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You Can't Judge a Book by its Cover nor a Charity by its Name

—from the May/June 2013 issue of the Charity Rating Guide & Watchdog Report

Receiving approval from the IRS to be tax exempt and to collect tax-deductible contributions does not guarantee that a group is a good charity—even if Good Charity, Inc. is its official name. When the IRS makes a decision on a group's application for charitable status, it is approved 99.6% of the time. This leads to some pretty bad groups becoming charities.

A relatively new Michigan-based group named Good Charity, Inc. claims it is "making a difference in people's lives by providing funding to some of America's leading causes," according to its website. Formed in December 2010, Good Charity has been operating for less than the three-year period CharityWatch requires before a rating is conducted. Based on preliminary research, however, there is ample reason for concern regarding the creation of Good Charity and its fundraising and program service activities. This concern warrants attention now so that potential donors can be made aware that Good Charity's initial actions and activities have been contradictory, misleading, suspicious, and seemingly far from "good" in nature.

Note: Other than fulfilling our request for a copy of its application to the IRS for charity status, which it is required to do under IRS public disclosure rules, Good Charity did not respond to any of CharityWatch's questions.

A primary area of concern regarding Good Charity is its relationship with professional telemarketing fundraiser Insight Teleservices, Inc. (Insight), which is also based in the Detroit area. Good Charity was founded by Brian Maiorana, a former or possibly current new business development director at Insight. Mr. Maiorana serves as president of Good Charity and also is one of its three board members or officers listed in its 2011 tax form, which is the most recent form available. Three is the minimum number of board members required to form a nonprofit in Michigan, but CharityWatch believes that a nonprofit organization ought to have at least five members on its governing board. Another Insight employee, Sean Smith, was the named vice president at the time of Good Charity's formation, thereby resulting in two of the three listed board members or officers being past or present Insight employees. Mr. Smith also was listed as one of four phone room managers for Insight in a Good Charity professional solicitor registration statement filed in February 2012 with the Attorney General's office in Massachusetts. Further, a note to Good Charity's 2011 audited financial statements discloses that Good Charity uses property and equipment "owned by one of the commercial fundraisers that it has a contract with." The audit note is likely referring to Insight since it is the only fundraising company that Good Charity has reported hiring, according to its tax form. Potential donors should be aware of these key personnel connections between Good Charity and Insight, especially in light of its very small number of board members and officers, a majority of whom are current or former employees of Insight.

Another alarming aspect of Good Charity's relationship with Insight dates back to Good Charity's January 31, 2011 application for charity (also known as "501(c)(3)") tax exemption status. In its tax exemption application, Good Charity indicated that it would not have any contracts with any organizations to raise funds, and stated, "We do not intend to use the services of any professional fundraisers." Good Charity did not identify any independent contractors expected to receive more than $50,000 per year, and no relationships between Good Charity's officers and expected highest compensated independent contractors were indicated to exist. Additionally, Good Charity described in two different parts of its tax exemption application that its fundraising would be conducted by members of the organization and unpaid volunteers. About three months later, however, Insight and Good Charity entered into a three year fundraising agreement, and as disclosed in Good Charity's 2011 tax filing, Insight raised 100% of the contributions Good Charity received in 2011 and was paid over $1.2 million by Good Charity for its services. Whether intentional or not, clearly Good Charity's tax exemption application concerning its expected fundraising activities and relationship with Insight was erroneous and misleading.

image: Table

The table above reflects the results of some of Insight's recent professional fundraising solicitation campaigns. As the last column of the table indicates, the charities for which Insight solicited retained only 10-15% of the gross receipts raised by Insight, thereby allowing Insight to retain 85-90%. Insight was paid over $2 million by the above charities for its fundraising services, with over $1 million coming from Good Charity, based on this report.

Good Charity also provided erroneous and misleading information in the budget portion of its January 2011 tax exemption application. Good Charity projected that its revenues would be $25,000, $30,000, and $40,000 in 2011, 2012, and 2013, respectively, totaling $95,000 in contributions received for the three-year period. This revenue projection has proven to be completely baseless as Good Charity raised over $1.4 million in contributions in 2011 alone. Good Charity also failed to provide a reliable projection of its fundraising expenses. Good Charity projected zero dollars in fundraising expenses for the three-year period of 2011-2013, yet it reported over $1.2 million in fundraising expenses in its 2011 tax filing. Given that Good Charity contradicted itself by contracting with a professional fundraising company soon after it said it would not do so in its tax exemption application, it appears that Good Charity either failed to prepare its application with sufficient attention and care or knowingly provided misinformation to the IRS.

