A dubious charity solicits in Seattle

Seattle has a solid reputation for its charitable endeavors, and not just because the Bill and Melinda Gates Foundation is the world’s largest. United Way of King County pulls in more contributions–$120 million last year–than any of the country’s 1,200 other United Way units. A recent study of “America’s Most Charitable Cities” by Bundle.com ranked Seattle No. 2 (behind Washington, D.C.) . Another report by Volunteering in America put Seattle fourth among larger cities in the rate of persons who volunteer their time.

With such good pickins’ on the charitable front, I suppose it’s not surprising that some dubious operations might show up to see what they can haul off. As someone New To Seattle who has written about charities for a long time, I’m here to tell you about one that has been taking to the local airwaves with its pitch asking for donations of used vehicles to help the ill. This very morning, I heard yet another radio commercial for this nonprofit.

Cancer Fund of America is its alluringly appealing name. Here’s why the charity is dubious. By my reckoning, of every $100 it gets in contributions turned into cash, about 40 cents–not 40%, 40 cents–truly benefits the afflicted. That’s less than one-half of 1%. The rest goes to pay for executive salaries, overhead, telemarketing, direct mail, and fundraising expense–lots of fundraising expense. But thanks to several accounting tricks–all perfectly legal–and some rather sleepy regulation, Cancer Fund, which is based in Knoxville, Tenn., and solicits nationally, is able to depict itself as having financial efficiencies far higher than what I am describing.

Let me explain how this is all done.

In Washington State, the duty of providing information about charities falls to Secretary of State Sam Reed. His office in Olympia maintains a website that can be searched to determine if a charity is registered and to obtain some bare-bones financial data. You can see the listing for Cancer Fund by clicking here.  The numbers look like the same ones on the annual Form 990 that nonprofits file with the Internal Revenue Service. These many-page returns are public record elsewhere.

According to the filing, and using round numbers, for 2010 (the latest available year), Cancer Fund listed revenue of $24 million, essentially all of that contributions. It recorded spending $17 million in “program services,” as expenditures in direct furtherance of the charitable mission are called. Total expenditures were put at $23 million. The $6 million difference between $17 million and $23 million was the amount declared spent on fundraising, management and certain overhead. Sam Reed’s website automatically calculated that Cancer Fund’s charitable commitment–the amount of total expenses that are “good” program services rather than “bad” overhead and fundraising–was 73%.

Now, a 73% charitable commitment ratio is not terribly high to start with. According to a story I wrote last year for Forbes, the average among large charities of all kinds is 86%. But 73% is at least above the 65% threshold that the Better Business Bureau Wise Giving Alliance, a leading charity watchdog, sets as its acceptable minimum.

The higher the percent, the better the situation. Donors, of course, want their funds to be used for good works and not pay for fundraising or unwarranted executive salaries. Charities know that.

However, a close look at Cancer Fund’s IRS 990 shows that $14 million of the $24 million received was in donated goods (not the vehicles, the net from which are considered cash) called gift-in-kind, or GIK. GIK is susceptible to wild markups in claimed value. GIK shipments tend to arrive in big gulps–Cancer Fund got all of its largess from just five unnamed donors–and cost almost nothing to solicit.

Moreover, in the case of Cancer Fund, $12 million of that $14 million in GIK was given to unspecified recipients in Central America and the Caribbean for “medical assistance” that does not seem to be especially focused on cancer treatment. One official Cancer Fund document said this largess “consist[s] principally of non-prescription medications, clothes, medical supplies, personal hygiene kits, food products, books, toys and reading material.”

Off-point GIK receipts and inflated GIK valuation, both of which I have written about in connection with other nonprofits, make the size and financial efficiency of some charities seem higher than they really are. But it is accounting that largely has been considered acceptable, although the Internal Revenue Service is now going after one big GIK charity for misrepresentation.

On top of all this, Cancer Fund simply left out a lot of the bad stuff. Again, legally. Here’s how.

Some years ago, Cancer Fund set up another nonprofit with the bland name of Cancer Support Services, basing it far away from Knoxville in Dearborn, Mich. For the Cancer Support listing by Sam Reed’s office, click here. Cancer Support files its own IRS Form 990 separate from Cancer Fund. Cancer Support’s stated purpose is to “support the charitable mission of Cancer Fund of America.” In my opinion it does this largely by helping Cancer Fund hide a lot of fundraising expense.

How much? According to Sam Reed’s office, Cancer Support received a total of $11 million in gifts. The IRS Form 990 said $2 million of that was almost-free-to-drum-up GIF. The 990 said that Cancer Support spent $6 million in fundraising–two-thirds of the $9 million of cash that came in. According to the 990, Cancer Support gave away the $2 million GIK and sent $2 million cash over to Cancer Fund. Sam Reed’s website calculated Cancer Support’s charitable commitment as an abysmally low 44%.

It was that low because Cancer Fund took that $2 million into its own IRS Form 990–and Sam Reed’s website revenue figure–without also including the $6 million in related fundraising cost. That stayed with Cancer Support. The ploy made it look like the $2 million came into Cancer Fund at no fundraising cost, which certainly would be efficient. It’s an old trick among some related nonprofits, one that I wrote about years ago. Run the unfavorable expenses through another nonprofit that few donors–or regulators–will look at.

Adding the $6 million overhead laundered through Cancer Support to Cancer Fund would have lowered Sam Reed’s calculated charitable commitment figure for Cancer Fund from 73% to about 58%–way below the BBB cut-off.

However, if you want an even fuller picture, skip Olympia. Instead, visit the website of the charity regulators in New York State and search for Cancer Fund of America.  Unlike what you find online in Olympia, you can call up a full audited financial statement that combines the activities of both Cancer Fund and Cancer Support, eliminating transfers among them and other double-counting.

And there the truth really starts to emerge.

As I read the numbers, Cancer Fund/Cancer Support received $16.7 million in cash, overwhelmingly from gifts, and spent $15.3 million in cash.  No more than $65,000 of that went for anything that I would call charitable. To generate that $65,000, the combined enterprise spent $11.5 million in officially declared fundraising expense, plus another $3.7 million year in expenses incurred with fundraising campaigns but which were classified as program service or non-fundraising overhead.

Again, this is all considered proper under accounting rules. This shows that the biggest scandal often is what’s legal.

Now, Cancer Fund long has has been controversial, running into regulatory problems elsewhere. Cancer Fund won’t allow the BBB to formally evaluate it because it know what the likely outcome will be. My former colleague Lea Goldman included the charity not long ago in a eye-opening story for Marie Claire magazine about “The Big Business of Breast Cancer.” In 2010 Cancer Fund’s president, James T. Reynolds, was paid a total of $263,000–far more money, by my estimate, than cancer victims saw.

To get the fullest discussion possible going, I invite anyone mentioned here, who has encountered Cancer Fund (or Cancer Support) or who has thoughts on this subject to add their comments below.

With 3,500 federally recognized charities containing the word “cancer” in their name, it’s easy for donors to be confused. For all I know, Cancer Fund is hoping to pick up gifts that might have gone to the better-known but suddenly controversial breast cancer charity Susan G. Komen for the Cure. To the good-hearted folks of Seattle, all I can say is this: Beware.

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