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No accounting for $40 million in charity shipped overseas

GUATEMALA CITY — In 2010, one of Central America's poorest countries received huge shipments of humanitarian aid from an unlikely source.

That year Guatemala, where 20 percent of the population lives on less than $1 a day, got $40 million worth of free medicine and medical supplies.

It didn't come from the Red Cross or UNICEF or any other major international relief agency.

Instead, the donations came from 15 little-known U.S. charities, most of which have nothing to do with foreign aid.

Working through a middleman, the charities reported sending medical supplies that were worth more than three times what the U.S. government sent to Guatemala for health care needs that year.

Among the charities were diabetes and disabled veterans groups in Florida, a conservative political action group in Washington, D.C., and a Tennessee charity that touts its direct financial assistance to cancer patients.

Despite the substantial size of the donations, the Internal Revenue Service doesn't require charities to publicly disclose details about the shipments.

And no one — including the U.S. charities and the biggest recipient in Guatemala — was willing to be specific about where the medical supplies went or exactly who benefited.

Using these shipments as the focus, the Tampa Bay Times, The Center for Investigative Reporting and CNN tried to do something state regulators and the IRS rarely do — verify what charities actually send to the needy overseas.

Reporters reviewed hundreds of pages of IRS tax forms, shipping records and customs documents.

They also obtained documents from inside Charity Services International, the for-profit company that arranged the 2010 shipments to Guatemala on behalf of its charity clients.

Then they traveled throughout Guatemala to find out what happened to the donated supplies.

They found few clear answers.

The investigation shows how easily charities can take credit for good deeds abroad but how difficult it can be to track their impact on the ground.

Getting the goods

From a warehouse a half-hour south of Charlotte, N.C., Charity Services International has built a business around selling charity to charities.

The company lines up big quantities of donated goods, from medicines to coconut M&Ms. Then it finds nonprofits looking for a low-cost way to help people in need.

For a fee, Charity Services arranges everything, from finding the goods, to coordinating the shipping, to filling out paperwork required by a nonprofit's auditor and the IRS.

Company records obtained by CNN show that in 2010, Charity Services handled at least 50 shipments valued at almost $110 million. Guatemala was the most popular destination.

It is unclear how much the privately owned company made from the shipments, though fees reportedly run into tens of thousands of dollars. Charities are only required to report the names of their five highest paid vendors over $100,000 and Charity Services' fees are seldom among those publicly disclosed.

But Roy Tidwell, owner and president of the company, bought a million-dollar home outside Charlotte in 2010. Cliff Feldman, a consultant who helped him arrange the deals, was paid nearly $100,000 in commissions, according to internal company emails.

Tidwell said his company has about 50 clients who use what he described as its "logistics" services.

Among them is Kids Wish Network, a Tampa Bay area charity that grants wishes to terminally ill children. Earlier this year, the Times and CIR named Kids Wish the worst charity in America based on how much it spent paying professional solicitation companies over the past decade.

Records show that 15 Charity Services clients chose to ship goods to Guatemala in 2010. Though their missions varied widely, many shared a common problem: high overhead costs. More than half of them rely on expensive, professional telemarketers for donations. Five are on the Times/CIR list of the nation's worst, based on their high fundraising costs over the past decade.

For these charities, overseas donations can be a boon to balance sheets that contain huge fundraising expenses.

By paying a few thousand dollars for donated goods that are then valued at millions, charities look more efficient on paper.

Charity Services even touted this advantage on its website in 2010: "Reduce fundraising percentages by booking large gift values for a low service fee."

There's nothing wrong with claiming credit for donated goods, also known as gifts in kind. But industry watchdogs say they have become an easy way for charities to mask high expenses and overstate their good deeds.

With virtually no oversight, there is little to stop someone from vastly inflating the value of the goods.

In recent years, there have been several high profile cases in which charities were forced to admit the goods they shipped were worth millions less than what they claimed.

