Islamic Relief USA is Expensive Zakat
Your Zakat dollar deserves to go further, right?
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A starting clarification: IRUSA is an organization separate from but related to Islamic Relief Worldwide (IRW), which is a UK-based organization. While I will be discussing IRW, it is only in the context of IRUSA.
A Story of International Compound Expenses
In early 2020, just as the pandemic was getting started, a former IRUSA employee contacted me to discuss how the organization (including himself) claimed one thing to donors and did something else, which troubled him. He told me that IRUSA represented to donors that no more than 14% of their donations went to administrative expenses (note that at the time of writing, the Islamic Relief website listed the figure for Zakat as 12.5%). This employee was horrified to learn this was not in fact the case.
Towards the end of his tenure the former employee took an international trip to see the operations firsthand and was alarmed by what he saw. He explained that Islamic Relief receives many “in kind” donations from institutions, for example, packages of medical supplies. Islamic Relief would rather distribute the medical supplies to those in need but cannot charge administrative expenses against things that are not cash (sending boxes of medical supplies overseas is expensive and airlines can’t take payment in diapers). So, from this former employee’s estimation, the cash donor is paying far more than 14% right off the bat, likely more than twice as much, depending on how many “in kind” donations IRUSA takes in any given year.
All donations for international relief go to IRW in the United Kingdom, which has its separate administrative expenses IRUSA does not count. That money is then shipped off to the country where Islamic Relief has operations benefiting people in need. That is more overhead, which is then tacked on, again—something not disclosed to donors that is above and beyond the administrative “sticker price,” in this former employee’s view.
This former Islamic Relief employee had visited a refugee camp and was horrified to learn that a $65-dollar monthly donation he solicited from donors (which was earmarked as zakat) resulted only in $30 dollars for the orphan (effectively 54% in administrative and marketing costs). This IRUSA employee explained to me that he was instructed to tell donors that there was a 14% administrative cost (at the time) which, if true, means the orphan should have received about $56 dollars out of the $65 dollar donation. This was conscience-shocking to the former employee because he felt he was misleading donors and shorting actual orphans in poverty-stricken places. What’s going on here?
Looking at the Numbers
At the time, I did not investigate this discrepancy beyond bringing it up with one IRUSA Executive, who contradicted the claim about the orphan program but was otherwise unhelpful. I did not write about IRUSA then as I had other projects. However, I felt it was important to discuss Islamic Relief at some point, as it is one of the most popular places to donate zakat for many Muslims. Since I am doing a series on zakat-eligible organizations this Ramadan, this is the time.
From reviewing the organization’s latest available 990 (from 2019), even a cursory glance shows that a 14% or 12.5% administrative cost claim seems fanciful, at least if you look at it from a donor’s perspective, how much benefit comes from a donation to those in need. IRUSA, in its federal filing that year reported salaries of $13 million, other expenses of $15 million on revenue of $89 million, which is 31% (it’s about 40% when calculated based on donations). Fundraising expenses alone accounted for 15% while salaries about 15% (all numbers rounded). That IRUSA’s expenses claim of 12.5% does not add up based on figures they have provided themselves is obvious, and we are talking about only the US layer of expenses.
As part of my research for this article, I spoke with another far more helpful executive at IRUSA, who confirmed to me that what this former employee said was basically true (as to IRUSA’s structure and how costs are distributed), though with some quibbles.
The basic agreement from my discussions with the IRUSA executive is that publicized administrative expenses do not reflect the expenses of IRW or those of partner organizations that may be delivering relief. While IRW may not be excluding costs associated with its offices overseas, they won’t include the expenses of organizations with which they contract to deliver aid.
It is easy to see how donating to IRUSA, especially for international relief, is extremely expensive. How expensive though, I am not certain, though we have some indications. IRUSA has not broken this down either publicly or privately.
