INVESTIGATIVE BUSINESS JOURNALISM
Gary Cohn
Donald W. Reynolds National Center for Business Journalism
Arizona State University
Part 1: Nonprofits, Foundations and charities – investigative
techniques and tips
Case Study: “AARP’s Stealth Fees”
AARP, the organization formerly known as the American Association of Retired Persons,
is one of the most trusted institutions in America. Millions of Americans have joined
AARP on the belief that it would provide discounts, services and advice on the best and
most-affordable health, life and car insurance. My colleague, Darrell Preston, and I
discovered how AARP collects millions of dollars each year from insurance companies
who pay for AARP’s endorsement of their products. Our story, “AARP’s Stealth Fees,”
published in Bloomberg’s Market Magazine, also revealed that the insurance companies
build this cost into the premiums they charge AARP members. We also found that AARP
also holds client insurance premiums as long as a month and invests the money.
Our story was based on interviews with scores of people and public documents. In
today’s session, I will discuss how we reported this story – everything from the initial tip
through our use of public documents (including nonprofit tax returns and AARP’s own
consolidated financial statements) to the techniques we used to identify AARP members
to put a human face on our story. Many of the techniques we used in reporting the AARP
story can be used to scrutinize nonprofits, foundations and charities across the nation.
Nonprofit corporations, foundations and charities play a key role in our society. There is
a public perception that nonprofits are small organizations doing work on behalf of the
poor and underserved. While this is true to some extent, the reality is that nonprofits
include huge multi-million dollar organizations, giant hospitals, and huge private
universities. Many of these organizations are nonprofits only in name, and need to be
held accountable in the same way as government and big corporations.
Nonprofits are not required to pay taxes – Under tax laws, they can accumulate and keep
surpluses as long as they do not distribute them as stock or dividends. They can use the
surplus to run current and new businesses, pay big salaries, build huge office buildings
and for other purposes.
The good news for investigative business reporters – and the public – is that in return for
their special status, nonprofits are required in most cases to file and disclose tax returns.
These tax returns, known as Form 990s, are available from the Internal Revenue Service,
from the organization itself, from state agencies and in most cases are readily available
for free on the Internet, through an easy-to-use website, GuideStar, www.guidestar.org
There are many excellent sources for information about investigating nonprofits. One of
the best is the Investigative Reporters & Editors (IRE) handbook, which includes a
terrific chapter on investigating nonprofit and religious organizations. I strongly urge you
to get a copy of this handbook and carefully read the chapter on nonprofits. I find myself
going back to it over and over when I am working on a story involving a nonprofit,
charity or foundation.
You can also sign up for a free account with GuideStar and become familiar with its
website. It is invaluable tool for investigative business journalists.
The Form 990 –
Here are some tips for reading the Form 990s, as outlined in the IRE Handbook.
---- Review all sources of revenue – Determine what percentage comes from charitable
donations, what percentage from government contracts and grants and what percentages
from fees for services. The information is available on the first page of the Form 990.
---- Examine net assets – Take a look at whether the organization’s net assets at the end
of the year have diminished significantly from the beginning of the year. This is an
indication of how the organization is doing. If net assets are diminishing significantly,
this raises the possibility that the organization is either in financial trouble or that it is
shifting money to related organizations. The information about net assets is available on
the first page of the Form 990.
---- Review how the organization spends its money. If the organization claims to be
working on behalf of the poor and underserved, for example, see how much money the
organization is actually spending on such programs.
---- Review any and all business transactions involving insiders – The Form 990 will
detail business transactions between board members, their families and the nonprofit.
---- Review the salaries and benefits of the top officials and employees – Nonprofits are
required to list the salaries and benefits paid to their top officials and employees. Some
nonprofits pay their top people more than $1 million a year. The University of Southern
California’s highest paid employee was Pete Carroll, the football coach, who was paid
just under $4 million, according to the university’s Form 990 filing.
Other key documents and sources
In addition to carefully reading the Form 990s, many nonprofits make available
consolidated financial statements. In many cases, financial statements can be obtained
directly from the organization and in some instances are available on an organizations
website.
One hint: Make sure you read the footnotes in the consolidated financial statements.
Some of the most useful information is contained in the footnotes.
Human sources: In addition to scrutinizing the Form 990s and other public documents
for a nonprofit, it is extremely helpful to cultivate human sources – current and former
employees, members of an organization, board members, competitors and others. Human
sources can put the information in context, provide fairness and balance, and help lead to
other public records,
Conclusion: Reporting on nonprofit organizations can be a goldmine of excellent stories
for a business beat reporter – and can lead to bigger picture project stories. Reporter Gil
Gaul covered medical economics for years for the Philadelphia Inquirer. Many of his beat
stories dealt with nonprofit hospitals and nonprofit organizations such as the American
Red Cross. Gil’s beat coverage, and his continuing curiosity, eventually helped lead to his
Pulitzer-winning series about how the blood industry was operating with little regulation
or supervision. It also led to his Pulitzer-finalist series examining the rise and role of
nonprofits.