World Help, a major relief charity in Virginia, looked back last year at several years of donations and reduced the stated value by more than $300 million.

The company blamed inaccurate and insufficient paperwork generated by a consultant, Feldman, who was consulting for Charity Services at the time.

Feldman declined to comment on the matter.

Charity Services itself is under review by South Carolina charity regulators, who have subpoenaed documents related to the company's handling of donated goods.

Tidwell did not respond to questions about the state inquiry. But he did say it is not his company's job to figure out a shipment's value.

"Each charity has the responsibility to assign value to donations," Tidwell said.

Experts say it's not unusual for charities to exaggerate the value of gifts in kind.

About five years ago Craig Stevens' accounting firm in Rockville, Md., was auditing a charity that he suspected was inflating the value of its overseas donations.

"It was just absurd," said Stevens, who declined to identify the client. "They wanted to value it at something like $120 million and we were hard-pressed to say it was worth $2 million."

After Stevens' firm refused to sign off on the audit, it was fired by the charity.

"They found somebody else who approved it," Stevens said.

At the docks

There is no question that Charity Services International shipped goods to Guatemala on behalf of its charity clients in 2010.

Customs documents show that dozens of containers arrived bearing the names of several of the company's charity clients.

But figuring out exactly what was in the containers is impossible because no one checks, not even the charity that claims credit for the donated goods. They rely on inventory statements provided by Charity Services.

Even customs paperwork is little help. The biggest category of goods coming into Guatemala from U.S. charities in 2010, the documents show, was "medicamentos," a term covering everything from low-cost aspirin to expensive antibiotics.

Customs records also contained estimated shipment values that differed dramatically from the values U.S. charities reported to the IRS.

Charity Services' shipments, which totaled about $40 million on charities' IRS filings, were reported being worth $160,000 for customs purposes.

Charities and international shipping experts say such accounting discrepancies are not unusual for donated goods. Accounting rules allow charities to value donations at "fair market value" in their IRS filings, while customs fees are based on insurance, freight and the cost of the goods, which for donations can be zero.

Reporters asked each of the 15 charities involved in the $40 million shipments to provide inventories of what they shipped. The charities either did not respond or insisted they had sufficient documentation to support the values reported to the IRS.

But they declined to share it.

So last month reporters went searching in Guatemala for the biggest recipient of 2010 charitable donations through Charity Services International: the Sovereign Order of Malta.

The Order of Malta

The Order of Malta in Guatemala is part of an international organization that began in the 11th century as a religious order of the Catholic church.

Headquartered in Rome and operating in 54 countries, the group says its mission is to protect the faith and serve the poor.

In Guatemala, the Order was headed in the early 1980s by Roberto Alejos Arzu, a major sugar and coffee grower. At the time, Guatemala was ruled by a series of military-backed dictatorships and in the midst of a brutal civil war that left nearly a quarter-million people dead or "disappeared."

In a 1984 Washington Post story, Alejos Arzu said U.S. charitable donations to the Order were distributed through Guatemala's military in a "resettlement" program aimed at defeating leftist insurgents. Members were described as being "well-to-do businessmen, lawyers, doctors or others with such facilities as warehouses, trucks or planes at their disposal."

Today the Order's ambassador in Guatemala, its top-ranking official there, is Max Heurtematte Arias, a businessman who is related by marriage to the powerful Alejos family.

The Order's membership is not publicized and the group, which has tax-exempt status, is not required to file public financial reports.

Customs documents show the group received more than 700 shipments in 2010 and nearly 500 in 2011, mostly from U.S. charities.

Despite the flood of donations, the Order's activities are seldom mentioned in the press.

In a country with more than 3,000 aid organizations, veteran relief workers say it is impossible to keep up with everyone's activities. A half-dozen aid workers contacted by reporters said they had little familiarity with the Order's work and no knowledge of major shipments of medical supplies in 2010.

