"Right now I fight not only for my honour, not only for money but also for the future of America that is exactly what I want to see in the United States of America because I think this nation is the best nation of humans."
Ha Van Son, Former South Vietnamese Commando. June 19/1996
America's Worst Charities
America's 50 worst charities rake in nearly $1 billion for corporate fundraisers
By Kris Hundley and Kendall Taggart, Times/CIR special report
The worst charity in America operates from a metal warehouse behind a gas station in Holiday. 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.
But Kids Wish is not an isolated case, a yearlong investigation by the Tampa Bay Times and The Center for Investigative Reporting has found.
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.
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 percent of donations raised to direct cash aid. Some charities give even less. Over a decade, one diabetes charity raised nearly $14 million and gave about $10,000 to patients. Six spent nothing at all on direct cash aid.
• 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 fundraising 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 fundraising 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.
Over the past six months, the Times and CIR called or mailed certified letters to the leaders of Kids Wish Network and the 49 other charities that have paid the most to solicitors.
Nearly half 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; 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 percent of their pledge will be spent granting wishes.
She declined to answer additional questions about Kids Wish's fundraising 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, Ga. The charity is No. 13 on the Times/CIR list.
Over the past decade, the charity paid its solicitors nearly 90 percent of the $27 million it raised. It spent about $21,000 each year on its cause, most often buying plane tickets to reunite families.
The charity's efforts primarily consist of giving advice to families whose children have been abducted. Thelen said his group has worked with about 300 parents since 1997.
But he publicly claims credit for reuniting as many as 1,600 children with their families, even if his charity's involvement was as minimal as posting the child's picture on the charity website.
Doug White is one of the nation's foremost experts on the ethics of charity fundraising. A consultant to nonprofits for more than 30 years, White teaches in Columbia University's fundraising management master's degree program.
He said charities with high fundraising expenses often rationalize that such costs are inevitable in the early years. But White said the Times/CIR findings, based on a decade of data, show that the nation's worst charities can't use that excuse.White also criticized reputable nonprofits that refuse to condemn bottom-tier charities.
"When you start a charity, you have a sacred compact with society," said White, one of 30 charity experts interviewed for this series. "They are ripping off the public under the guise of an organization that's supposed to do good for society."
What happened to Gina Brown's mother-in-law is a classic case.
Brown said the 72-year-old woman was struggling with dementia when the phone calls started.
From 2008 to 2011, telemarketers representing some of the worst charities in the nation persuaded her to write checks and charge donations to her credit card for a total of nearly $15,000.
Among those on the Times/CIR list that got multiple donations, sometimes only months apart, were Cancer Fund of America, Children's Cancer Fund of America and the Committee for Missing Children.
"She was such a vulnerable person, she must have been on the 'A' list," Brown said.
The Minnesota woman discovered the donations, which ranged from $10 to nearly $1,000, only after her mother-in-law was placed in an Alzheimer's facility.
"It's hard to come to grips with the thought of her as a victim because she had been such a bright woman," Brown said. "This can happen to anyone."
How the list was made
To identify America's 50 worst charities, the Times and CIR 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 fundraising 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 it based on the total donations diverted to fundraisers, arriving at the 50 worst charities. By this measure, Kids Wish tops the list.
Tracking donations diverted to fundraising 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.
White, the Columbia University professor, 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," White said.
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 Tennessee charity, 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 percent 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 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, large and small, 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 Times/CIR list of worst charities, meanwhile, is littered with organizations that exhibit red flags for fraud, waste and mismanagement. Thirty-nine have been disciplined by state regulators, some as many as seven times.
Eight of the charities have been banned in one state.
One was shut down by regulators but reopened under a new name.
A third of the charities' founders and executives have put relatives on the payroll or the board of directors.
For eight years, American Breast Cancer Foundation paid Joseph Wolf's telemarketing company to generate donations.
His mother, Phyllis Wolf, had founded the Baltimore-based charity and was its president until she was forced to resign in 2010.
While she ran the charity, her son's company, Non Profit Promotions, collected $18 million in telemarketing fees.
Phyllis Wolf left the charity after the payments to her son attracted media attention in 2010. The charity has since stopped using telemarketers, including Joseph Wolf's.
Phyllis and Joseph Wolf did not respond to several calls seeking comment.