I spoke with Gil recently, and he said that coverage of nonprofits continues to be
underreported by news organizations despite the huge impact that nonprofits have on our
society and economy. He said that this presents a tremendous opportunity for journalists
interested in business and economics. And he stressed that scrutiny of nonprofits was
more important than ever.
“The fact is we continue to do a terrible job of covering nonprofits,” Gil told me. He
added, “Nonprofits are a huge part of the economy, one that needs to be held
accountable.”
PART 2: Investigating Private Companies
Getting information about private companies is more challenging than investigating
publicly-traded companies. The reason is that publicly-traded companies, those that trade
on the New York Stock Exchange or NASDAQ, are required to file numerous public
documents with the U.S. Securities and Exchange Commission. Privately-held companies
are not required to make similar disclosures.
Here are some tips for dealing with private companies:
---- Check civil court files. Lawsuits are often a great source of information about a
company. They often contain detailed information a company’s finances and practices,
and are a useful way to find human sources as well. At the Baltimore Sun, my colleague
Will Englund and I made extensive use of court records in our Pulitzer-winning series
The Shipbreakers, which documented the dangers to people and the environment when
old Navy warships are dismantled. In researching our stories, Will and I pored through
court records involving shipbreaking firms in dozens of cities where the firms were
operating. The court records helped us document how the industry had compiled a record
of deaths, accidents, mishandling of asbestos and environmental violations while
dismantling old ships at ports around the country. The records also led to dozens of
human sources, who then talked with us on the record.
--- Check criminal court records – Criminal investigations and prosecutions into private
companies and/or their executives can be a goldmine of public information. They can
also lead to human sources, including current and former company officials and
government investigators.
---- Check federal agencies. Numerous federal agencies are responsible for regulating
both public and private companies. They include the Occupational Safety and Health
Administration, the Consumer Product Safety Administration, the Environmental
Protection Agency, the Equal Employment Opportunity Commission, the Federal Trade
Commission and the Federal Election Commission. Much of the information collected by
these agencies is public record, and this is an extremely fruitful area for reporters seeking
information.
---- Make an all-out effort to obtain the investigative files of federal agencies through the
use of the Freedom of Information Act (FOIA). In many instances, the investigative files
of federal agencies are available once the agency has completed an investigation. When
Will Englund and I did our stories about the shipbreaking industry, we learned that
OSHA had conducted numerous investigations into fatal and serious accidents in which
private shipbreaking companies were involved. We filed Freedom of Information Act
requests for the complete investigative files, and were able to obtain them in every case in
which an investigation had been completed. The files were full of helpful and highly-
detailed information.
----- Don’t forget the human factor in making your FOIA requests. In filing our requests
with regional OSHA offices, we also followed up with a personal phone call to the
OSHA regional director, asking if he or she could expedite our request. In many cases,
this personal phone call helped speed up the FOIA process.
----- Check state and local agencies. In addition, numerous state and local agencies
require private businesses to file information, and some of these agencies conduct
investigations. They include state Attorney Generals’ offices, state Insurance
Departments and state and local consumer protection agencies. Much of the information
collected by these agencies is available under state open records laws. Become familiar
with the open records laws in your state. In addition, there are many public-spirited
people who work for these agencies who are willing to help reporters scrutinizing private
companies.
People – Current and former employees can be incredibly valuable in investigating
private companies. In addition to providing an inside account of how a company
operates, these human sources can often provide journalists valuable tips that lead to
public documents. If workers in a private company are members of a labor union, union
leaders can often provide valuable information about a company’s finances and practices
and can also help lead reporters to public records. Simple things, such as employee
newsletters and bulletin boards, can often provide valuable leads as well.
One additional thought: Be creative; be enterprising. Investigating private companies
isn’t easy. Unlike publicly-traded companies, private firms don’t have to file public
disclosure forms with the U.S Securities and Exchange Commission. So you should
expect a challenge. When Will Englund and I were investigating the private shipbreaking
companies dismantling old warships for the U.S. Navy, we knew it was crucial to
interview workers from these companies. Yet the owners of the firms were reluctant to
even allow us onto the company property. Without easy access to human sources or
public records, we were forced to be creative. So Will and I waited outside the company
gates in our cars, and simply followed the workers home when they left for the day.
That’s how we identified and found key sources for our stories. When we showed up,
many of the workers were willing, even eager, to talk with us. Sometimes, when you are
investigating private companies, you have to think like a private investigator.
Gary Cohn is an adjunct professor at the University of Southern California’s Annenberg
School of Journalism. He can be reached at garycohn@usc.edu or 310-699-5594.