Feed the Children

From the April/May 2005 Watchdog Report

Food is Only a Small Portion of What Feed the Children Distributes

Feed the Children (FC), an AIP F-rated charity that spends only 18% of its cash budget on program services and spends 60% on direct mail and television and radio ads, has been enormously successful obtaining gifts in kind. In fiscal 2004 FC received $865 million in donated goods, a 79% increase from fiscal 2003. 64% of its in kind donations came from three corporations, according to FC’s fiscal 2004 audit.

FC has repeatedly declined to fulfill AIP’s request to disclose what it is actually distributing to which specific charities. Finally, in February of this year FC did disclose to us in a letter the basic categories and amounts of $796 million worth of goods distributed. This letter did not cite the time frame in which the distribution occurred and omitted any information on which charities received the goods, saying, “Our policy to not disclose the names of the charities that we distribute to is fully compliant with nonprofit law.” FC cited privacy as their reason for not disclosing who received the goods. This would be an understandable concern if we had requested the names of people who had received the goods. Since AIP is asking only for the names of charities, not individuals, AIP does not believe that providing such information violates anyone’s privacy.

Donors should be cautious not to read too much into a charity’s name—Feed the Children’s distribution of “assorted food,” “produce,” and “beverages” accounts for only 14% of the total distributed. By not disclosing more specifically what types of in-kind food or drink are distributed, there is no way of knowing how much of it is non-nutritious or empty-calorie foods, such as soda pop and chips (Frito Lay is a “corporate partner” of FC). The biggest category of distribution is “medical” at 66%. After food, the next largest categories cited are “miscellaneous” at 9% and “books” at 5%. Knowing which charities received these goods could give the public insight as to whether or not these items are used to benefit children or others in need.

From the November 2000 Watchdog Report

Charity Circulated Forged Audits

When are audited financial statements unaudited? When the accompanying audit report is fake. The fiscal 1999 and 1998 financial statements of Feed the Children (FTC), formerly Larry Jones International Ministries, Inc., distributed to AIP and state regulators contain the forged signature of Arthur Andersen L.L.P., a major public accounting firm.

According to FTC, its former Chief Financial Director Monty Rainwater confessed that he forged Arthur Andersen’s name on FTC’s ’98 and ’99 financial statements. Tim Hackler, a spokesperson for FTC, said that Mr. Rainwater had told officials that he did it because he got behind in his work. Mr. Hackler said no one told Mr. Rainwater to forge the documents and that he did not do so for financial gain.

Mr. Hackler said that he feels at this time that the unaudited numbers used in the financial statements are good. He also said that Arthur Andersen is currently conducting an audit of FTC’s 1998 and 1999 finances.

FTC became suspicious a few months ago when officials could not get a few financial documents from Mr. Rainwater in a reasonable amount of time, according to Mr. Hackler. FTC then asked Capin Crouse, a Chicago accounting and consulting firm that specializes in nonprofits, to take a look around the finance department. At the time of Capin Crouse’s investigation, Rainwater admitted creating the forged audits and was fired shortly thereafter, according to a statement from Capin Crouse.

Although FTC has stated that it does not doubt that the 1998 and 1999 forged statements are materially accurate, AIP still is concerned that FTC’s Board of Directors did not discover over a two-year period that a real audit was not conducted. Typically at nonprofit organizations, the board or an audit committee of the board annually approves an audit and also receives communications from the auditor concerning the organization’s internal controls and other financial management practices. Barry Gardner of Capin Crouse told AIP that FTC’s audit committee approved the forged fiscal 1998 audit and he did not know if the committee had approved the forged fiscal 1999 audit. FTC’s audit committee approved the 1998 audit in spite of the fact that it had not received direct communication from its auditor. Mr. Rainwater, according to Mr. Gardner had circumvented direct communication between FTC’s board and its auditor.