The nation's worst charities are large and small. Some are one-person outfits operating from run-down apartments. Others claim hundreds of employees and a half-dozen locations around the country. One lists a UPS mail box as its headquarters address.
Several play off the names of well-known organizations, confusing donors.
Among those on the Times/CIR list are Kids Wish Network, Children's Wish Foundation International and Wishing Well Foundation. All of the names sound like the original, Make-A-Wish Foundation, which does not hire professional telemarketers.
Make-a-Wish officials say they've spent years fielding complaints from people who were solicited by sound-alike charities.
"While some of the donations go elsewhere, all the bad public relations that comes with telemarketing seems to come to us," said Make-A-Wish spokesman Paul Allvin.
Donors who answer calls from the 50 worst charities hear professionally honed messages, designed to leverage popular causes and hide one crucial fact: Almost nothing goes to charity.
When telemarketers for Kids Wish call potential donors, they open with a name you think you've heard before.
Then they ask potential donors to "imagine the heartbreak of losing a child to a terminal illness," according to scripts filed with North Carolina regulators in 2010.
Kids Wish, the callers say, wants to fulfill their wishes "while they are still healthy enough to enjoy them."
They leave out the fact that most of the charity's good deeds involve handing out gift cards to hospitalized children and donated coloring books and board games to healthy kids around the country. And they don't mention the millions of dollars spent on salaries and fundraising every year.
The biggest difference between good charities and the nation's worst is the bottom line.
Every charity has salary, overhead and fundraising costs.
But several watchdog organizations say charities should spend no more than 35 percent of the money they raise on fundraising expenses.
The Make-A-Wish Foundation of Central and North Florida is one of dozens of Make-A-Wish chapters across the country.Last year, it reported raising $3.1 million cash and spent about 60 percent of that, $1.8 million, granting wishes.The same year, Kids Wish raised $18.6 million, its tax filing shows. It spent just $240,000 granting wishes — 1 percent of the cash raised.
The path chosen by Jacqueline Gray shows exactly how a worthy cause can be turned into one of the nation's worst charities.In 2007, Gray and her husband, Kevin, started Woman to Woman Breast Cancer Foundation in Lauderdale Lakes.
For a year the couple struggled to raise money by hosting golf tournaments and by making phone calls to potential donors themselves.
Then they met Mark Gelvan, a New Jersey consultant who has spent two decades transforming fledgling charities into money-making machines.
"He said he had the best dialers on the market," Jacqueline Gray recalled.
Gelvan introduced the Grays to what sounded like a winning formula.
He would help the charity expand if it signed a contract with telemarketer Community Support Inc.
The staff at Community Support would handle everything. They would create the marketing materials and run the call centers.
The telemarketer even gave the Grays $30,000 in seed money to cover bills related to the expansion. All the Grays had to do was agree to let Community Support keep the majority of every dollar raised, then sit back and wait.
The transformation was immediate.
From donations of less than $15,000 in fiscal 2008, contributions to Woman to Woman through its professional solicitor increased to $1.5 million in 2009, then leaped to $6.3 million in 2010 and $6.7 million in its most recent filing.
What the charity got to keep was far more modest. It netted about $50,000 its first year with Community Support and $544,000 in 2011.
That was still enough for Gray, her husband and her daughter to start taking salaries. In the latest year, the trio received $84,000 in total compensation. Each member of the family also has a vehicle provided by the charity.
The Grays' decision to sign on with professional fundraisers transformed Woman to Woman into one of the nation's worst. It falls at No. 22 on the Times/CIR list.
Woman to Woman raised $14.5 million in donations from 2009 to 2011, tax filings show.
It paid nearly 95 percent of that to its for-profit fundraiser and spent about $700,000 on overhead and salaries.
That left an average of less than $20,000 a year to provide mammograms and other diagnostic services for women with breast cancer.
Jacqueline Gray, herself a breast cancer survivor, said she is as shocked as anyone by how much money has been raised in her charity's name and how little of it has reached patients. She said she is angry that phone solicitors take more than 90 percent of the revenue.
But she vehemently denies that she's to blame.
"Why would I be to blame for a system that's dysfunctional?" Gray asked. "We are doing what we're supposed to be doing."
She showed a reporter several emails she has sent Gelvan in the past year, trying to renegotiate Woman to Woman's contracts for better returns.
His response, according to Gray: If they didn't like 10 percent, Gelvan would replace Woman to Woman with another charity.
