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A Times Investigation with CIR and CNN
America's Worst Charities

Intricate family connections bind several of America's worst charities

 

Carol Smith still gets angry when she remembers the box that arrived by mail for her dying husband.

Cancer Fund of America sent it when he was diagnosed with lung cancer six years ago. Smith had called the charity for help.

"It was filled with paper plates, cups, napkins and kids' toys," the 67-year-old Knoxville, Tenn., resident said. "My husband looked like somebody slapped him in the face.

"I just threw it in the trash."

Over the past decade, tens of thousands of people have donated nearly $100 million to Cancer Fund of America. In telephone calls and letters, the Tennessee-based charity touts the direct financial aid it gives to people like the Smiths.

But the real beneficiaries are not dying cancer patients and the families who have gone broke trying to save them.

While Cancer Fund provides care packages that contain shampoo and toothbrushes, the people in charge have personally made millions of dollars and used donations as venture capital to build a charity empire. Less than 2 cents of every dollar raised has gone to direct cash aid for patients or families, records show.

For years, Cancer Fund founder James T. Reynolds Sr. and his family have obscured that fact with accounting tricks, deceptive marketing campaigns and lies, the Tampa Bay Times and The Center for Investigative Reporting have found.

Stories about ripping people off in the name of a cause are as old as the concept of charity itself.

But the Reynolds family is something different.

After spending nearly 20 years building Cancer Fund, the family began spinning off new cancer charities, each with a similar mission and a relative or close associate in control.

The family has founded five cancer charities that pay executive salaries to nearly a dozen relatives.

During a yearlong investigation, the Times and CIR identified America's 50 worst charities based on the money they divert from the needy by paying professional solicitation companies.

At least a dozen of these operators have built networks of multiple charities, some with interlocking boards or family connections.

They include multimillion dollar operations in Florida, Louisiana and Pennsylvania.

None are more brazen and incestuous than the Reynolds network.

To track the family connections, the Times and CIR reviewed thousands of pages of financial records and investigative documents from regulators in eight states, interviewed vendors and recipients and traced donations from the phone banks to their ultimate destination.

In the past three years alone, Cancer Fund and its associated charities raised $110 million. The charities paid more than $75 million of that to solicitors. Cancer Fund ranks second on the Times/CIR list of America's worst charities. (Florida's Kids Wish Network placed first.)

Salaries in 2011 topped $8 million — 13 times more than patients received in cash. Nearly $1 million went to Reynolds family members.

The network's programs are overstated at best. Some have been fabricated.

"Urgent pain medication" supposedly provided to critically ill cancer patients amounted to nothing more than over-the-counter ibuprofen, regulators determined. A program to drive patients to chemotherapy, touted by the charity in mailings, didn't even exist.

One Reynolds family charity, Breast Cancer Society, told the IRS it shipped $36 million worth of medical supplies overseas in 2011. But the two companies named as suppliers of the donated goods said they have no record of dealing with the group.

Over the past 20 years, Cancer Fund has run afoul of regulators in at least six states, paying more than $525,000 to settle charges that include lying to donors. It hasn't slowed the network.

The fines amount to about one-third of one percent of the $177 million raised by Cancer Fund of America over the same period.

Since 2002, Cancer Fund has benefitted from a separate charity that claims to help patients but is nothing more than a boiler room operation. Hundreds of callers solicit donations, then send the cash to Cancer Fund to make its fundraising costs look lower.

Over the past several months, the Times and CIR repeatedly asked to interview Reynolds family members. Charity officials turned reporters away at one office in Knoxville. Approached by a reporter, Reynolds' son drove off in a black pickup truck while flashing an obscene gesture.

Reynolds Sr. spoke briefly and asked that questions be submitted in writing.

"I've been in this 42 years and I've learned you don't do hardly anything with the media unless you run it through the attorneys," Reynolds Sr. said.

In emails, the charities defended their programs.

Kristina Hixson is spokeswoman for Breast Cancer Society and married to its president, James Reynolds Jr.

"We have made a difference in the lives of tens of thousands of men and women," she said.

Carol Smith was one of those. After her husband's bout with cancer, she was diagnosed with breast cancer. Smith knew Reynolds' daughter, who arranged for Smith to receive an unusually large grant — $150 a month for a year — from the Breast Cancer Society.

Smith said she is grateful. But she said it's wrong for charity operators to profit if the sick and dying get so little in comparison.

