Charity Review

Issued: November 2013 Expires: October 2015

Operation Smile

Standards
Not Met
888-677-6453 6435 Tidewater Drive
Norfolk, VA 23509
www.operationsmile.org

Conclusions


Operation Smile (OS) 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 (OS) 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, and 9 chapters

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.

For the fiscal year ended June 30, 2012, OS's program expenses were:

  
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

Highest Paid Executive: Dr. William P. Magee,Chief Executive Officer and Co-founder
Compensation*: $359,411

Chair of the Board: William R. Fox
Chair's Profession / Business Affiliation: Chief Operations Officer, The Brambleton Group

Co-Chair of the Board : William P. Magee JR. D.D.S.M.D.

Chair's Profession / Business Affiliation: Chief Executive Officer and Co-founder

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:

Direct mail, telemarketing, special events, print advertisements, television, radio, grant proposals, Internet appeals, planned giving, cause-related marketing, and membership appeals.
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.)
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.

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


chart



Uses of Funds as a % of Total Expenses

Programs: 73%  Fund Raising: 21%  Administrative: 6% 

Total income $85,482,613
Program expenses $57,138,741
Fund raising expenses 16,121,782
Administrative expenses 4,807,349
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).

An organization may change its practices at any time without notice. A copy of this report has been shared with the organization prior to publication. It is not intended to recommend or deprecate, and is furnished solely to assist you in exercising your own judgment. If the report is about a charity and states the charity meets or does not meet the Standards for Charity Accountability, it reflects the results of an evaluation of information and materials provided voluntarily by the charity. The name Better Business Bureau is a registered service mark of the Council of Better Business Bureaus, Inc.

This report is not to be used for fund raising or promotional purposes.

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Standard 1: Oversight of Operations and Staff

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.

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Standard 2: Number of Board Members

Description:

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

The organization meets this standard.

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Standard 3: Frequency and Attendance of Board Meetings

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:

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Standard 4: Compensated Board Members

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:

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."

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Standard 5: Conflict of Interest

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.

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Standard 6: Board Policy on Effectiveness

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.

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Standard 7: Board Approval of Written Report on Effectiveness

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.

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Standard 8: Program Service Expense Ratio

Description:

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

The organization meets this standard.

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Standard 9: Fund Raising Expense Ratio

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.

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Standard 10: Ending Net Assets

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.

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Standard 11: Financial Statements

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.

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Standard 12: Detailed Functional Breakdown of Expenses

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.

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Standard 13: Accuracy of Expenses in Financial Statements

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.

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Standard 14: Budget

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.

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Standard 15: Misleading Appeals

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.

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Standard 16: Annual Report

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.

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Standard 17: Web Site Disclosures

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.

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Standard 18: Privacy for Written Appeals & Internet Privacy

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.

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Standard 19: Cause Related Marketing

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.

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Standard 20: Complaints

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.

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