"In the tele-funding business sector, it is common for nonprofit organizations to renew PFR (professional fundraising) contracts under the same terms and provisions of the previous contract," Gelvan wrote in an email that Gray shared with Times/CIR reporters. "This is part of the 'if it's not broken, don't fix it' principle."
Instead of giving the charity a better return, Gelvan introduced the Grays to the next piece of the formula — gifts-in-kind.
Gifts-in-kind are donated items like generic drugs and medical supplies. Getting them to the sick and poor in developing countries can be an important role for a charity.
But for charities that spend most of their money on for-profit solicitors, gifts-in-kind can function as an accounting gimmick.
The value of these shipments is often highly inflated, with pills that sell for pennies priced at $10 each on paper.
Several charities also can pitch in to pay the overseas transportation costs of the same shipment of medical supplies.
Under accounting rules, each charity is then allowed to take credit for the entire value of the shipment as if it alone provided the supplies to those in need.
The result: A charity's revenues and good deeds are boosted and fundraising costs look smaller.
That makes donated items especially useful for charities that fear being criticized for having excessive fundraising costs on their public IRS filings.
Kevin Gray, the charity's chief financial officer, said Gelvan made no pretenses when he suggested the charity start shipping goods overseas.
"Mark said it was a way to make our 990 (IRS filing) look better," Kevin Gray said.
Gelvan told them to hire a company that rounds up donated goods and ships them overseas for charities, according to the Grays.
He handed them a binder laying out options like a Sears catalog.
They could send blood pressure monitors to Ghana. Or maternity ward equipment to the Philippines. Or surgical supplies to Guatemala.
The Grays rejected the idea.
"I can't figure out why I'd pay to ship medicines out of the country while people need the stuff right here," Kevin Gray said. "Why would I want to spend money that way?"
But the Grays say their charity would have no money if not for professional fundraisers, so they have continued paying them.
Reaping the benefits
The fundraising formula that raised millions of dollars for the Grays' charity has been adopted by hundreds of charities.They use it to deceive donors and turn their causes into profit centers.
Few have been more successful than Mark Breiner, the founder and one-time president of Kids Wish Network.
Breiner relied on professional fundraisers and donated items to build his charity into a nearly $20 million annual operation. He is among the beneficiaries. The charity he founded has paid him or his companies nearly $4.8 million in the past 10 years — $1.5 million more than what the charity spent on direct cash to children, according to tax filings.
While Breiner was still president of Kids Wish, earning $130,000 a year, he joined a former employee as a partner in a fundraising company called Dream Giveaway.
In 2008 and 2009, Kids Wish paid Dream Giveaway nearly $1.7 million in consulting fees to run automobile give-aways that raised money for the charity. The charity's IRS filings do not specify how much it netted on these early sweepstakes.
Breiner continued making money after he retired from Kids Wish in mid-2010 and left his mother-in-law on the seven-member charity board. In 2010 and 2011, the charity paid two of Breiner's companies $2.1 million for licensing, consulting and brokerage fees.
Kids Wish violated IRS rules by waiting four years to disclose the money it paid Breiner's companies.
The charity first reported the payments in amended tax filings last year after an employee took her concerns about insider dealings to the charity's board.
Meanda Dubay, who had been a wish coordinator for six months, told Kids Wish's directors she was seeking protection under the charity's whistle-blower policy.
She was fired immediately after she raised her concerns.
Kids Wish officials accused Dubay of stealing proprietary information from the company's database and said they had been preparing to dismiss her prior to her appearance before the board.
The charity asked the FBI to investigate Dubay. The FBI found no wrongdoing.
Kids Wish then sued Dubay for breach of contract and defamation. Dubay, who declined to talk to reporters, has denied all allegations in the civil case, which is pending.
Kids Wish officials said in an email that the omissions in the IRS filings resulted from "inadvertent errors made by the former accounting firm."
Officials at the Tampa accounting firm, Guida & Jimenez, did not return calls seeking comment.
Breiner declined to answer questions about his fundraising and consulting businesses, which received an additional $1.26 million from Kids Wish for a car giveaway in 2012.
But he said in an email that the charity recently completed an IRS audit that included a review of its contracts with his companies.
"They found no indication of private inurement or conflict of interest with founders or board members," Breiner said.
An IRS spokesman said federal law prohibits the agency from commenting on a specific individual or organization's tax issues.