"You don't make six-figures a year off somebody's misery," Smith said.

Building the prototype

Jim Reynolds Sr. is a former Army medic with no college degree who worked his way up to lead the Knox County, Tenn., chapter of the prestigious American Cancer Society.

In 1984, after eight years with the charity, his boss told him to resign or be fired.

The organization accused Reynolds of sloppy bookkeeping, irregular hours and taking title to a 1968 Mustang meant to be auctioned for the charity.

After resigning, Reynolds started his own charity. He eventually settled on the name Cancer Fund of America, mimicking American Cancer Society. He even rented a mail drop that shared a similar Atlanta address.

Then he sent volunteers door-to-door soliciting donations at about the same time as the American Cancer Society's neighborhood fund drive.

Officials at American Cancer Society in Tennessee complained to reporters at the time that Reynolds was confusing donors and draining money that might otherwise have gone to their charity.

Reynolds also turned to for-profit solicitation companies to drum up donations.

In its first year, Cancer Fund of America raised $7.7 million. Half went to its hired-gun fundraisers. Less than a dime of every dollar was spent on patient assistance, which took the form of supplies as well as cash grants.

As Cancer Fund grew, its solicitors continued to tell the public that their donations would be used to provide "direct aid" to cancer victims. But that seldom meant paying patients' medical bills.

Instead, Reynolds convinced businesses to donate everything from overruns on underwear to surplus screwdrivers. At his warehouse, the goods were repackaged and sent for free to individuals and other nonprofits throughout the eastern United States.

All Reynolds had to do was pay shipping costs — about $600,000 a year — and the rest of the millions raised for Cancer Fund could be spent paying his professional fundraisers and salaries for his extended family.

The IRS no longer requires charities to report salaries of employees who make less than $100,000 a year. But records from 2007, before the change, show a son, step-son, sister-in-law and son-in-law each made more than $75,000.

At the time, Cancer Fund also was making payments on six new cars, all Kias, for employees. The total cost for the cars peaked in 2007 at $40,000.

Today, at age 70, Reynolds pays himself $237,000 a year and still has at least three family members on Cancer Fund's staff. He owns a half-million-dollar home on Cherokee Lake, about an hour outside Knoxville.

Cancer Fund's tally over the past decade: Family members nearly $5 million. Cancer patients $890,000.

The biggest winners were the fundraising companies. They earned more than 80 cents of every dollar donated for a total of $80.4 million.

A family affair

Reynolds' original formula was so successful that family members began to replicate it.

Today there's Cancer Support Services, Children's Cancer Fund of America, Breast Cancer Society and American Association for Cancer Support, each run by a family member or close business associate.

The Reynolds charities also swap board members, with directors playing musical chairs on the various boards, sometimes serving on two at once. In several cases, an officer at one charity has a spouse on the board of another.

Reynolds' estranged wife, Rose Perkins, makes $227,000 as head of Children's Cancer Fund of America, about 15 minutes from Cancer Fund in the Knoxville suburb of Powell. She has hired a son-in-law to do her charity's computer work.

Reynolds' son James, head of Breast Cancer Society, earned six-figure salaries from two family charities in 2008. According to IRS filings, Reynolds Jr. worked 45 hours a week for his father's charity in Tennessee while simultaneously putting in a 40-hour week at the breast cancer group in Arizona. He took home a combined $262,000 that year. In 2011, his total compensation was nearly $300,000.

Reynolds Sr. says he has no control over his relatives' charity operations.

"Everyone thinks it's Jim Reynolds' mini-empire," he said. "I have nothing to do with these other organizations."

But over the years, Cancer Fund has helped the new ventures with start-up capital. Instead of giving grants to existing organizations, Reynolds family members started their own charities and Cancer Fund gave them money.

Three of the spinoffs were launched with nearly $700,000 from Cancer Fund, according to IRS tax filings.

Reynolds Sr.'s charity also paid the Breast Cancer group $100,000 in 2008 to do telemarketing, IRS records show.

When Perkins' daughter-in-law, Jula Connatser, launched her charity in 2011, Cancer Fund gave her donated medical supplies and personal care items valued at $20,000 to pass along to patients. Connatser said her charity aims "to relieve the financial burden of cancer patients."

The goal is nearly identical to that espoused by Reynolds Sr. when he started 30 years ago. But Connatser, who worked at Cancer Fund for four years before striking out on her own, promises to be different.

