August 17, 2023
The financial expenditures of a non-profit organization is a health barometer and helpful insight to the many components they actualize, measured up against their mission statement.
The Counter Trafficking Alliance (CTA) research team were self-assigned to collect, dissect, review, and validate all resources and data in order to answer one question:
How are funds allocated to support Polaris, and most importantly, are the funds appropriately addressing services created to assist and ensure the safety of trafficking victims?
The Polaris 990 Tax Returns
To confirm the credibility of any organization and its commitment to its mission, the best place to begin is the organization’s tax returns. We examined Polaris federal tax records year by year to detect a pattern to how these financial expenditures help trafficking victims or programs directly.
These returns are publicly made available through the Polaris website, alongside access through the IRS. Surprisingly, copies of Polaris’ tax records were only available up to the 2020 tax year, until recently in 2023 the 2021 tax returns were finally made available. For forms we could not locate we utilized ProPublica, a site that catalogs non-profit tax returns. After thoroughly reviewing the returns, we detected several concerning and questionable areas in the tax forms. Those sections are: Salaries, operational expenses, single donor contributions, funded programs, and miscellaneous discrepancies.
Total Revenue Breakdown
Below are are depictions of Total Revenue for the last five years. This information is broken down on the “Statement of Revenue” within the 990 tax form. (Part VIII)
For ‘Program Service Revenue’ being 0 for both 2020 & 2021 we’d like to notate it could have been due to COVID-19 lockdowns. Based on these depictions, Polaris Project receives a majority of their revenue from “other contributions”, though they arent required to expand on what exactly that entails.
Corporate Partnerships
Indicated in their 2019 Annual Report, Polaris receives much support from corporate partnerships. These can be valued at cash value and/or by pro bono services. Below is a table illustrating such partnerships and their rating based on level of support.
Given these partnerships, it becomes a daunting task to reconcile what category of revenue this belongs under. We would consider this to be “Noncash Contributions”, a category within “Total Revenue”. However, 990 filings over the years do not seem to reflect this transparently.
For example, in 2017 Polaris Project announced their partnership with Delta Airlines. Along with a $1 million donation, Delta also opened the opportunity for their customers to donate their SkyMiles via their SkyWish Program.
Helpful insights could include their continual partnerships value amount, annually. Most importantly, transparency offered to how these services help victims and survivors directly would be ideal.
A quick 990 ‘Functional Expenses’ understanding
We will be reviewing several parts of Polaris Project’s 990 forms, however, in doing so let’s just take a moment to understand the meaning behind ‘Functional Expenses’ (Part IX).
Functional Expenses is a bird’s eye view one would make to know how an organization allocates their money to accomplish their said mission. Those allocations would be put towards whatever functions (may it be rent, salaries, overhead, etc.) that make an organization functional towards that mission.
The three types of ‘functions’
There are three categories of functional expenses.
Program service expenses This can be thought of as ‘charity’. Costs and expenses that are associated with any programs or services that contribute towards fulfilling that organization’s declared charitable mission. A portion of one expense can be categorized under this, such as salaries, materials, advertising, travel, etc.
Management and general expenses You can think of this categorical expense as ‘overhead’. Costs and expenses that contribute towards functions and operations of the organization but, are not necessarily directly contributive towards the organization’s mission. Some examples that could file under this category are items like office supplies, office utilities, salaries, or office rent, etc.
Fundraising expenses These are costs and expenses that are directly related to the organization raising money. Some examples of this expense can be event costs, advertising, salaries, etc.
Understanding these three categories of functional expenses will be valuable as we progress through this review.
How much Polaris claims to spend on charity
An investigation by Counter Trafficking Alliance found that Polaris Project claims to have spent approximately $60,230,125, or on average, 76¢ on the dollar to program services (charitable programs and services) in the last eight years (2014-2021), and on average 79¢ on the dollar for all 19 years in operation.
As a reminder the mission of Polaris Project is stated on their website, “…Since 2007, Polaris has operated the U.S. National Human Trafficking Hotline, connecting victims and survivors to support and services, and helping communities hold traffickers accountable...”
