual report available to all, on request, that includes: (a) the organization's mission statement, (b) a summary of the past year's program service accomplishments, (c) a roster of the officers and members of the board of directors, (d) financial information that includes (i) total income in the past fiscal year, (ii) expenses in the same program, fund raising and administrative categories as in the financial statements, and (iii) ending net assets.

    The organization meets this standard.

  3. Website Disclosures

    Web Site Disclosures: Standard 17

    Description
    Include on any charity websites that solicit contributions, the same information that is recommended for annual reports, as well as the mailing address of the charity and electronic access to its most recent IRS Form 990.

    The organization meets this standard.

  4. Donor Privacy

    Privacy for Written Appeals & Internet Privacy: Standard 18

    Description
    Address privacy concerns of donors by (a) providing in written appeals, at least annually, a means (e.g., such as a check off box) for both new and continuing donors to inform the charity if they do not want their name and address shared outside the organization, (b) providing a clear, prominent and easily accessible privacy policy on any of its websites that tells visitors (i) what information, if any, is being collected about them by the charity and how this information will be used, (ii) how to contact the charity to review personal information collected and request corrections, (iii) how to inform the charity (e.g., a check off box) that the visitor does not wish his/her personal information to be shared outside the organization, and (iv) what security measures the charity has in place to protect personal information.

    The organization meets this standard.

  5. Cause Marketing Disclosures

    Cause Related Marketing: Standard 19

    Description
    Clearly disclose how the charity benefits from the sale of products or services (i.e., cause-related marketing) that state or imply that a charity will benefit from a consumer sale or transaction. Such promotions should disclose, at the point of solicitation: (a) the actual or anticipated portion of the purchase price that will benefit the charity (e.g., 5 cents will be contributed to abc charity for every xyz company product sold), (b) the duration of the campaign (e.g., the month of October), (c) any maximum or guaranteed minimum contribution amount (e.g., up to a maximum of $200,000).

    The organization meets this standard.

  6. Complaints

    Complaints: Standard 20

    Description
    Respond promptly to and act on complaints brought to its attention by the BBB Wise Giving Alliance and/or local Better Business Bureaus about fund raising practices, privacy policy violations and/or other issues.

    The organization meets this standard.

Conclusion

Operation Smile does not meet the following 2 Standards for Charity Accountability:

Standard 3 - Frequency and Attendance of Board Meetings
An organization shall have a minimum of three evenly spaced meetings per year of the full governing body with a majority in attendance, with face-to-face participation. A conference call of the full board can substitute for one of the three meetings of the governing body. For all meetings, alternative modes of participation are acceptable for those with physical disabilities.

OS does not meet this Standard because:

  • While the board of directors held three meetings during the fiscal year ended June 30, 2013, one meeting was held in person and two meetings were held over the phone. In addition, the meetings were not evenly spaced throughout the year and were all held with a four-month period.

Standard 4 - Compensated Board Members
Not more than one or 10% (whichever is greater) directly or indirectly compensated person(s) serving as voting member(s) of the board. Compensated members shall not serve as the board's chair or treasurer.

OS does not meet this Standard because:

  • Three members out of the 10 member board of directors (30%) are compensated either directly or indirectly. Two board members are relatives of paid staff members. In addition, the Chair of the Board is compensated directly.

In response to the Alliance's findings for Standard 4, OS states:

"The organization was founded 30 years ago by Dr. William Magee and his wife Kathy who could not turn away from the hundreds of thousands of children worldwide suffering from correctable facial deformities. Their children shared their passion for philanthropy and creating an impact on global healthcare, and they helped to expand the organization. One of the co-founder's children is now an employee of the organization, as she shares their same drive. In addition, two of Operation Smile's employees are related to a board member, because they too share a family commitment to expand access to healthcare for impoverished populations. To avoid potential conflicts, none of the employees who are related to a board member report to a related family member and they are located in different physical location from their related family member. All of these individuals, as well as all of Operation Smile's employees and volunteers throughout the world, are dedicated to Operation Smile's mission. In that regard, the Magees have a life-long appointment to the Board of Directors."

Operation Smile meets the remaining 18 Standards for Charity Accountability.

Complaints

 Number of complaints processed by the BBB in the last 36 months: 3

Mailing List/ Phone List Removal

The organization addressed the complaint issues brought to its attention: 3

The organization did not address the complaint issues brought to its attention: 0

(These complaints involve an individual seeking to have his or her name and contact information removed from the organization’s mailing and/or telemarketing list.)

Purpose

  • Year, State Incorporated

    1982, Virginia

  • Affiliates

    Operation Smile Foundations

  • Stated Purpose

    “to give free surgery and related care to children with clefts; to create sustainability in developing countries by training local medical professionals; and to educate the public.”

Programs

OS is a health and welfare organization that works to perform reconstructive surgery on children around the world suffering from cleft lip, cleft palate and other facial deformities. In addition to contributing free medical treatment and improving the health and welfare of children, OS trains and educates local medical professionals in its partner countries and provides equipment to lay the groundwork for long-term self-sufficiency. The organization also seeks to improve the quality of surgical care around the world. OS creates partnerships to research the cause of clefting and work to eradicate it. The organization reports that it is educating students through its student programs initiative, challenging more than 600 Operation Smile Student Clubs to use their compassion, energy and selflessness to make a difference.

Medical missions 38,963,786
Education and sustainability 18,174,955
Total Program Expenses: $57,138,741

Governance & Staff

  • Chief Executive

    William Kliewer, Chief Executive Officer

  • Compensation*

    $250,000

  • Chair of the Board

    William R. Fox

  • Chair's Profession / Business Affiliation

    Chief Operations Officer, The Brambleton Group

  • Board Size

    10

  • Paid Staff Size

    123

*2012 CEO compensation as reported by the charity includes annual salary and, if applicable, benefit plans, expense accounts, and other allowances. According to OS's IRS form 990 for the year ended June 30, 2012, the previous CEO, Howard Unger, was compensated $303,020 during 2011.

Fund Raising

Method(s) Used:

OS incurred joint costs of $16,519,602 for informational materials and activities that included fund raising materials. Of those costs $9,148,512 was allocated to fund raising expenses, $6,503,795 was allocated to program expenses, and $867,295 was allocated to administrative expenses.
Fund raising costs were 19% of related contributions. (Related contributions, which totaled $84,276,316, are donations received as a result of fund raising activities.)

Tax Status

This organization is tax-exempt under section 501(c)(3) of the Internal Revenue Code. It is eligible to receive contributions deductible as charitable donations for federal income tax purposes.

Financial

The following information is based on OS's audited financial statements - combined - for the fiscal year ended June 30, 2012.

Source of Funds
Contributions 54,666,140
Contributed services 26,253,585
Gifts in-kind 3,356,591
Program service revenue 1,277,336
Other income 12,650
Foreign currency transaction loss -83,689
Total Income $85,482,613
  • Programs: 73%
  • Fundraising: 21%
  • Administrative: 6%
Total Income $85,482,613
Program expenses 57,138,741
Fundraising expenses $16,121,782
Administrative expenses $4,807,349
Other expenses $0
Total expenses: $78,067,872
Income in Excess of Expenses 7,414,741
Beginning Net Assets 24,903,701
Ending Net Assets 32,318,442
Total Liabilities 15,494,813
Total Assets 47,813,255

Note: According to OS’ audited financial statement for the fiscal year ended June 30, 2012, the organization received in-kind donations of $29,610,176 including medical services ($26,253,585) and mission supplies ($3,019,471).

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