Of Cancer Fund she says, "Oh, they don't give out money, honey."

Interviewed recently in her Knoxville office, Connatser was busy repackaging stacks of donated DVDs — including Land of the Lost and Mamma Mia — to ship to cancer patients around the country.

"They don't get to go to movies," she explained.

Disputed works

With little money making it to cancer patients, this is what passes for charity at Cancer Fund of America and the other charities run by Reynolds family members:

Vitamins and vinyl gloves.

Toothpaste and teddy bears.

Every year, truckloads of the stuff make their way across the country, boxed up in care packages for patients or for other charities that get the items to sick people.

In annual IRS tax filings, the charities list dozens of recipient hospices and service agencies across the country.

Many are thankful to get any help at all. But some of the recipients questioned the value Cancer Fund assigned to their donations.

In 2011 tax filings, Cancer Fund reported that it gave donated items worth $14,000 to Farragut Church of Christ in Knoxville. The boxes were filled with supplies for a mission trip to Ghana.

"The most I ever got was two cardboard boxes of stuff," said David Gentry, the foreign mission leader at Farragut Church. "I walk through the Cancer Fund warehouse and pick up children's cold medicine and toothbrushes and floss. It ain't a big item."

Several groups that Cancer Fund reported as recipients say they got nothing.

In 2011, Cancer Fund told the IRS it gave $20,000 of goods to the Martin-Tyrrell-Washington District Health Department in Plymouth, N.C.

"I have double checked with some of the staff and no one has ever heard of the Cancer Fund of America, nor have we ever received any supplies or donations from any group with 'cancer' in its name," the agency's health director, Kathleen DeVore Jones, wrote in an email. "And, by the way, we could sure use some donations!"

Cancer Fund officials said they have documentation of all shipments but declined to provide it.

Overseas donations

It's even harder to track donated items when they are shipped overseas to be given out in developing nations.

Charities pay pennies on the dollar to procure these goods from third-party suppliers and then pay shipping costs. Several charities can claim credit for the same shipment of goods.

These arrangements are permitted under IRS rules. But they have been criticized by nonprofit experts who say the donations artificially inflate a charity's balance sheet.

Although the donations are never physically held by the charity, they report their value as income, boosting revenues. That makes it look like charities spend more on programs and less on fundraising.

The added income can also make it easier to justify higher salaries.

The Reynolds family charities appear on paper to be generous providers of donated drugs and medical supplies to groups overseas.

In 2011 alone, five Reynolds charities claimed shipments valued at nearly $61 million to Africa and Central America.

Charities are not required to report publicly the names of the suppliers that procure the items on their behalf or the specific recipients overseas. That usually makes it impossible to verify the shipments or their value.

In July 2012, the Times and CIR tried to track a shipment of medical supplies to the Order of Malta in Guatemala.

When a reporter arrived at the medical clinic featured in a picture on Cancer Fund's website, she was turned away by an armed guard.

Reached by phone, an Order of Malta official declined to answer questions about medical shipments.

In 2011, Breast Cancer Society reported in a public financial filing that all its donated medical supplies, valued at more than $36 million, came from two sources, World Help in Virginia and Containers of Hope in Canada.

But both suppliers told reporters they had no record of providing goods to Breast Cancer Society or shipping them overseas on its behalf.

A spokeswoman for Containers of Hope wrote that she "had not done business with The Breast Cancer Society in many years."

A spokesman for World Help said in an email, "We cannot correlate The Breast Cancer Society records with the records we have on file."

Breast Cancer Society officials initially said the charity had "ample documentation" to prove it sponsored the shipments.

In late April, World Help revealed that it had overstated the value of goods it shipped for many of its charity clients. In a revised audit, World Help reduced the value of its 2011 shipments from $227 million to $5 million.

Afterward, Breast Cancer Society's spokeswoman said the charity had "fallen victim" to World Help's errors and was reviewing all its overseas donations.

A better way

The Reynolds family charities have little in common with the hundreds of thousands of nonprofits that operate in the United States.

Only about 6,000 charities hire for-profit fundraisers, IRS records show. And only a few hundred rely on them for the majority of their income.

The rest raise money with their own staff by holding fundraising events, seeking sponsorships or running programs that generate income to support themselves.

According to experts, good charities have independent boards that make sure money gets spent on a charity's cause. Boards filled with a charity founders' family members and close associates raise red flags. So do charities that pay salaries to multiple family members.