Breiner has cashed in on other close relationships in the charity industry as well.
His consulting business was paid nearly $1 million over two years by a charity founded by a former Kids Wish board member. And when Kids Wish's longtime telemarketer started a charity so his son could have a job, he turned to Breiner for fundraising help.
"Mark's a genius," said Robert Preston, who paid Breiner's companies more than $375,000 in 2011 to run a Porsche giveaway for the charity, WorldCause Foundation.
Breiner's consulting arrangements may be perfectly legal, but such relationships are bright red flags to charity experts. They create the appearance of a conflict of interest and make it easy to turn charitable donations into personal profit, experts say.
Putnam Barber at the University of Washington, who has been writing and teaching about nonprofits for more than 20 years, said, "That kind of arrangement makes me fume."
Kendall Taggart is a reporter for The Center for Investigative Reporting. Times researcher Caryn Baird, computer-assisted reporting specialist Connie Humburg, and web developer Bill Higgins contributed to this report, along with CNN senior producer David Fitzpatrick. Times staff writer Kris Hundley can be reached at firstname.lastname@example.org.
America's 50 worst charities rake in nearly $1 billion for corporate fundraisers
America's Worst Charities
Lack of regulation and meager penalties allow worst charities to thrive
BY Kendall Taggart and Kris Hundley, Times/CIR special report
Friday, June 7, 2013 11:01am
WHERE THE CALLS COME FROM One of the telemarketing offices of the Police Protective Fund, at 10438 US 19 in Port Richey, is buzzing with activity on a Thursday evening.A dry-erase board is used to log calls and donations at the telemarketing office of the Police Protective Fund at 6452 Ridge Road in Port Richey. Damian Muziani is an aspiring actor whose website lists credits on the dating show Average Joe and an episode of America’s Most Wanted. He is listed as the sole owner of Outreach Calling.
Four years ago, charity regulators in 38 states banded together to take down one of the most deceptive charity solicitors in America.
In an unusual show of force, they marshaled resources from across the country and targeted Community Support Inc.
An investigator in Iowa posed as a donor and secretly recorded calls coming from boiler room operations around the country. Investigators in Missouri spent five months digging through the company's records.
Again and again, they found evidence that the company's employees were lying to donors. Phone operators exaggerated how much money would get to the needy and falsely promised that help would go to people nearby, regulators said.
When it was all done, state officials levied a $200,000 penalty and hoped they had sent a message to the charity industry.
The effort failed.
Within months, the same people who had built Community Support into a multimillion-dollar business had moved on to a new telemarketing company. Boiler room workers were once again dialing unsuspecting donors on behalf of America's worst charities and collecting huge fees for their services.
In a few short years, the new telemarketer was collecting millions of dollars annually on behalf of many of the same charities that had benefited from Community Support's lies.
This is how charities and their for-profit solicitors are regulated in America.
Unscrupulous operators collect hundreds of millions of dollars each year while fooling donors. When they get caught, they have little to fear, even if regulators try to shut them down. They simply reopen in another place or under a new name, leaving regulators none the wiser.
The Tampa Bay Times and The Center for Investigative Reporting interviewed regulators in more than 20 states and took the first national accounting of actions against charities and solicitors by piecing together documents from across the country. Of more than 8,000 violations, reporters identified about 1,000 serious cases and tracked what happened to the offenders in many of them.
Among the findings:
• More than 35 charities and their hired solicitors have been caught breaking the rules multiple times but continue to take money from donors. The most frequent violators have been cited five times or more. One solicitor has been cited 31 times and is still in business.
• Bans issued by state regulators are meaningless. Over the past decade, at least a dozen solicitation companies and charities have been forced out of one state only to continue raising donations elsewhere.
• State regulators make it easy for operators to start over. Instead of targeting individuals, they often ban only the charity or the fundraising company, leaving executives free to move to a new organization. Regulators have not even created a national list to track charity violators or a formal system to share information.
• Charity regulation offices nationwide are consumed with paperwork. They collect reams of information on charities but don't analyze it for signs of fraud. Florida has issued hundreds of fines for late paperwork, but has blocked only a handful of charities from soliciting in the state over the past decade.
• When states do take action they typically issue a small fine and require no admission of guilt, even for the worst offenders. The most common penalty is $500, a small price for organizations that collect millions.
