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The Worst Charities in a Nation of Givers

December 21, 2013 80 comments

American culture is unique when it comes to a belief in philanthropy. In the United States in 2012, total giving to charitable organizations was $316.23 billion (about 2% of GDP), which was an increase of 3.5% from 2011. As in previous years, the majority of that giving came from individuals (an average of 4.7% of their income — median contribution of $2,564, median income of $54,783). Specifically, individuals gave roughly $223 billion (72%); giving by bequest was $22.14 billion (7%); foundations gave $47.44 billion (15%); and corporations donated $18.97 billion (6%). Thirty-two percent of all donations went to religious organizations — much of these contributions can be attributed to people giving to their local place of worship. The next largest sector was education with 13% of all donations. [Source]

America’s middle class is far more generous than the upper classes: Households that earn $50,000 to $75,000 give an average of 7.6% of their discretionary income to charity, compared with an average of 4.2% for people who make $100,000 or more. Rich people who live in neighborhoods with many other wealthy people give a smaller share of their incomes to charity than rich people who live in more economically diverse communities.

Red states are more generous than blue states: The eight states where residents gave the highest share of income to charity vote for the Republican Party; the seven-lowest ranking states support the Democratic Party.

Religion has a big influence on giving patterns: Regions of the country that are deeply religious are more generous than those that are not. Two of the top nine states — Utah and Idaho — have high numbers of Mormon residents, who have a tradition of tithing at least 10% of their income to the church — the remaining states in the top nine are all in the Bible Belt.

When religious giving isn’t counted, the geography of giving is very different: Some states in the Northeast jump into the top 10 when secular gifts alone are counted; New York would vault from No. 18 to No. 2; and Pennsylvania would climb from No. 40 to No. 4.

The reasons for the discrepancies among states, cities, neighborhoods are rooted in part in each area’s political philosophy about the role of government versus charity. [Source]

CBS 11 News in North Texas interviewed Ken Berger, CEO and president of Charity Navigator, a website that claims to be a “national watchdog group that tracks and rates non-profit organizations.” However, if you take the time to review Part IX of a non-profit’s IRS form 990 (available for free at http://nccs.urban.org), you’ll see that Charity Navigator does not take into account the overhead when calculating the percentage of contributions that goes toward the cause (I wouldn’t be surprised if Charity Navigator is funded by the large non-profits to mislead donors, and the same goes for the other “charity watchdog,” Guidestar.org).

For example, according to Charity Navigator, the American Red Cross would apply $92 of every $100 to their mission (which is also what the Red Cross claims on their website and in press releases), but the exact opposite is true: only about $5 of every $100 goes toward the cause and the rest goes toward overhead (just check out Part IX of their IRS form 990s). Of the $3.2 billion the Red Cross received in contributions for 2011, 99% ($3.1 billion) was spent on salaries and other expenses, which left only 1% ($38 million) of contributions for the cause: helping victims of disaster relief. A private foundation is required by federal law to pay out five percent of the average market value of its net investment assets in order to avoid paying excise taxes, so the Red Cross used reserve funds to fulfill the required five percent payout ($174 million of the total $212 million that they awarded in grants in 2011 came from their endowment).

American Red Cross 2011 Total Revenue: $3.2 billion (including $56 million from the U.S. treasury, funded by taxing the income of citizens, etc.)

Revenue Paid Out in Grants for Its Cause: $212 million (1% of revenue plus 6% borrowed from reserves)

Revenue Spent on Salaries & Compensation: $1.7 billion (54.64% of revenue)

Revenue Spent on Other Expenses: $1.4 billion (44.17% of revenue)

Total Expenses: $3.3 billion ($174 million in the red)

Net Assets or Fund Balances at Year End: $1.6 billion

CEO’s salary: $591,122 plus $37,386 in “other compensation” per IRS Form 990 (Forbes reported her salary as $1,032,022)

1,359 employees receiving more than $100,000 in compensation

57 independent contractors receiving more than $100,000 in compensation

The Red Cross operated in the red in 2011 by $174 million (spending 6% more than revenue after paying administrative costs and salaries), which is why the figures above add up to more than a 100%. However, they are not broke – they ended the year with assets or fund balances of $1.6 billion. Plus, in 2011, they had a large endowment fund worth $828 million, securities worth $563 million, and land, buildings and equipment worth $1.1 billion.

On schedule I of their 990 form, the American Red Cross noted that they made disaster relief payments of $66 million in 2011 and “did not make specific financial assistance to any one individual during the fiscal year exceeding $5,000.”

http://www.redcross.org/images/MEDIA_CustomProductCatalog/m16540911_FY12_ARC_990_Filed_with_IRS.pdf

On their IRS 990 filing for 2011, the Red Cross listed the “reported compensation” for their president and CEO, Gail J. McGovern, as $591,122 plus $37,386 in “other compensation.” However, Forbes reported in 2010 that her pay at the Red Cross was $1,032,022.

