From the April/May 2009 Charity Rating
Guide & Watchdog Report
Charity
Questions the Value of Donated Goods
How
$118,000 Shipment May Be Worth Less Than $7,000 to Recipients
Feed the Children (FC) is practically
a household name thanks to its celebrity endorsers and television
infomercials featuring malnourished children in impoverished areas
of the globe. The charity claims on its web site that it spends
83% of its budget on its programs. What some donors may not realize
is that hundreds of millions of dollars worth of donated goods
are included in this high program percentage, some of which are
"worthless to most people" according to one Oklahoma
based charity, Mission Shawnee (MS).
FC receives a large share of its donations
from its "corporate partners," such as Avon, Frito-Lay,
ADM Co., Coca-Cola, among a long list of other companies. Companies
have incentive to give in-kind donations of what FC refers to
on its web site as "unsaleables, overages, and dated products"
to charities such as FC in exchange for the lucrative tax deductions
such donations may generate. In fact, FC lists tax savings as
the first reason companies should consider donating, touting that
companies "can receive up to twice the cost of the products
you donate," and that FC works to "maximize benefits
to your company."
Unfortunately, not all of the items
FC accepts and later distributes to its partner charities are
in usable condition or appear to be worth the value that FC is
placing on them. MS received a shipment from FC late last year
that included 265 cases of canned goods, most of which were "severely
dented or rusted," or "without labels" and had
to be thrown away, according to MS president, Dr. Robert Dawson.
This shipment, which also included 1 pallet of containers, 72
cases of bottled water, 50 bags of flour, and 1 case of discount
pharmacy cards, was valued by FC at $118,932.61, according to
the "Certificate of Donation" FC provided to MS. This
amount seemed extremely high to Dawson, who later contacted FC
for a breakout of how the different items were valued. He discovered
FC was valuing the pharmacy cards at "about $23 per card,"
accounting for about $112,000 of the shipment's total value, according
to Dawson.
In its 2007 tax form FC reports accepting
donations of pharmacy cards worth over $22.4 million, but does
not provide a breakout of the amount it distributed to other charities
or, more importantly, explain how it determined that the cards
are really worth this amount. Similar cards are readily available
for free through numerous web sites and organizations. At least
some of the pharmacy cards were initially donated to FC from marketing
services company Vertrue Inc. According to the informational material
attached to the pharmacy cards MS received, people using the cards
may "save an average of 20% on prescription drugs."
Dawson said he was not able to distribute any of the pharmacy
cards he received from FC due to lack of interest because they
cannot be used in conjunction with any other discounts, such as
with a person's health insurance. "If one side were blank
we could use them for scratch paper," said Dawson, referring
to the cards.
While it does appear that some cardholders may be able to take
advantage of drug discounts by using the pharmacy card for certain
purchases, AIP questions the high value FC is placing on the cards.
Charities have incentive to inflate the value of the in-kind items
they receive and distribute because they can take credit for the
value of these goods in their program percentages. This can have
the effect of making a charity appear to be operating efficiently
even if very little of the cash donations it receives are being
used for its charitable programs. According to FC's Board of Directors
Meeting Minutes of April 11th, 2008, the charity's own auditors
flagged how FC values its noncash goods as one of its "material
weaknesses," specifically naming the "Vertrue pharmacy
card situation."
This is not the first time AIP has
caught a charity using donated cards of questionable value to
puff up its program percentage. Help Hospitalized Veterans
(HHV) took credit for $18,750,000 worth of "phone cards"
it received and passed through to its related charity Coalition
to Salute America's Heroes (CSAH) in fiscal 2006. These "phone
cards," which were distributed to overseas military personnel
by CSAH, were not for soldiers to call home to their family but
rather to make free calls for sports scores with ads provided
by a company called EZ Scores. HHV and CSAH, who share the same
president and founder, each counted $18,750,000 of the sports
score cards as a contribution and program expense in their respective
fiscal 2006 financial statements. These sports score cards and
$2 million in donated public service airtime accounted for 85
percent of CSAH's total program expenses reported in its 2006
financial statements.
MS received only one shipment from
FC prior to the one containing the mostly unusable items. It included
a large volume of items for infants and toddlers, most of which
MS was able to distribute to the needy and were "very useful"
according to Dawson. However, it can be expensive for some small
groups to request items from FC since it requires charities like
MS to pick up the tab for any costs to transport available donated
items from its warehouse. "We have to get ahold of a refrigerated
truck to pick up the items," said Dawson, who cited this
as the primary reason why MS did not regularly request additional
goods from FC after the first shipment. He said that arranging
transportation for the items was costly and that the goods made
available to his charity by FC were not always items his small
charity could easily use or what was most needed. "Usually
we have limited use for a half a train car of pickled beets,"
he added.
Since FC does not purchase the donated
goods that it distributes, nor does it pay to deliver goods to
its recipient partner charities, donors who contribute to FC may
be wondering what happens to their cash donations to the group.
About 60% of FC's cash was spent on "television and radio"
and "direct mail" in 2007 according to the group's audit
reporting of the same year. AIP determined that in 2007 FC spent
only 18-19% of its budget on its programs once noncash items are
excluded.
As of publication FC has not responded
to AIP's requests for comment on this story.