Most reputable charities raise money using their own employees. They don't rely on professional solicitors, whose profits are dictated by the success of cold calls to potential donors.
Charities that do rely on telemarketers direct millions of dollars annually away from worthwhile causes and into their fundraisers' pockets.
The Times and CIR spent a year identifying the 50 worst charities in America based on the enormous sums they divert to for-profit solicitors.Over the past decade, these charities have relied on deception to generate more than $1.3 billion in donations. About 75 percent went to pay charity executives and the solicitors who raise the donations. While most charities never run afoul of regulators, three-quarters of the charities on the Times/CIR list have been cited at least once. Eight of the 50 have been banned in at least one state but continue collecting donations elsewhere.
Repeated efforts to crack down on high-cost solicitors and to stop fraudulent organizations from moving to another state have failed. In part that's because well-respected charities have lobbied to prevent stricter regulations.
More than a decade ago, several states tried to pass rules to limit how much money charities could pay to professional solicitors. That would have given regulators a clear-cut way to go after the worst offenders.
But in 2003, more than 200 charities, including the American Heart Association, Easter Seals and the National Wildlife Federation, supported arguments before the U.S. Supreme Court to prohibit states from limiting how much a charity can pay its solicitation companies.
The court, citing First Amendment free speech rights, agreed, preventing states from implementing a powerful enforcement tool.
"The laws are so weak in this area that when you finally get someone it's pretty much a slap on the wrist," said Dean Zerbe, who investigated charities while he was senior counsel for the U.S. Senate Finance Committee. "It's probably the most frustrating part of it. There are some really bad actors and when you finally bring the book on them, they're back at it."
The Internal Revenue Service grants charities their tax-exempt status and can audit their annual financial filings. Once charities start raising money, oversight is largely left to the states. The system is so fractured it's difficult to know even who is in charge.
In Pennsylvania, it's the Department of State; in California, the attorney general. Florida leaves its charity regulation to the Department of Agriculture and Consumer Affairs. Texas has two different departments enforcing three different statutes that apply only to certain types of charities.
The rules from state to state are even harder to follow.
At least 39 states and the District of Columbia require charities or professional solicitors to register before they start collecting donations. Twenty-three states require charities to undergo an annual audit.
In at least 20 states, charities must report the results of every solicitation campaign run by a professional telemarketer.
Some states ban these telemarketers from hiring anyone convicted of a financial crime. And a few force telemarketers to file copies of their phone scripts, to make sure the pitches don't mislead donors.
But every state agency's authority ends at the state line, leaving them ill-equipped to stop bad charities, which typically operate on a national scale.
The IRS could do more.
Some charity experts say the federal agency does not aggressively go after fraudulent nonprofits because they don't pay taxes. That means cases against them don't generate revenue.
The IRS has been even more reluctant to take on charities for high fundraising costs because such cases are difficult to win, experts say.
As a result, regulation falls largely on a patchwork of state agencies, said Paul Streckfus, a tax lawyer who formerly worked for the IRS.
"The IRS needs somebody at the top with real guts, who says, 'It's my responsibility to weed out this corruption,' " Streckfus said. "There's a great vacuum out there when it comes to the regulation of charities. And there's no evidence there will be any improvement."
IRS officials would not comment on how their agents monitor charities. Citing financial privacy laws, they also declined to provide the names of any charities that lost their tax-exempt status because of fundraising abuses. To chart how charities are regulated, the Times and CIR went state by state, examining laws and interviewing authorities across the country.
Reporters also asked regulators in each state to provide a list of disciplinary actions taken against charities and solicitation companies.
Regulators in 38 states had no such list. Many of them said the only way to identify charities that had been cited was to look at old press releases and comb through newspaper reports.
These states offer donors no way to check on past violations. As a result, the public continues giving blindly to the nation's worst charities.
The Times and CIR pieced together the available information going back at least a decade to create the first public database of regulatory actions against charities and their fundraisers.
It contains more than 8,000 actions involving everything from minor paperwork violations to outright fraud.
And it reveals what state regulators have been missing: An operator's ability to stay in business despite multiple actions is a chronic problem.
This year, the Iowa Attorney General's Office secretly recorded a call from Telequal, an Iowa company that runs a boiler room for charities.
During the call, a Telequal employee tried to persuade an undercover investigator to donate to Youth Development Fund — No. 12 on the Times/CIR list of America's worst charities.