IRUSA’s website and its annual report “Partnership” frequently refers to what it describes as “its offices and programs overseas.” IRUSA is taking some poetic license in claiming this. IRUSA has no offices or programs outside the United States. Islamic Relief Worldwide (IRW), the UK based organization, does. This would not make too much of a difference if the organizations operated in a unified way and administrative costs for IRUSA and IRW were tallied together, but that is simply not the case. IRUSA gives IRW grants, indeed it was IRW’s largest contributor. According to a filing with the UK’s Charity Commission, IRW’s expenses are at about 13% (this is not as clear to me since the report is not as useful as a US 990). But just adding the costs together gets us from 44 to 53 cents on the dollar going to administration. While that is enormous, it is more than likely the overall costs are higher, since IRW does use partner organizations to distribute aid, and they will tack on overhead undisclosed to the donor.
The former IRUSA employees’ story about the orphan sponsorship seems like it may be close to the mark.
Value Add at IRUSA
An obvious question for some donors may be why donate to IRUSA at all if you can just as easily donate to IRW directly at substantially lower costs for the same international programs? The IRUSA representative explained to me that it is an US-based organization that has its own compliance and fundraising infrastructure. US laws governing donating to overseas operations can trip people up, even if donating to IRW for international relief.
This is valid. However, IRUSA would do a service to the Muslim community by fully disclosing to donors how they administer zakat funds (well all funds, but this note is mostly about zakat). Muslims have a choice where to donate zakat. If their dollars don’t go especially far with one organization, they may choose to donate to an organization where their charitable dollar goes further.
It is possible some donors would prefer to donate to the organization over the charitable cause itself, reasoning that having a strong Islamic Relief will benefit charitable giving over the long term perhaps. If that means paying what may appear to be superfluous overhead resulting in a smaller net benefit to the poor and needy from the donor’s dollar, is maybe worth it somehow, good for them. An appropriate disclosure of the organization’s model would be helpful for all donors.
What IRUSA uses Zakat For
I asked IRUSA for an internal policy on Zakat as well as any document where there is a policy concerning what salaries and overhead are considered “administrative” versus “programmatic” (especially for zakat). The IRUSA website does not contain this information from what I can tell. This is a well-known problem and why Charity Navigator will typically show small administrative and fundraising expenses for many charities (including IRUSA), deciding what to call “programs” and “administration” and “fundraising” is more an art than a science in the nonprofit world. Charity Watch, another non-profit rater, found IRUSA “not ratable.”
Unfortunately, I don’t know what standards IRUSA uses since the organization did not provide this. When I do, I will update this note. The distinction between what is administrative and what is a program can explain the discrepancy between the numbers I found in the 990 and the administrative expenses claimed by IRUSA. So, say for example, and I don’t know that they are doing this, IRUSA includes the cost of marketing for the orphan program and regular updates to the donor, including all the associated overhead as a “programmatic” expense eligible for Zakat, it is easy to understand how an orphan will end up with less than half while still maintaining only 12.5% in administrative expenses. In any event, donors should know this stuff.
IRUSA’s website is unclear on what expenses are valid from their perspective. From the IRUSA Website:
As discussed, the 12.5% expenses thing does not add up for me, since it looks more like 31-44%- though the 990 does not break down zakat vs. non-zakat expenses, so IRUSA could subsidize zakat expenses with non-zakat revenue in coming up with this number. It’s more likely the number is aspirational or programmatic vs. administrative accounting gimmickry.
Not all IRUSA’s spending is international relief. In 2019, about $2.7 million, or 3% of revenue was distributed domestically. Of this, $1.2 million was given in grants to other organizations (which have their own expenses) and the rest to individuals (presumably the intended beneficiary). So, for 1.7% of what IRUSA takes in, I was assured by the IRUSA executive I spoke with that any funds IRUSA raises for domestic distribution then distributes itself has the sticker price (12.5%) advertised. I cannot verify this.
Some Strange Results
IRW and IRUSA are not only not the same organization, but their priorities may also be different in meaningful ways.