ACCUSATION OF BRIBE COVER-UP AND ONGOING CONCERNS
Wesley Billings, a former FTC finance officer, says he quit his job in 1998 at the charity because he was asked to create false paperwork to cover up a $20,000 bribe that was allegedly made by the charity to a Russian official, and because he was concerned about other purported financial irregularities, which he said he described in memos to FTC officials. Mr. Hackler told The Oklahoman that Mr. Billings was referring to a $30,000 bribe that a Moscow customs official demanded to allow goods to clear customs. FTC was given the option to pay $58,000 in government fees in lieu of the bribe and this is what the charity chose to do. Mr. Hackler accused Mr. Billings of making vague accusations against FTC.

Feed the Children continues to receive an “F” grade from AIP for spending only 12% of its fiscal 1999 cash budget on program services that are not conducted in conjunction with fundraising. FTC also continues to spend most of its cash budget on television programming and advertising, direct mail and postage, which accounted for $37 million, or 75% of total cash expenses, in fiscal 1999.

AIP believes strongly that an organization with a name like Feed the Children should devote more of its efforts to collecting and distributing food. Only 13% of the $243 million of gifts in kind that FTC distributed in fiscal 1999 was “Food and child care items,” this category accounted for 23% of gifts in kind in fiscal 1998. FTC continues to distribute far more dollars worth of “Medical, dental and optical supplies, equipment and services” and “Other materials and services” than food.

POPULARITY OF CHARITY GROWS
These problems have not been obstacles to FTC’s rapid growth. According to FTC’s unaudited figures for fiscal 1998 and 1999, cash contributions have jumped 168% from $25.0 million in 1994 to $67.0 million in 1999, including a 41% increase from 1998 to 1999. Gifts-in-kind or donated goods contributions have rocketed 251% from $69.9 million in 1994 to $245.2 million in 1999, including a 60% boost from 1998 to 1999.

The Daily Oklahoman reported that the son of Larry Jones, founder and president of Feed The Children (FTC), AKA Larry Jones Ministries International, stated in a personal bankruptcy filing that he owed his father’s charity $950,000. When the Oklahoma City newspaper pursued its story, FTC appeared to attempt to squelch the news. “These are disturbing and reprehensible tactics, of the kind you would expect from the worst elements in society, not from our religious leaders,” commented Stan Tiner of the Oklahoman in an editor’s note that accompanied the story.

The editor of the Oklahoman reported that Larry Jones said he would give the newspaper a story "twice as good" if it did not publish its story, and FTC’s lawyer and other third parties insinuated that information about the private lives of the reporters covering the story had been obtained. A Feed the children spokesperson told AIP that the “twice as good” story Larry referred to was about the work of Feed the Children, and information about a reporter was discussed, not insinuated, with an Oklahoman editor “off the record and on background.”

Many charities encourage their employees to spread the word about their good works and fine leaders. At FTC employees are required to sign a confidentiality agreement as a condition of employment. The Oklahoman reported that one section of this agreement states: “The undersigned agrees not to write or publish, or cause to be written or published, anything relating to, or alluding to, Larry Jones International Ministries, Inc., Feed the Children, or any other subsidiary or about Larry Jones and his immediate family, or staff members, past, present or future or concerning vendors. This includes, but is not limited to television, radio and all other media.” While it is a common practice in the nonprofit field for employees to respect the privacy of donors and clients and not to reveal the trade secrets of any for-profit subsidiaries, FTC’s confidentiality agreement is exceptionally broad, and it may deter the scrutiny that every charity needs. FTC told AIP that it is reevaluating its employee confidentiality agreement.

AIP’s summer Charity Rating Guide reported on FTC employee thefts at its Nashville warehouse, the low percentage of its cash budget being spent on program services, accountability problems and other concerns. Since AIP’s summer publication, the Oklahoman has looked further into FTC’s practices and activities. Some of the newspaper’s findings follow:

Feed the Children Execs Accused of Stealing Donated Supplies Intended for the Needy

After conducting a four-month investigation, WTVF, a Nashville television station, recently reported that it had secretly videotaped Feed the Children’s (FTC) Nashville front office “from the executive director on down” regularly taking boxes of donated goods. WTVF reported that “even family members [of FTC staff] got in on the action.” Warehouse workers, who tipped off WTVF about the alleged thefts, told that station that they saw staff takes boxes they believed were intended for Kosovar Refugees and Oklahoma Tornado Victims. The Associated Press reported that Tennessee Bureau of Investigation agents had raided the charity’s Nashville office and the homes of six administrative employees producing boxes of shoes, videos, blankets, food and other goods they believe were donated for the needy. “Merry Christmas to me” was written on one box according to the AP.