Over the past decade, Youth Development Fund has raised about $30 million and paid nearly 83 percent to its for-profit solicitors, IRS tax filings show. About $230,000 has been given directly to those in need.
Instead of noting the meager amount of cash given to the needy, Telequal's solicitor told the undercover donor that "a lot" of money went to children. Iowa regulators called the solicitation misleading and accused Telequal of routinely trying to fool donors. In April, a judge banned Telequal and its president, Travis Held, from ever again soliciting in Iowa.
But Held stayed one step ahead of regulators.
A month before the ban, he had moved his operation to Plymouth, Ind., and formed a new telemarketing company, Held Marketing. Held declined to comment for this story.
The Times and CIR found similar stories across the nation, in Indiana, Oregon, Alabama and Florida.
In each case, unscrupulous solicitors were banned in one state but continued raising donations in others.
The case against Community Support was supposed to be different. Instead of one state acting alone, regulators from 38 states joined together.
They pieced together dozens of complaints from people across the country who said telemarketers called them at home repeatedly and lied to get their money. The most common problem: Solicitors falsely claimed donors had previously given to the charity.
Investigators relied heavily on recorded conversations made in Iowa, where a secretary in the Attorney General's Office had for years pretended to be a potential donor.
She had secretly been recording hundreds of calls from solicitors across the nation, including those from Community Support.
In those calls, telemarketers for the company claimed 80 percent of donations for various causes would go to the charity. The reality was closer to 20 percent.
With lies caught on tape, the investigation culminated in the spring of 2009 with settlement talks at the state Attorney General's Office in Kansas City, Mo.
Representatives from the Federal Trade Commission, Texas, Iowa and Missouri sat across the table from Thomas Berkenbush, the man listed on contracts as the company's president. Regulators from more than 20 states listened in by phone.
Berkenbush admitted no wrongdoing but agreed to pay a $200,000 fine. He also agreed to submit to aggressive new reporting requirements. Regulators thought the rules would be so onerous that Community Support would be forced to shut down.It was a three-hour meeting. When it ended, regulators went out for barbecue.
"The goal was to put the organization down and we did do that," said Hugh Jones, the chief charity regulator in the Hawaii Attorney General's Office.But the action against Community Support proved meaningless.
Within months, at least one-third of Community Support's charity clients had migrated to a new telemarketing company, Outreach Calling.The men behind this seamless transition included Mark Gelvan.
Officially, Gelvan has nothing to do with Community Support or Outreach Calling.
But he has been a puppet master behind the scenes of both companies for nearly a decade. By acting as a broker and consultant, Gelvan operates outside regulators' view.
He dropped out of sight in 2004 after New York's attorney general banned his telemarketing company from raising money in that state.Just as Gelvan's company came under scrutiny, his 71-year-old father-in-law, a longtime home health aide, launched Community Support.
Gelvan arranged contracts between many of his old charity clients and his father-in-law's company.
Then, when regulators went after Community Support, Gelvan started moving charity clients to Outreach Calling, a newly formed solicitor started by an associate.
Damian Muziani, the owner of Outreach Calling, is an aspiring actor and a telemarketer who had done business with Gelvan years prior.
With Gelvan steering clients there, Outreach Calling became a multimillion-dollar operation in its first three years.Muziani, who said he is the sole shareholder of Outreach Calling, lives in an apartment above a New Jersey liquor store next to one of his company's offices, a store clerk said. According to his website, Muziani was once a contestant on NBC's dating show Average Joe, and he played a fugitive in an episode of America's Most Wanted.
Gelvan, who owns a $2.6 million gated home less than an hour outside Manhattan, said he has no ownership interest in Outreach Calling or Community Support. Over the years, he said, he has advised many charity operators looking for a telemarketer. He said he often gave them a list of several options.
But three charity operators said that Gelvan was their primary contact when dealing with Outreach Calling and that he gave them the impression he owned the company. All three said they had never heard of Muziani or had met him only once.
Jacqueline Gray, president of Woman to Woman Breast Cancer Foundation in Lauderdale Lakes, showed reporters a document from 2010. It was signed by Gelvan on Community Support letterhead. She said Gelvan also handled her transfer from Community Support to Outreach and gave her a tour of its phone room in New Jersey.
In addition, New York's attorney general stated that "Outreach Calling is run by Mark Gelvan" in a 2011 complaint filed against one of the telemarketer's clients. New York officials declined to provide additional information. Gelvan calls himself a "service provider to the nonprofit and for-profit sectors."