Carmen Gandarela, who works for a medical charity in Guatemala City, gasped when she was told of the size of the reported shipments organized by Charity Services International.

"Oh my God," said Gandarela, public relations manager for Helps International, "even a tiny fraction of that would have an enormous impact here."

Two likely beneficiaries of donations, the Ministry of Health and Guatemala's two major public hospitals, did not respond to requests for information about gifts from the Order of Malta. But there is little question about the need. Two years ago, the managers of Guatemala's biggest hospital declared a state of emergency because of a major supply shortage.

Gandarela, the Helps International employee, said the situation is no better today.

"Most of the time, they don't even have cotton balls or bandages," she said.

Following the trail

In early December, reporters began their search for the Order of Malta in Guatemala's capital, a city packed with more than 1 million people.

For a month before the visit, the ambassador, through his secretary, had rebuffed calls and emails seeking an interview.

In response to initial questions, Heurtematte sent a copy of the Order's international report, which did not mention activities in Guatemala.

Reporters first tried to find the Order at an address listed on its website.

It led to a run-down, four-story building in a commercial and industrial area.

According to one of the building managers, the Order had moved out five years ago.

Reporters then tried another address provided by one of the Order's secretaries. This one was across town in a business district that includes several embassies. There, on the eighth floor of a high-rise, a large crest for the Order of Malta was emblazoned on the wall outside an office.

Inside, however, reporters found the business office of a water company. A receptionist said the ambassador had his mail dropped off at that location, but did not work there.

Next stop for reporters was a warehouse outside Guatemala City that is also listed on the Order's website.

Forty-five minutes outside the city, a gate blocked the driveway. Signs advertised a sporting goods manufacturer and the Order of Malta.

But a property manager refused to let reporters pass.

Within minutes, Enrique Hegel, the Order's president in Guatemala, began emailing reporters short responses to questions that had been submitted several weeks earlier.

Hegel said the group received "two to three containers" from U.S. charities each month and that the donations are given to people "in need, sick or with low income."

He declined repeated interview requests and did not answer specific questions about who got the donated goods.

Later, reporters emailed the same questions to the Order's international headquarters in Rome. There was no response.

Reporters did reach one man who should have been able to give plenty of details about the $40 million in donated goods.

Roberto Gramajo was in charge of the Order's charitable programs in 2010. His name was on the form letters sent by Charity Services to the U.S. charities, thanking them for their help.

Gramajo left his volunteer position at the Order in late 2011 after a disagreement with his bosses.

He has since formed a new charity, Nuevo Amanecer or New Dawn.

CNN reporters interviewed him in December in a warehouse used by Nuevo Amanecer in Guatemala City. He was surrounded by boxes of medicines donated by U.S. charities. Most of the drugs, however, were expired.

Gramajo would speak only generally about the 2010 shipments, stressing that the Order had retained all the records.

Asked if the donations from 15 charities in a single year could possibly have been worth $40 million — twice what Guatemala got in U.S. aid after a 2005 hurricane — Gramajo simply shrugged.

"Es posible," he said in Spanish.

"I have never given any importance to this topic," Gramajo said through a translator, "because really what I am interested in is to have a way to help people."

CNN reporters Drew Griffin, David Fitzpatrick, Elizabeth M. Nunez and Romina Ruiz-Goiriena, and Times researcher Caryn Baird and computer-assisted reporting specialist Connie Humburg contributed to this report. Kendall Taggart can be reached at ktaggart@cironline.org. Kris Hundley can be reached at khundley@tampabay.com or (727) 892-2996.

CNN's report: Watch Anderson Cooper's AC360 at 8 p.m. Wednesday and Thursday to see CNN reporters try to track down $40 million worth of donated medical supplies in Guatemala.

No accounting for $40 million in charity shipped overseas 01/24/14 [Last modified: Saturday, January 25, 2014 11:32pm]

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