Steve Highfill, who was recently replaced as director of the Nashville center, one of FTC’s two U.S. distribution centers, told WTVF: “If they're taking stuff home and giving their little brother a pair of shoes or some food, I don't have much to say about that. If that’s wrong, fine. I don't think so and I don't think people are going to think so.” Larry Jones, founder and president of Feed the Children, responded later at a press conference by saying: “Donated items are not perks for employees. The executive director was not acting with my authority or approval with the decisions that he made regarding the employees taking donated items, and he was not acting in conformance with company policy.” FTC has temporarily closed its Nashville center and laid off all of its staff.

FEED THE CHILDREN
Questions remain about whether staff members at FTC’s Oklahoma City headquarters knew about the alleged employee pilfering. According to WTVF, Nashville warehouse workers were apparently ignored when they called the Oklahoma headquarters several times in December and January to report that administrative employees were using the warehouse as a personal shopping mall. Emilee Truelove, a FTC spokesperson, told AIP that she could not confirm or deny whether FTC received such calls. In response to the allegation that such calls were ignored, Mr. Jones told the Associated Press, “I hope our investigation brings that out because that’s new to me.” He also told the AP that he had hired investigators after learning that some Oklahoma City workers were taking goods, and those workers were subsequently arrested and prosecuted.

Ms. Truelove told AIP that Larry Jones learned in April that warehouse employees had a tape of alleged warehouse thefts, but that they had not sent it to him as he had requested.

EFFICIENCY, ACCOUNTABILITY AND FAMILY TIES
Feed the Children receives an “F” grade from AIP because in our opinion it spends only about 14% of its cash budget on program services that are not conducted in conjunction with fundraising. In fiscal 1998, FTC spent almost $13 million on television programs and almost $12.9 million on direct mail and postage. These two items account for about 70% of its $37 million cash budget. FTC, whose primary purpose is to distribute donated goods and supplies to the needy, spent only $944 thousand, or less than 3% of its cash budget, on shipping, handling and storage in fiscal 1998.

Feed the Children distributed $140 million of donated goods in fiscal 1998. About 23% of this amount was for “food and child care items.” (Note: FTC changed this category in fiscal 1998 from “food and grains.”) FTC distributed far more dollars worth of “Medical, dental and optical supplies” and “Other materials and services” than food in fiscal 1998.

Feed the Children appears to have an accountability problem. In the past it has not received “open book” status from AIP because it has failed to send us requested documents. Since the recent warehouse problems were exposed, however, FTC has said that it will comply with AIP’s document requests. FTC, also known as Larry Jones International Ministries, Inc., is not a member of the Evangelical Council for Financial Accountability, which requires that its members uphold standards for financial accountability, ethics and reporting.

FTC owns a for-profit trucking company that is headed by Larri Sue Jones, Larry Jones’ daughter. (She is also Legal Counsel for FTC.) This is of concern to informed donors since for-profit companies are not required to publicly disclose their financial statements. It is also not clear why FTC should be in the for-profit trucking business unless it can demonstrate that it can ship the charity’s donated goods more efficiently than outside transportation companies. Ms. Truelove told AIP that “Larry Jones created an empire from the ground up” and that he set up his own trucking company because he does not want to rely on outside people. She said that the trucking company was set up as a for-profit so that its trucks could bring back loads after making shipments of donated goods. She also said that none of the Jones family receives pay or benefits from FTC’s for-profit trucking firm. Larry Jones, his wife Francis Jones, who is Executive Vice President of FTC, and his daughter Larri Sue Jones together received compensation, benefits, expense accounts and other allowances totalling nearly $269,000 in fiscal 1998, according to FTC’s fiscal 1998 IRS Form 990.