His company acts as a one-stop shop for fledgling charities, creating their marketing materials, lining them up with telemarketers, even arranging startup funding when necessary. In return, the company gets exclusive rights to direct their fundraising and gets a cut of every donation.
Berkenbush, the president of Community Support when regulators went after the company, now works at Gelvan's consulting firm. Gelvan's company does not report to a single regulator.
Charities play the same game as their solicitors, changing names and moving their fundraising efforts from state to state to survive run-ins with regulators.
Since 1992, Phil LeConte and David Dierks have run three police charities and been sued by regulators in at least six states, including Illinois, Ohio and Massachusetts.
States accused charity employees of falsifying documents and overstating charitable deeds. Telemarketers went as far as pretending they were police officers to raise money, according to complaints filed by California and Illinois.
In 2010, California Gov. Jerry Brown, the state's attorney general at the time, banned LeConte and Dierks' Police Protective Fund from raising money in the state.
But it made no difference. Today, Police Protective Fund runs its own boiler room operations, raising money in seven other states, including Florida. It collects $6 million a year — as much as it did before it was forced to stop calling California residents.
From 2001 to 2010, Police Protective Fund raised $50 million and spent more than $14.5 million on outside soliciting companies. It spent an additional $27.7 million on in-house fundraising efforts, including its own telemarketing boiler rooms.
California widely announced its action against the charity, notifying other attorney general offices around the country, including Florida's. But that message was not always passed to the people who monitor charities day to day.
In Florida, that's the Department of Agriculture and Consumer Affairs. Officials there say no one from California or the Florida Attorney General's Office told them about the ban, even though Police Protective operates all five of its call centers in Florida, four of them in the Tampa Bay area.
These charity-run boiler rooms are tucked behind unmarked doors in low-rent, mostly vacant strip centers. During a visit to one earlier this year, reporters saw about 20 men sitting at long tables, hunched over computers and wearing headsets. Working to raise enough money to hit bonus levels scrawled out on a whiteboard, they asked donors to give to help the families of officers killed in the line of duty.
Police Protective Fund's Florida operations were ignored by state regulators until 2010.
That year, a local Sheriff's Office fielded a complaint and raided one of the charity's phone rooms in Port Richey.
According to the Pasco County Sheriff's Office report, deputies found that 11 of the 27 employees who were calling for donations and taking down credit card numbers were convicted felons.
Florida law bars telemarketers from hiring felons who have been convicted of fraud, theft or other financial crimes. When officials at the Department of Agriculture and Consumer Affairs were confronted with the potential violation, they did nothing.
Instead, they closed the case. They said they had no authority to run criminal background checks on employees of the charities they are supposed to monitor.
The Agriculture Department warned Police Protective Fund not to hire felons, but it did not follow up to ensure workers with convictions for grand theft and burglary were dismissed.
Erin Gillespie, Agriculture Department spokeswoman, said there was no followup because "no one has lodged a complaint."
In fact, at least four complaints about Police Protective Fund have been received by Florida Attorney General Pam Bondi's office since 2010. They were not passed on to the Agriculture Department.
A retired police officer in Maryland asked regulators to investigate the organization after he was solicited. A North Carolina woman complained that Police Protective Fund had fraudulently obtained her 95-year-old mother's personal information and charged her credit card.
It was only after the Times and CIR began asking questions in April that Florida regulators acted. Gillespie said the Agriculture Department has asked Police Protective Fund for a list of its employees so it can check their backgrounds. That investigation is pending.
David Dierks of the Police Protective Fund said the group has provided information requested recently by Florida regulators.
He said the Florida law would only apply to telemarketing employees calling numbers in Florida. Although the charity solicits Florida residents, the call center that was raided only calls outside of the state, Dierks said.
"To my knowledge the Sheriff's Department found nothing of concern during their 2010 visit as no action was taken or requested by them as a result of that visit," he said.
Regulators in some of the nation's largest states say they don't have enough bodies to seek out and stop bad charities.In Florida, Agriculture Commissioner Adam Putnam is supposed to regulate everything from fair rides to propane tanks, as well as 16,500 charities and 120 professional solicitors.
The office has the equivalent of about 25 people overseeing charities, with half handling registration issues, and three investigators. Putnam's spokeswoman said the department has revoked the solicitation licenses of only a handful of entities over the past decade.