Good Charity's January 2011 tax exemption application also contains contradictory and misleading information related to the disclosure of its purpose and grant-making intentions. Good Charity's stated Purpose of Corporation includes "the making of distributions to organizations that qualify as exempt organizations" and its 2011 annual report financial summary lists an amount disbursed for "Total Grants For Program Related Services," yet Good Charity indicated in its tax exemption application that it would not make grants, loans, or other distributions to organizations. Also confusing is that although Good Charity calls its 2011 distributions to organizations "grants" in its annual report financials, these same distributions were not classified as such in its 2011 tax filing, which allowed Good Charity to avoid disclosure of its grant recipients and the amounts that they received. Further, Good Charity's tax exemption application includes the following: "As we collect money throughout the year, we will make donations to the various 501(c)3 organizations that we have selected. Once a donation is made, we will update our site to reflect our efforts. This is another way our followers can keep up to date on how their contributions are being used." Upon a review of Good Charity's website, however, it fails to fully update its "followers" as to how their contributions are being used because no contribution amounts are identified in any of the news updates or contributions lists provided on the website (as of April 10, 2013). Rather, vague language such as "proud to financially support" or "proud to contribute to" a particular organization or cause is used. Good Charity's financial reporting of its grant distributions in 2011 also is confusing and inconsistent as Part III of its tax filing indicates that $74,900 of grants were made from Good Charity's National Breast Cancer Awareness Fund, but its annual report allocates this $74,900 among five different Good Charity funds. The "Our Work" section of Good Charity's website (as of February 15, 2013) does list specific names of organizations to which it distributed contributions in 2011 through the five funds identified in its annual report, but no associated contribution amounts are included. Good Charity's contradictions regarding its grant-making activities and failure to be transparent with the dollar amounts being contributed to the various charities it has selected to support is another cause for serious concern.

Although Good Charity claims that it helps its donors by giving them assurance that their financial contributions are going to organizations that will properly use their money, CharityWatch questions how safe and effective using this type of "middleman" is in the donation process. Perhaps Good Charity is directing funds to efficiently run charities, but how efficient is Good Charity itself? Based on its first year financials, Good Charity's cost to raise funds and percent of expenses spent on program services are at extremely inefficient levels, even for a new charity. According to Good Charity's 2011 tax filing, Insight raised $1.44 million in contributions for Good Charity at an expense of $1.26 million. This equates to a cost of $88 to raise every $100 of funds. Good Charity retained just $180,058 (or 12.5%) of the over $1.4 million in contributions raised by Insight but granted less than half of this amount to the programs it claims to be raising funds to support. Although one part of Good Charity's 2011 tax filing erroneously indicates that it spent between about $200,000 and $500,000 each for four of its program services, another part of the filing correctly reports that Good Charity's total program service expenses actually were less than $93,000. Based on total program service expenses of $92,878, less than 7% of Good Charity's total expenses for 2011 was spent on charitable programs. Given that Good Charity is using such a large portion of its raised funds to pay Insight while spending such a small percentage of its expenses on program services, how can Good Charity claim, as it does in its tax exemption application, that it gives its donors "assurance that by supporting our efforts, their money will be used effectively"? Wise donors will avoid such a "middleman" and instead perform their own independent research and rely on the information provided by organizations such as CharityWatch before making a charitable contribution.

The names under which Good Charity may be soliciting funds through Insight include the following:

  • America's Missing Children's Fund
  • The Autistic Society Fund
  • Children's Leukemia of America Fund
  • Disaster Relief & Aid Fund
  • Disabled and Paralyzed Veterans Fund
  • Disabled Veterans Wheelchair Games
  • Michigan Disabled & Paralyzed Veterans Fund
  • National Breast Cancer Awareness Fund
  • Terminally Ill Children's Fund

The home page of Good Charity's website lists these funds, complete with logo designs and corresponding "Updates & Achievements" for each fund when it is clicked on for more information. Given the names of these funds and sometimes similar looking logo designs, one could easily be confused or misled into thinking that these funds are independently-operated national charities that have partnered with Good Charity to receive contributions. This, however, is not the case. These are funds that have been created by Good Charity. It is important to realize that Good Charity's reported expenditures for these funds are not necessarily grants to outside charities. For example, when Good Charity stated in its 2011 tax form that it made $456,000 in expenditures for the Disabled and Paralyzed Veterans Fund, Children's Leukemia of America Fund and Terminally Ill Children's Fund, it did so while making just over $13,000 in grants (as reported in its annual report) to charities that serve these causes.

Good Charity's current fundraising agreement with Insight continues through May 3, 2014, and Good Charity has been licensed to solicit funds in 24 states. Given the key personnel connections between Good Charity and Insight, the contradictions and misleading information in Good Charity's tax exemption application, the high fundraising costs paid to Insight, the small portion of expenses spent on charitable programs in 2011, and the lack of details related to the dollar amounts being contributed to the various charities it has selected to support, CharityWatch cautions donors that it may not be a "good" decision to give to Good Charity or any of the charitable funds it has created.

 
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Last Update: April 12, 2013