All charities have overhead and salaries to pay. But charity watchdogs say no charity should spend more than 35 cents to raise a dollar.

Each of the Reynolds family charities fails that test. On average, the Reynolds charities that use professional solicitors pay them 77 percent of everything raised.

Reynolds and his relatives say if it weren't for telemarketers, they would have nothing to give destitute patients. But it doesn't have to work that way.

Cure Childhood Cancer is a Georgia charity unrelated to the Reynolds family. It holds 5K fun runs and golf tournaments to raise money. In 2011, it reported raising $2.56 million and spent 54 percent on research and grants to children with cancer.

In comparison, Cancer Fund raised about $6 million that year. It gave out $15,000 in cash to patients, tax filings show.

Regulatory run-ins

The Reynolds' charities frequently have been criticized by regulators and consumer watchdogs for waste and broken promises.

But that has not slowed fundraising.

In 1989, Cancer Fund was among a group of charities sued by a dozen states for running sweepstakes that promised winners thousands of dollars but handed out checks for pennies.

Reynolds, whose fledgling charity shared in a $2.1 million fine, said at the time he hoped to be on sound enough financial footing to stop using direct mail campaigns within three years.

That did not happen.

Instead, Cancer Fund of America ratcheted up its use of for-profit fundraisers, with 10 listed in its latest tax filing.

From 1992 to 2007, five states cited the charity for misleading donors. Reynolds has repeatedly blamed his fundraisers, written a check to cover financial penalties and kept going.

In 2007, Georgia regulators sued Cancer Fund, saying it sent out solicitations claiming that the charity provided patients with transportation to chemotherapy treatment when no such service was provided.

The charity signed a settlement that required no admission of guilt. All Cancer Fund had to do was write a $50,000 check to a charity chosen by Georgia regulators, the Georgia Cancer Coalition.

Cancer Fund had raised $8.9 million that year.

In IRS paperwork filed the following year, Reynolds' charity reported the financial penalty as cash paid out for charitable works. It was the single largest cash donation Cancer Fund has ever made to an independent charity.

Georgia's action didn't hamper Cancer Fund. In the five years of tax forms filed since then, the charity has reported raising a total of nearly $34 million.

About $46,000, less than one-tenth of one percent of what was raised, went to patients.

Tricks of the trade

In 2002, Reynolds' then-wife Perkins, his son James and Cancer Fund of America board members transformed space in a telemarketer's phone room in Michigan into a brand new charity.

Their section of the telemarketer's building became Cancer Support Services.

Despite its tax-exempt status, Cancer Support functions as nothing more than a boiler room for Cancer Fund of America.

It uses the same managers and is staffed by the same employees who had been previously soliciting for a corporate telemarketer.

Through this sleight of hand, $10-an-hour telemarketers with headsets suddenly became employees of Cancer Support Services, collecting donations for their own charity.

Transferring workers from a telemarketer's payroll to a charity's has distinct advantages. It allows callers to say 100 percent of donations go to the charity. It also shields the phone bank operation from regulators.

Unlike professional solicitors, charities that run their own telemarketing operations are not required to file financial reports or get scripts approved by regulators.

After paying expenses each year, Cancer Support Services has only 10 cents on the dollar left to ship to Cancer Fund.

But that has helped make Cancer Fund's books look better by boosting revenue and putting expenses on someone else's ledger.

Including more than $1 million from the Michigan operation in 2011, Cancer Fund reduced the percentage of total revenue it spent on fundraising from 83 percent to 68 percent, according to its IRS filings.

Cancer Support Services has operated for 11 years, largely under the radar of regulators. Now the charity is under review by a multistate task force, according to the group's chairwoman, who said she had been recently deposed.

Reynolds Sr., meanwhile, denies that he has any connection to the Michigan charity even though Cancer Fund is its sole beneficiary.

He said it's irrelevant that his chief financial officer is volunteer president of the Michigan operation.

"He can volunteer for anything he wants," Reynolds said.

Kendall Taggart is a reporter for The Center for Investigative Reporting. CNN senior producer David Fitzpatrick and CNN reporter Haimy Assefa contributed to this report along with Times researcher Caryn Baird, computer-assisted reporting specialist Connie Humburg, and web developer Bill Higgins. Times staff writer Kris Hundley can be reached at khundley@tampabay.com.

Intricate family connections bind several of America's worst charities 06/13/13 [Last modified: Thursday, June 13, 2013 7:07pm]

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