Top Person: Gail J. McGovern
Top Pay: $1,032,022
Fiscal Year ending on 06/30/10

Gail J. McGovern joined the American Red Cross as president and CEO on April 8, 2008. Prior to joining the Red Cross, McGovern was a faculty member at the Harvard Business School and served as president of Fidelity Personal Investments, a unit of Fidelity Investments, responsible for half a trillion dollars of assets under management. She was also executive vice president for the Consumer Markets Division at AT&T, the $26 billion residential long-distance organization and largest business unit. She earned a Bachelor of Arts degree from Johns Hopkins University and an MBA from Columbia University, and has since been recognized as alumna of the year from both universities. McGovern is currently a member of the board of trustees of Johns Hopkins University and the board of directors of DTE Energy. In February 2013, she joined the board of directors of The Weather Company, which operates The Weather Channel, weather.com and other services. McGovern was recognized by Fortune magazine in 2000 and 2001 as one of the top 50 most powerful women in corporate America.

http://www.forbes.com/lists/2011/14/charities-11_American-National-Red-Cross_CH0013.html


In June 2013, CNN partnered with the Tampa Bay Times and the Center for Investigative Reporting to showcase the results of their year-long investigation to identify America’s worst charities.

The following are the five worst, according to the joint investigation:

No. 1. Kids Wish Network: In the past decade alone, Kids Wish has channeled nearly $110 million donated for sick children to its corporate fund-raisers. That makes it the worst charity in the nation, according to a Times/CIR review of charities that have steered the most money to professional solicitation companies over time. Kids Wish Network says it has helped make a positive difference for thousands of children.

No. 2. Cancer Fund of America: CFA raises millions yearly and sends 82% to its for-profit fund-raisers. Over the past decade, fund-raisers have collected $98 million in donations. Patients have gotten less than $1 million in direct cash aid over those 10 years, IRS records show. The group’s founder said, “We can only help others with the funds we net whether it be 90 or 20%.”

No. 3. Children’s Wish Foundation International: This group reported spending about $600,000 granting wishes to terminally ill children in 2010 and gave them donated goods valued at $3 million. It paid professional fund-raisers nearly $6 million for their services that year. Its founder said telemarketing has helped the charity find children in need of its help.

No. 4. American Breast Cancer Foundation: One of the most wasteful charities in the nation for 13 years, this group lured donors by promising to pay for breast cancer screenings. It now says it’s using community events to raise money. In its latest tax filing, the charity reported giving a total of $100,000 to five medical facilities to help pay for breast cancer screening services for low-income women.

No. 5. Firefighters Charitable Foundation: This group says it provides financial assistance to people who have been affected by a fire or disaster. From 2002 to 2011, it raised $64 million in donations and paid $55 million of that to its solicitors. The charity spent less than 10 cents of every dollar raised on direct financial assistance to those in need. The group said in 2007 that it planned to change. That hasn’t happened.

From the 2013 report, we learn the following (click here for full version of the report)…

The worst charity in America, Kids Wish Network, operates from a metal warehouse behind a gas station in Holiday, Florida:

Every year, Kids Wish Network raises millions of dollars in donations in the name of dying children and their families. Every year, it spends less than 3 cents on the dollar helping kids. Most of the rest gets diverted to enrich the charity’s operators and the for-profit companies Kids Wish hires to drum up donations.

In the past decade alone, Kids Wish has channeled nearly $110 million donated for sick children to its corporate solicitors. An additional $4.8 million has gone to pay the charity’s founder and his own consulting firms.

No charity in the nation has siphoned more money away from the needy over a longer period of time.

The year-long investigation by the Tampa Bay Times and the Center for Investigative Reporting found that Kids Wish is not an isolated case:

Using state and federal records, the Times and CIR identified nearly 6,000 charities that have chosen to pay for-profit companies to raise their donations. Then reporters took an unprecedented look back to zero in on the 50 worst – based on the money they diverted to boiler room operators and other solicitors over a decade (see the chart at the end of this blog post).

These nonprofits adopt popular causes or mimic well-known charity names that fool donors. Then they rake in cash, year after year.

The nation’s 50 worst charities have paid their solicitors nearly $1 billion over the past 10 years that could have gone to charitable works.

Until today, no one had tallied the cost of this parasitic segment of the nonprofit industry or traced the long history of its worst offenders.

Among the findings:

■ The 50 worst charities in America devote less than 4% of donations raised to direct cash aid. Some charities gave even less. Over a decade, one diabetes charity raised nearly $14 million and gave about $10,000 to patients. Six spent no cash at all on their cause.

■ Even as they plead for financial support, operators at many of the 50 worst charities have lied to donors about where their money goes, taken multiple salaries, secretly paid themselves consulting fees or arranged fund-raising contracts with friends. One cancer charity paid a company owned by the president’s son nearly $18 million over eight years to solicit funds. A medical charity paid its biggest research grant to its president’s own for-profit company.