With this being reminded, we would expect the average 76¢ on the dollar to do just that, connect victims and survivors to support services, as well as help communities hold traffickers accountable.
We just explored through some testimonies and grievances that would illustrate otherwise. At least some survivors and aftercare professionals are not getting the sufficient resources they call in for. Also illustrated in our introduction, from what we can observe of the bipartisan Attorney General’s letter to congressional leadership, there are tangible concerns with crime tips not being shared with law enforcement in at least 36 states (36 Attorneys General signatures) that would be vital to human trafficking investigations.
The other portion of their Program Services is the data repository and reporting. Keep in mind that this would include salaries and compensation, however, if there is at least some evidence of their measures failing, and the need for it to require the eyes of congressional leadership, our question ensues how exactly their average 76¢ on the dollar achieves their mission?
If we want to end sex trafficking, we have to make sure that people have the things they need – money, love, safety, hope – so they do not have missing pieces in their lives. Because if there is a missing piece in a person’s life a trafficker will promise to fill it.
Polaris Project
Salaries
Executive compensation totaled out to $4,653,283 for the last eight years (2014-2021), $4,435,377 of that total compensation is seen between 2018 and 2021 (a spike). Odd that it would spike during the COVID ladened years, where donations and charity received plummeted.
According to their tax returns, C-level executives were compensated surprisingly well. For instance, the graph below highlights Bradley Myles, the former Polaris CEO, from 2010 to 2019, and his compensation over the course of his tenure. He received significant bumps in his pay each year, 2018 being his highest ever.
Though this steady trend raises questions regarding pay, what is more imperative is whether Bradley Myles’ leadership and the state of the organization justified his increase each year?
While we have no way of knowing official reasons for the steep raise, we can reference a year 2018 overview and see that year was in the red once again. What organization would authorize a pay raise during a deficit?
The trajectory continues. Proceeded by Catherine Chen, who became the CEO & Executive Director in 2020, she also continued this trend of an ascending salary.
2021, Chen received a salary increase of over 40k.
Let’s step back to understand salaries, wages, and other expenses within the Functional Expenses to put this in more perspective.
Knowing that salaries, wages, and benefits can be categorized three different functional ways (program services, management and general expenses, and fundraising expenses), our curiosity lead us to look at these salaries and wages in proportion to the absolute total amount of all functional expenses, despite category.
Here is a visual example of how we will target these figures.
With this example, we translated this inquiry for the last five years. Out of all functional expenses, on average, nearly 8% went to ‘Executive compensation’, 47% went to ‘Other salaries and wages’, 1% went to ‘Pension contributions’, 11% went to ‘Other employee benefits’, 5% went to ‘payroll taxes’, and 32% went to Remaining expenses. Less than 1% went to Grants whether foreign or domestic.
Recalling 2018 being a deficit year, notice Polaris spent nearly half of all expenses on employee compensation.
Organizational financial health
Let’s look at the organization’s performance over the years and the health of its financial statements.
In the graph below, the ‘Total Revenue’ documented in Polaris’ tax returns since its inception is illustrated, along with its Functional Expenses and Net Income. Nonprofits, such as Polaris, rely primarily on public donations to generate revenue, and secondarily, rely on grants to supplement other areas of the organization, primarily to support program services. Generally, an organization that is financially solvent would have a positive Total Revenue and Net Income. When Net Income is negative or the margin is relatively small, it signifies that the organization’s functional expenses are either too high or the revenue margin is not wide enough to offset the functional expense.
For instance, in 2013 Polaris’ total revenue was $5,647,686 and their functional expenses were $6,450,639. As a result, their net income was negative. Despite being in the red, CEO of that year, Bradley Myles actually increased in salary compared to 2012. This type of volatile performance raises questions over the health of this nonprofit, especially with its exuberant executive salaries
Operational & Program Expenses
Aside from the salaries and inconsistent profit margins, Polaris has mentioned repeatedly in their mission statement, that it is known for two things: The National Human Trafficking Hotline, and their data analytics. Below are reported program expenses. The program expenses lack intricate clarity, as the explanations, if offered, are vague.