In New Jersey, where Mark Gelvan is based, the Attorney General's Office has the equivalent of 11 employees responsible for overseeing 25,000 charities. New Jersey has banned two for-profit solicitors and 12 individuals over the past decade.
"People out there are overwhelmed and dejected. They're trying to keep up," said Ed Shevenock, a former senior charity investigator with the Pennsylvania Department of State.
Though more states are now requiring charities and solicitors to file reports electronically, for decades they have spent the vast majority of their resources handling paperwork. The same basic information is sorted, filed and sometimes typed into computers manually in state after state, until hundreds of thousands of pages become millions.
The sheer volume is on display in California, where office workers at the Registry of Charitable Trusts spent more than four years scanning 5 million paper documents into computers.
The office has been described by lawmakers as a massive filing cabinet. Today, about a dozen clerks spend their days sorting, scanning and cataloging 1.2 million pages every year filed by more than 230,000 charities and fundraisers registered to do business in the state.
The regulatory office has 11 lawyers and eight auditors to keep up with the never-ending onslaught. Although the office says it has opened dozens of cases in the past 18 months, few enforcement actions have come of it. In the past year, the state has taken just one legal action against a charity.
A soft-spoken prosecutor in Iowa has done far more with a staff of four. Steve St. Clair has worked in the attorney general's consumer protection division in Des Moines for 26 years and still arrives at the office each morning around 7.
More than a decade ago, he trained his secretary to run miniature sting operations. She answers solicitation calls and records what telemarketers say.
That work has allowed the state to ban 14 operations in the past 10 years. That's more than many states with far more resources.
While other states might not be able to replicate Iowa's success, there are steps they could take to become more effective.
Experts say fines could be increased so that they become deterrents, not just a cost of doing business.
States could formally share information on troublesome charities and solicitors, just like they share driver history records and information on physicians who have been disciplined.
Some regulators have advocated using the wealth of paperwork they accumulate to identify potential fraud.
Bill Josephson is the former head of the New York attorney general's charities division. Years ago he argued that his agency could make better use of the data it had collected.
Every year, the office uses the finance reports filed by solicitors to tell the public how much solicitors raise and how much goes to charity.
New York's "Pennies for Charity" report highlights the high cost of fundraising and tries to educate the public about the issue.
But the effort stops there, Josephson said.
He suggested using the data to zero in on every charity that paid their professional solicitors 90 cents on the dollar or more over a five-year period.
Said Josephson, "It's such an obvious thing to try to do."
His suggestion was never adopted.
Kendall Taggart is a reporter for The Center for Investigative Reporting. CNN senior producer David Fitzpatrick, CNN researcher Haimy Assefa and CIR interns Alyssa Jaffer and Yousur Alhlou 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 email@example.com.
1989: Mark Gelvan launches All-Pro Telemarketing Associates in New Jersey.
1993-96: State and federal regulators bring three cases against Gelvan and All-Pro, claiming his employees pretended to be affiliated with the state police and lied to donors about whether they had given previously. He does not admit wrongdoing.
2002: New York's attorney general sues Gelvan and All-Pro, alleging they fraudulently collected more than $5 million in charitable donations.
April 2, 2003: Gelvan's father-in-law, a 71-year-old home health nurse, incorporates a new telemarketer, Community Support Inc., with Thomas Berkenbush. Many of Gelvan's charity clients sign contracts with the newly formed company.
January 2004: As part of a settlement agreement with the New York attorney general, Gelvan is banned from raising money for charity in that state. He does not admit wrongdoing.
May 2009: Charity regulators in more than 30 states reach a settlement agreement with Community Support after accusing its employees of lying to donors during fundraising calls. Berkenbush does not admit wrongdoing but agrees to a $200,000 fine and other sanctions state officials believe will shut down Community Support. Gelvan is not scrutinized.
September 2009: Outreach Calling, a new telemarketing company, incorporates in Nevada. The president listed in documents is a small-time actor and telemarketer who had previously done business with Gelvan. Gelvan begins transferring charity clients.
Today: Outreach Calling has worked with one-third of the charities that previously did business with Community Support. It has grown to a more than $3-million-a-year operation.
Lack of regulation and meager penalties allow worst charities to thrive 06/07/13 [Last modified: Wednesday, June 12, 2013 9:10am]
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