IRUSA’s informational pages on programs can be different from IRW’s on the exact same subject.
IRW’s website (the UK organization) on Afghanistan, is a straightforward discussion of its various programs and services in Afghanistan, where the humanitarian situation is dire. Donors who want to donate to Afghanistan will learn specifics in a concise way, on what the organization does in that country. It’s simple and effective. If you are a donor who wants to help in Afghanistan and likes Islamic Relief, IRW’s website does not shake your confidence.
IRUSA’s website on Afghanistan mucks everything up with marketing copy chock full of red flags. The biggest problem with the description is that donors don’t really know or understand what they are donating to when they give to the “Afghanistan” campaign.
IRUSA has conflated the suffering people of Afghanistan with a group of people it calls “refugees.” This is the group of people who came to the United States after the fall of the US-backed puppet regime in August of 2021. Most of these individuals would not qualify as refugees under US Law. Rather, they have arrived under a “Special Immigrant Visa” for people who helped the failed US war effort. They could be translators, worked in government, but also, have worked as drug lords or members of CIA death squads. In any event, use of the term “refugee” is wrong here in many and likely most instances.
The fact is though that many Muslims from Afghanistan are arriving in the United States. It may be worthwhile for Muslims to want to donate things like prayer rugs, food, and the like to families in the Washington D.C. area. Not all SIV immigrants are war criminals, and even those who are can use prayer rugs. However, it is not clear why this work is conflated with helping genuinely starving families in Afghanistan who must deal with the ruins of those that left. A donor who is interested in one thing may not be interested in another. The two could easily be different programs as “refugee” (or more accurately SIV immigrant) assistance is a domestic program and not international. Indeed, IRUSA, in its USA page, cites its “Afghan Refugee” program using the exact same language it does for its “Afghanistan” page.
Is Google Zakat Eligible under “Administration of Zakat”?
Based on my discussion with their executive, IRUSA considers fundraising expenses as collection of zakat. This can include salaries and other overhead, including online pay per click (PPC) advertising and direct mail. According to IRUSA’s 990, the organization spent over one million dollars on google (1.2% of revenue), mostly for advertising on the internet such as web searches and places like YouTube.
I will address the use of search, YouTube, and display advertising as a Zakat collection cost in an upcoming newsletter note. This is an issue that concerns the entire Muslim Zakat collection sector and not just Islamic Relief.
I would like to see a written detailed zakat policy from the organization on what line items are appropriate for zakat and what is inappropriate. Unfortunately, the organization was unable to provide this, if any such document exists. Unfortunately, this is common. Organizations collect millions of dollars in Zakat from the community but don’t have any written policies on how the funds are handled, at least none they can share. In my view, this is inexcusable and an indicator of unseriousness. A few nonprofits have moved towards having well-thought-out Zakat policies (some I will be sharing in this newsletter). Islamic Relief should consider joining them.
Based on the claims made in IRUSA’s 990, it should be possible for the organization to learn how funds were spent and what the actual administrative expenses were across the board, including various grantees. They should do this and share the information with their donors.
My goal with these notes is not necessarily to help IRUSA or any charities become better, though I hope that happens. Rather, it is to help provide information to donors about charities so they can make informed decisions about organizations they donate to.
IRUSA is special since I don’t think there is a charity more popular among my clients (I am an Islamic Estate Planning Attorney), and I have drafted many living trusts and charitable trusts with Islamic Relief as the intended beneficiary and have had family members and many friends who were employees there. Until now though, I never investigated the organization in as detailed a way as I have for this note. While Islamic Relief’s mission, programs, and services as stated are laudable, and I am not doubting the “zakat eligibility” claim they make, both the high administrative and marketing costs and the dubious cost claim on Zakat made on their website gives me pause about IRUSA at this time.
Note: IRUSA posted a response confirming their overhead practices, as well as some other troubling information. You can see my response here.