There are various program service break-downs in the “Statement of Program Service Accomplishments” in some federal tax documents’ various years. This statement describes the organization’s program service accomplishments for each of its three largest program services, as measured by expenses. For this example, we are going to look at tax year 2020.
990 Tax Return 2020
For 2020 Polaris listed on line 4a, $969,813 for “Learning, Innovations and Data Systems”, which we assume correlates to their “Data Driven Movement”, as stated in their 2020 Annual Report.
The listing for line 4b has a $4,848,627 expense for the National Human Trafficking Hotline. Something worth noting are their mentioned contributors and collaborators. It is indicated that the National Human Trafficking hotline, that is promoted as the go-to resource for trafficking victims, had some funding from the U.S. Department of Health and Human Services, Office On Trafficking In Persons, and The Texas State Governor’s Office.
Finally in section 4c, there lists a mission focus on labor trafficking at an expense of $1,235,519.
Curious Discrepancies
Upon our analysis, some observations grew curious as we identified a few differences between their publicized 2020 Annual Report and their 990 federal tax filing.
In one instance, we see that their annual report details that they reported $8,903,741 in Total Revenue for the year 2020, including contributions and grants, program service revenue, and investment income. On their annual report, it details that they had a total revenue of $15,999,766. A simple question: Why the major difference?
Recounting a few sections above, we reviewed a ‘Total Revenue’ breakdown and covered our curiosity with Corporate Partnerships. As we’ve pointed out the Total Revenue discrepancy above, between the actual 2020 990 tax filing and the 2020 Polaris Annual Report (left image), we want to direct your eyes to a line item, ‘Pro-Bono Services’. It seems to be a significant figure, $6,576,282, indicated in their revenue summary however, it is not clear if this portion is accounted for within any of the official ‘Total Revenue’ categories within the actual 990 filing for 2020.
When we take a look at the “Statement of Revenue” within the 2020 tax forms, we do not see a value connected to the ‘pro-bono- amount.
The same discrepancy inquiry applies with the Total Expenses, $13,135,393 is reported in the 990 tax form, while $19,204,980 is detailed on the 2020 Polaris Annual Report.
Worth pointing out: There is a crossed out “2020” on the front of the 990 form, with an ‘x’ and ’21’ overriding the year. As you can see notated on Part A, it notates the tax filing year for 2020. This was the 990 made available on the Polaris website.
We would like to indicate that at the bottom of this financial summary notates that the financials “are pending audit completion and Board approval.” Since 2020, no other amended federal tax forms can be found.
We will take a look at another example of some possibly deceptive reporting out to the public. In 2012, Polaris published a ten-year retrospective look at the growth of their organization.
Reporting on historical finances, Polaris listed out the latest decade’s worth of revenue and expenses. The figures reported out for 2004 were not accurate.
As you can see, the original tax filing for 2004 reported Total Revenue at $465,215 and Total Expenses at $181,156. Polaris amended this filing in October of 2006. The amended Total Revenue was updated to $204,452 for 2004, and Total Expenses amended to $189,778. The ten year retrospective was published many years since the amended filings, to which it still published the original revenue and expenses figures, rather than the amended ones.
Stay on mission…
On top of Polaris Project’s mission to connect victims and survivors to resources, the other side of their mission statement highlights their faculty of data that consists of what is documented from calls to their hotline.
“…Through that work, Polaris has built the largest known dataset on human trafficking in North America. The data and expertise gained from two decades of working on trafficking situations in real time informs strategies that hold traffickers accountable, support survivors on their healing journeys and address the vulnerabilities that enable the business of stealing freedom for profit.”
Polaris Project About Us Section
We have mentioned the concern with crime tips not being properly shared with law enforcement. There are also criticisms that loom around the quality of data that Polaris reports. We will explore this more within the ‘Data Repository’ section of this organizational profile.
These financial expenditures are only an emphasis within Polaris Project’s Key Performance Indicators. Our analysis seems to only scratch the surface on many questions that could be asked in regards to how these expenditures positively impact victims and survivors of human trafficking. Can some unexplained inconsistencies be a somewhat of an answer to so many grievances, both internally and externally?