America's Worst Charities

In wake of report, charities come under increased scrutiny

America's worst charities have come under renewed scrutiny following a series by the Tampa Bay Times and the Center for Investigative Reporting that ranked organizations based on how much they spent on professional solicitation companies over the past decade.

A leading watchdog group is reviewing its ratings of charities on the Times/CIR list, regulators in Florida are considering changes to the way they monitor nonprofits and experts are renewing calls to crack down on charities that spend little of the money they raise helping those in need.

"It's easy to stand by and shake our heads at all this shocking data and commentary and note that a few bad apples ruin the barrel of good fundraisers," said Roger Craver, a direct mail consultant who thinks the industry should blacklist bad actors. "We must demand more accountability when sloppy, unethical, and perhaps even illegal activity is involved."

The Times/CIR report was the result of a yearlong investigation that included the review of tens of thousands of pages of state and federal filings. CNN joined the reporting partnership in March.

Reporters identified America's 50 worst charities based on the money they diverted to for-profit solicitors over a decade.

Those charities collected more than $1.35 billion in donations and paid nearly $1 billion of that to telemarketers and direct mail companies, leaving a tiny fraction for those in need.

Reporters also pieced together public records from state and federal regulators to create the first national database of disciplinary actions against charities and solicitors.

Regulators in several states said they have begun using the database to screen organizations for violations that occurred outside their jurisdictions. That screening process led South Carolina to issue a notice of violation last month against Associated Community Services, a Michigan fundraiser that state officials said had failed to fully disclose enforcement actions in two other states.

The stories and databases yielded nearly 10 million page views on the Times, CIR and CNN websites, drew thousands of comments and were blogged about repeatedly by industry insiders. News outlets across the nation localized the stories, focusing on charities in their communities that had made the Times/CIR list.

A state representative in Pennsylvania cited the series when opposing a bill that would have protected nonprofits' property tax exemptions. And when the Direct Marketing Association's nonprofit section holds its semi-annual meeting in New York City this month, a panel will discuss how the trade association can address the kinds of unethical behavior cited in the Times/CIR series.

In the weeks after the series ran, donors across the nation directed angry phone calls and emails to many of the charities listed.

Some of the charities reported that organizations that had accepted their donated goods in the past refused further shipments. In Mesa, Ariz., professional boxers withdrew from a promotion on behalf of the Breast Cancer Society because of its ties to a network of five family-run charities with high fundraising costs.

Several charities on the Times/CIR list criticized the method used to identify the worst charities.

They seized on a growing movement in the nonprofit sector that argues against rating charities based on their overhead expenses.

Last month, the heads of three of the nation's largest charity watchdog organizations signed a letter urging donors to focus on a charity's performance, rather than its overhead costs, when deciding which groups to support.

"Focusing on overhead without considering other critical dimensions of a charity's financial and organization performance does more damage than good," said the letter, which was signed by the heads of Guidestar, Charity Navigator and the Better Business Bureau's Wise Giving Alliance.

However, officials with all three organizations said their letter was not intended to be a blank check of support for high fundraising expenses. Extremely high overhead ratios "can be a valid data point for rooting out fraud and poor financial management," they said.

Ken Berger signed the letter as president and chief executive of Charity Navigator. But he said he has concerns that ignoring overhead entirely will result in less accountability.

Charity Navigator is reviewing its ratings of several charities on the Times/CIR list.

"There were a number of charities that scored well in our system," Berger said. "And we wanted to review what the differences were and whether we wanted to change the system as a result."

In Florida, Republican state Rep. Mike Fasano said he was embarrassed to learn that the worst charity on the list was in his district.

Holiday-based Kids Wish Network raises money to grant the dying wishes of children. But of the nearly $128 million it collected over the past decade, almost $110 million went to pay for-profit solicitors, IRS records show. Fasano said he intends to meet over the summer with state officials to discuss legislation.

"To go after the bad guys, we might have to put restrictions on the legitimate nonprofits," Fasano said. "But we have to do something to weed these bad characters out."

One idea, Fasano said, would be to require criminal background checks for all workers soliciting for charity.

"We don't let people who have criminal backgrounds go near individuals in a nursing home," Fasano said. "We can expand that to those preying on donors, and we can expand that to all kinds of felonies."

Florida's Department of Agriculture and Consumer Services, which regulates charities in the state, has launched an internal review of its operations.

Adam Putnam, the state's agriculture commissioner, said his staff is reviewing statutes to identify "any places that may need to be strengthened or adjusted."

Putnam pointed out that Florida statutes do not address charities with high overhead costs or charities that fail to direct donations as promised.

Much of the information gathered by Florida regulators, including details about consumer complaints, is not available online, as it is in other states. Putnam said his office will consider putting additional information on its website.

South Carolina Secretary of State Mark Hammond said he wants state or national legislation that would establish guidelines for the valuations charities claim for donated goods.

"Some organizations are starting to make themselves look much more attractive by inflating in-kind donations," said Hammond, whose office is investigating a major supplier of in-kind goods in his state.

Response from charity regulators in other states has been mixed.

Many state regulators say there is little more they can do with their limited resources.

Charity regulators in New York and California — each home to five of the worst 50 charities — declined to comment on the stories.

Marcus Owens, a nonprofit lawyer in Washington, D.C., and former head of the IRS's tax-exempt division, called on legitimate charities to take a more aggressive role in weeding out bad actors.

For years, Owens has proposed creating a public/private entity to regulate charities on the federal level. He said the IRS has neither the funding nor the ability to respond quickly to abuses.

He said public outrage should be a wakeup call to well-run charities.

"They've got to realize their reputations are important. That's why people give them money, because they believe they'll do something wise and socially useful with the money," said Owens, whose firm does legal work for the Poynter Institute, which owns the Times. "Unless someone is policing that boundary between the bona fides and the frauds, everyone's reputation is going in the tank."

Kris Hundley can be reached at khundley@tampabay.com. Kendall Taggart can be reached at ktaggart@cironline.org.

In wake of report, charities come under increased scrutiny 07/04/13 [Last modified: Tuesday, July 9, 2013 6:14pm]

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