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Above the Law: America’s Worst Charities

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(CNN) — The worst charity in America operates from a metal warehouse behind a gas station in Holiday, Florida.

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% of donations raised to direct cash aid. Some charities gave even less. Over a decade, one diabetes charity raised nearly $14 million and gave about $10,000 to patients. Six spent no cash at all on their cause.

— 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 fund-raising 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 fund-raising 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.

Most 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% of their pledge will be spent granting wishes.

She declined to answer additional questions about Kids Wish’s fund-raising 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, Georgia. The charity is No. 13 on the Times/CIR list.

Identifying the 50 worst

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 fund-raising 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.

Search for charities that have been disciplined

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 them 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 fund-raising 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.

Doug White, one of the nation’s foremost experts on the ethics of charity fund-raising, 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,” said White, who teaches in Columbia University’s fund-raising management master’s degree program.

Share your tips on suspicious charities

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% 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.

To read the rest of this story, go to CNN.

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