There’s a major scandal that hit the news the other day and the repercussions bug me to no end. That’s because the issue hits so close to my heart. I know so many people who have been touched by cancer and then I hear that the FTC has shut down four “charities” because they were not using money donated for charitable purposes. We’re not talking chump change either. We’re talking nearly $200 million.
In reality, officials say, millions of dollars raised by four “sham charities” lined the pockets of the groups’ founders and their family members, paying for cars, luxury cruises, and all-expense paid trips to Disney World for charity board members.
The 148-page fraud lawsuit accuses the charities of ripping off donors nationwide to the tune of $187 million from 2008 to 2012 in a scheme one federal official called “egregious” and “appalling.”
The charities — Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America and the Breast Cancer Society — were incorporated nonprofit organizations with tax-exempt status with the Internal Revenue Service, according to a lawsuit naming the charities and their top executives as defendants.
According to the FTC, the charities engaged in deceptive fundraising by mail and phone in the name of cancer patients, billing themselves as legitimate charities that helped provide direct relief to suffering patients.
That’s money that isn’t going to research.
That’s not money going to patient services.
That’s not money going to patient treatments.
That’s money lining the pockets of executives and groups whose sole purpose is to churn and raise donations while pocketing nearly all of what they raise as a self-fulfilling enterprise. Most of the $187 million went to pay for professional fundraisers who took as much as 90 cents on each dollar raised. What was left after that went to pay for salaries of the administrators of those charities; less than 3% of the donations went to the charitable purpose. For instance, in 2012, the Children’s Cancer Fund spent $45,000 on cash assistance to kids with cancer while paying Perkins $231,672.
Criminal charges aren’t part of this at the present because the FTC doesn’t have the power to bring criminal charges, but state prosecutors do. We’re talking about fraud on a massive scale. You’d think that the government would be clawing back a bunch of that money, but you’d be mistaken:
In addition to the bans imposed on charity work by the settling individual defendants and the dissolution of two corporations, CCFOA and BCS, the proposed final order against CCFOA and Rose Perkins imposes a judgment of $30,079,821, the amount consumers donated between 2008 and 2012. The judgment against CCFOA will be partially satisfied via liquidation of its assets; the judgment against Perkins will be suspended based upon her inability to pay.
The proposed final orders against BCS and Reynolds II impose a $65,564,360 judgment, the amount consumers donated between 2008 and 2012. The BCS order provides an option, subject to court approval, for spinning off its Hope Supply Warehouses program to a legitimate, qualified charity. BCS’s remaining assets will be liquidated and used to partially satisfy the judgment. The judgment against Reynolds II will be suspended when he pays $75,000.
The proposed final order against Effler will impose a judgment of $41,152,231, the amount consumers donated to CSS between 2008 and 2012. The judgment will be suspended upon payment of $60,000. The full judgment amounts against the individuals will become due immediately if they are found to have misrepresented their financial condition.
The money is as good as gone, which is why the states should pursue criminal charges to address this egregious misconduct.
And this is the tip of the iceberg.
The IRS and FTC are overwhelmed by nonprofits (and remember back when the IRS was under fire for trying to figure out whether nonprofits were engaging in political activities that would have disqualified them from getting the nonprofit status; that issue is still looming with the GOP hoping to get scalps from IRS officials who tried to crack down on bogus nonprofits).
What we need is a more effective way of dealing with these nonprofits, which are almost exclusively set up as IRC 501(c)(3) nonprofits. We need Congress to revamp these provisions to require that a minimum percentage of revenue raised must go to the charitable purpose intended. I’d suggest 85%, but 75% might be more reasonable (given that top performing charities will hit 80%, but most fall way short of that), and that if the charity doesn’t achieve an average of those minimum goals over a period of several consecutive filing periods, then the charity will lose its nonprofit status, be disbanded, and the operators will be prohibited from operating another charity for a period of say five years.
Charities are required to make periodic filings with the IRS (Form 990) so we get to see what the revenues and disbursements are. It would be relatively simply to identify those charities that are failing to meet these minimums, and are otherwise using the charity and goodwill of others to line their own pockets or engage in lavish lifestyles while those hoping to do good by their charity are duped into thinking that the money is going to the charitable purpose but in reality is doing no such thing.
But I also know that Congress isn’t going to mess around with fixing the nonprofit law or require that charities provide the bulk of their donations to the charitable purpose. Rather, they’ll allow the status quo to continue, allowing telemarketers to pocket vast sums collecting fundraising for other groups, and skimming every transaction in the process. They aren’t going to require minimum spending on the charitable purpose, and they’re not going to police the nonprofits in any significant fashion, even though this kind of behavior is far more common than you’d think.
That’s where you and I come in. We can do something about this - by choosing to donate to only those charities that deliver on their charitable goals. We can look to places like Charity Watch and Charity Navigator to see whether a given charity is following through and minimizing overhead and outreach to maximize donations to the charitable purpose.
Where that isn’t possible, we need state prosecutors to go after charities and crack down on those who are using the nonprofit status as a grift.