■ Some nonprofits are little more than fronts for fund-raising companies, which bankroll their startup costs, lock them into exclusive contracts at exorbitant rates and even drive the charities into debt. Florida-based Project Cure has raised more than $65 million since 1998, but every year has wound up owing its fundraiser more than what was raised. According to its latest financial filing, the nonprofit is $3 million in debt.

■ To disguise the meager amount of money that reaches those in need, charities use accounting tricks and inflate the value of donated dollar-store cast-offs – snack cakes and air fresheners – that they give to dying cancer patients and homeless veterans.

The Tampa Bay Times and the Center for Investigative Reporting called or mailed certified letters to the leaders of Kids Wish Network and the 49 other charities that had paid the most to solicitors. Most declined to answer questions about their programs or would speak only through an attorney. Approached in person, one charity manager threatened to call the police and another refused to open the door. A third charity’s president took off in his truck at the sight of a reporter with a camera. Kids Wish has hired Melissa Schwartz, a crisis management specialist in New York City who previously worked for the federal government after the 2010 BP oil spill:

Schwartz said Kids Wish hires solicitors so its staff can focus on working with children, not on raising donations. According to its 2011 IRS filing, the charity has 51 employees. Schwartz also said donors who give directly to the charity instead of in response to solicitations ensure that 100% of their pledge will be spent granting wishes. She declined to answer additional questions about Kids Wish’s fund-raising operations, saying the charity “is focused on the future.”

Charity operators who would talk defended their work, saying raising money is expensive, especially in tough economic times:

“No parent has ever turned me down for assistance because we got our money from a telemarketer,” said David Thelen, who runs the Committee for Missing Children in Lawrenceville, Georgia. The charity is No. 13 on the Times/CIR list.

To identify America’s 50 worst charities (see the chart at the end of this blog post), the Tampa Bay Times and the Center for Investigative Reporting pieced together tens of thousands of pages of public records collected by the federal government and 36 states. Reporters started in California, Florida and New York, where regulators require charities to report results of individual fund-raising campaigns. The Times and CIR used those records to flag a specific kind of charity: those that pay for-profit corporations to raise the vast majority of their donations year in and year out:

The effort identified hundreds of charities that run donation drives across the country and regularly give their solicitors at least two-thirds of the take. Experts say good charities should spend about half that much – no more than 35 cents to raise a dollar.

For the worst charities, writing big checks to telemarketers isn’t an anomaly. It’s a way of life.

The Times and CIR charted each charity’s performance over the past decade and ranked them based on the total donations diverted to fundraisers, arriving at the 50 worst charities (see the chart at the end of this blog post). By this measure, Kids Wish tops the list.

Tracking donations diverted to fund-raising is just one way to rate a charity’s performance. But experts called the rating fair and said it would provide a unique resource to help donors avoid bad charities:

Doug White, one of the nation’s foremost experts on the ethics of charity fund-raising, dismisses the argument made by charities that without telemarketers they would have no money.

“When you weigh that in terms of values, of what the charity is supposed to be doing and what the donor is being told in the process, the house comes tumbling down,” said White, who teaches in Columbia University’s fund-raising management master’s degree program.

Collectively, the 50 worst charities raised more than $1.3 billion over the past decade and paid nearly $1 billion of that directly to the companies that raise their donations.

If that money had gone to charity, it would have been enough to build 20,000 Habitat for Humanity homes, buy 7 million wheelchairs, or pay for mammograms for nearly 10 million uninsured women.

Instead it funded charities like Youth Development Fund.

The Youth Development Fund, which came in at No. 12, has been around for 30 years. Over the past decade it has raised nearly $30 million from donors by promising to educate children about drug abuse, health and fitness. About 80% of what’s donated each year goes directly to solicitation companies. Most of what’s left pays for one thing: scuba-diving videos starring the charity’s founder and president, Rick Bowen:

Bowen’s charity pays his own for-profit production company about $200,000 a year to make the videos. Then the charity pays to air Rick Bowen Deep-Sea Diving on a local Knoxville station. The program makes no mention of Youth Development Fund.

In its IRS tax filings, the charity reports that its programming reaches “an estimated audience of 1.3 million.” But, according to the station manager, the show attracts about 3,600 viewers a week.

Bowen, who runs the charity out of his Knoxville, Tennessee, condo, declined to be interviewed. He defended the practice of hiring his own company with the public’s donations.

“We just happened to be the low bidder,” he said.

America’s worst charities look nothing like Habitat for Humanity, Boys and Girls Clubs, or thousands of other charities that are dedicated to helping the sick and needy. Well-run charities rely on their own staff to raise money from a variety of sources. They spend most of their donations on easy-to-verify activities, whether it’s running soup kitchens, supporting cancer research, raising awareness about drunken driving, or building homes for veterans.

The Tampa Bay Times and the Center for Investigative Reporting list of worst charities, meanwhile, is littered with organizations that exhibit red flags for fraud, waste and mismanagement:

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