Human and Civil Rights : Advocacy and Education
During our analysis of both the FYE 12/2009 and 12/2010 Forms 990, we discovered that Operation Lookout reported joint cost allocations for program expenses that were greater than the charity's total program expense figure for each of the two years.
Charities utilizing this technique allocate a percentage of their solicitation costs to program expenses from fundraising expenses. We believe that donors are not generally aware of this accounting technique and we have therefore built the reversal of joint cost allocations into our methodology. When we reversed Operation Lookout's joint cost allocations, the result was a negative value for their programmatic spending.
Our analyst team contacted Operation Lookout to obtain an explanation for the negative program expense figure and received a response from the Co-founder/Treasurer stating that the former accountant most likely filed the two Forms 990 incorrectly. Operation Lookout also stated its new accountant was not compensated for his work in a timely manner, and subsequently did not provide his review or proposed amendments for the past 990s.
In addition, the charity reported that it has closed its main office in Everett, WA and plans to cease operations at the end of 2014. An examination of the organization's website by our analyst team, however, revealed that the charity is still soliciting donations, and it provides no indication of the closed office in Everette, WA, nor its plans to terminate operations in 2014.
On June 30, 2015, Operation Lookout provided the following response:
"OPERATION LOOKOUT did not set out to mislead the public concerning cost allocation (program vs. Fundraising). It has been the practice to allocate according to the IRS rules. OPERATION LOOKOUT uses a hands-off approach leaving it to the professionals. It is readily acknowledged that fundraising over the phone is a costly venture. As a cost-saving measure, OPERATION LOOKOUT always included a CALL TO ACTION (a programmatic element) with its citizen outreach. Citizens were phoned to support casework and to pin up or pass forward a missing children poster in states parents otherwise could not search in. OPERATION LOOKOUT remained faithful to its mission whether donations were enough or not.
The CPA hired in 2009 and 2010 to perform an audit and IRS 990, it was later learned, was very ill and heavily medicated. Once OPERATION LOOKOUT learned this long after the fact, an attempt was made to get the 'allocation' edited by the original CPA. A new highly respected CPA firm was hired to prepare a 2012 AUDIT and IRS 990 report. It was determined to be cost-prohibitive to revisit the work of the previous CPA.
Although there was no misreporting of the total income and expenditures, the question remained how much was program vs. how much was fundraising expense? A 2012 990 report and audit cost $12,000; add to that state registration fees ranging between $3,000 and $4,000. With the question of the cost allocation unanswered, OPERATION LOOKOUT closed its doors after 30 years; donations are no longer received. Third party contract companies accounted for every dollar on a daily basis with rules and regulations being respected. No board member, third party bookkeeping service provider or Certified Public Accountant would have permitted fraud to go unnoticed. There was no employment claim fraud. OPERATION LOOKOUT laid off its employees same as other nonprofits being hit by hard times. The third party accounting services provided a plethora of proof to the court--ignored by ESD as it mixed, mingled and mangled critical details....Factual proof and reports were ignored and treated as not presented creating a NO-WIN outcome with the Government.
Starting in 1984, the Gibson's considered OPERATION LOOKOUT a life-saving mission and 'calling' to desperate searching parents at a time when few agencies existed. OPERATION LOOKOUT closed at the end of 2014 due to the ill health of Mike Gibson, its founder, (68). Since 2010, Melody Gibson, (65) worked for Caring For Our Children Foundation, operating a thrift store (closed in 2012); CFOC currently produces nonprofit programs that benefit young people."
Operation Lookout has notified the IRS that they has ceased operations. For more information, see Operation Lookout's 2014 Form 990.
On October 27, 2014, the Washington Court of Appeals Divisions reported the Employment Security Department found that the directors and cofounders of Operation Lookout committed fraud in connection with their application for unemployment benefits. For this reason, we have issued a High Concern CN Advisory on Operation Lookout. For more information regarding the charges reported, please see the Washington Court of Appeals Divisions report.