"Through in kind giving, companies get their tax deductions, charities collect their cash fees and can inflate their reported program expense, whether or not the poor or needy actually benefit."

-Daniel Borochoff, AIP President

According to an FBI search warrant and affidavit, an individual named Jeff Lowe posed as an employee of Citizens Opposed to Domestic Violence (CODA), a small, abused women's shelter in Beaufort, South Carolina, in order to obtain $14.2 million of goods intended for poor or needy people. The affidavit states that a Gifts in Kind International's (GIK) audit revealed that during 2004 it delivered to what was purported to be CODA's warehouse $14.2 million in "clothing, shoes, watches, toothbrushes, razors, personal care products, coffee makers, purses, books, and jewelry." GIK typically charges recipients of its donations a handling and administrative fee. Lowe paid $119,000 to GIK in fees, according to the affidavit.

The FBI affidavit, which was used in this ongoing federal investigation, states that GIK received an application signed by Bonnie Lawrence, the executive director of CODA, dated November 2003 with a $125 money order. The application listed Lowe as the co-coordinator for GIK, who would receive all product announcements. Veronica Watson, CODA office manager and mother of a son who works for Lowe, was listed as the contact person. According to the affidavit, Lawrence said that Lowe was not a volunteer or employee of CODA, that she gave no one permission to join GIK and that her signature on the application was a forgery.

Why would a small women's shelter with a $750,000 budget that is funded primarily by the government be able to receive $14.2 million in donated goods from GIK? According to the affidavit, in January 2004, Lowe sent GIK a $1,000 money order so that CODA could be a GIK affiliate and warehouse, and distribute goods to other charities. Judy Mercadal, Vice President of Network Development at GIKI, declined to provide details about the CODA situation while the investigation was still ongoing. She told AIP that it is "highly possible that it [the small charity] serves the entire community." CODA had long been an upstanding agency, according to Mercadal. When AIP asked her what a local domestic violence program would be doing with a giant warehouse, she replied that some small charities are sophisticated and can borrow or obtain resources.

Lawerence told AIP that she had no communication with GIK regarding the $14.2 million distribution of goods. She said Watson filled out forms, sent tax reports and other information and signed Lawrence's name without her knowledge. Lawrence also said the office manager had intercepted all the calls, email and regular mail regarding the gifts in kind. " Watson was recently arrested and charged with embezzling over $120,000 from CODA over a four-year period, according to The Beaufort Gazette.

While GIK in 2003 received and distributed over $400 million in gifts in kind, it must pay its employees and other operating expenses with cash. GIK receives most of its cash income from fees paid by the nonprofit recipients of its donated goods. According to its 2003 tax forms, GIK received $3.3 million in administration and registration fees from nonprofits that take delivery of its goods but only received $1.7 million in cash contributions from the public. In AIP's opinion, charities need to be careful to not let their need for cash fees overly influence their in-kind grant making decisions.

Businesses that want tax deductions on unwanted donated inventory may put heavy pressure on GIK and other nonprofits involved in gifts in kind to find charity outlets for their donated goods. AIP asked Mercadal what due diligence GIK performs in choosing and monitoring its affiliate distribution centers. She said that typically the local United Way serves as the GIK distribution center. If the United Way is not interested in doing this, GIK will ask it for an endorsement of a local agency that wishes to manage the GIK program in the community. GlK does not regularly receive the network affiliates' distribution plan but does require that it be kept and made available, according to Mercadal.

AIP called the Beaufort United Way to find out whether it had endorsed CODA to serve as a GIK distribution center. Clarise Walker, president of Beaufort United Way, stated that the Beaufort United Way never gave GIK an endorsement for CODA to serve as a distribution center. Ms. Walker stated that the United Way had no idea that CODA or someone purporting to represent CODA had applied to be a GIK distribution center. Walker confirmed that the Beaufort United Way is typical in that it holds the affiliate GIK membership and distributes donated goods to local agencies when these agencies submit a request for such goods.

When AIP asked Mercadal how GIK knew if the donated goods are really making it to people in need, she said that GIK holds training sessions at several distribution facilities and that GIK "trusts that they are serving the community." She also said that GIK does spot checks of the names and phone numbers on the distribution plan provided by the network affiliate to see if these groups have actually received the donated goods on the list. When asked how they know if the phone numbers on the list are correct, Mercadal replied that GIK trusts the name of the organization as given by the person answering the phone. AIP finds this quite disconcerting since it would be very easy for someone that wants to wrongly receive donated goods to set up an extra phone line that they could falsely answer with a charity's name or do so on their regular phone line when GIK's name and number show up on the caller I.D.

According to Mercadal, most of the communication is between the affiliate distribution center and the charity that uses or gives the donated goods to individuals. The distribution center makes site visits and occasionally sends a report of the visit to GIK. Handling fees set by the distribution center may be charged to the end user charity. In AIP's opinion, GIK's limited oversight makes it difficult for it to identify and stop an errant distribution center.

Lawrence told AIP that she's a victim of identity theft and that "I'm sure that other places have problems" having donated goods falsely ordered in their name. She said that CODA may need to have their internal controls improved. In the meantime, Lawrence is still getting calls from companies offering to give CODA donated goods. She was recently offered some electrical equipment that her agency would have no use for.

AIP asked Mercadal if GIK is doing anything differently in light of the alleged $14.2 million misappropriation of donated goods. Her response was that we'd see "subtle" changes and that GIK staff have met several times concerning this incident.