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Professional Fundraiser Is Ring Leader of Triple Charity Scheme

—from the Summer 2014 issue of the Charity Rating Guide & Watchdog Report

You've answered your ringing phone, and the lady on the other end says she's calling from a professional fundraiser on behalf of the charity "Breast Cancer Funds for Research." Sounds like a reputable charity, you think to yourself. She starts telling you about how often a woman is diagnosed with breast cancer and how important it is for women to perform monthly self-examinations, and then she politely asks, "Will you please contribute just $20 to fund breast cancer research facilities in your state?" After briefly thinking about the several people close to you that have battled cancer, the alarming statistics the telemarketer just referenced, and the reputable-sounding name of the charity, you respond,"Well, okay, I can give $20 to fund breast cancer research."

Millions of real life donors also have responded agreeably to these types of professional fundraising calls. Unfortunately, it is likely that these donors knew little to nothing about the charity's true activities, including what portion of their donation actually will be used for genuinely charitable programs. Some informed donors are aware that on average nearly two-thirds of such donations are used to pay for the services of the professional fundraiser doing the phone soliciting. In some cases, though, the percentage of a charity's contributions used to pay professional fundraisers is significantly higher than two-thirds, and this certainly was true in the case of three Long Island, New York-based charities: Bi-County Helpline for Abuse Against Women and Children (Bi-County Helpline), Breast Cancer Funds for Research (Breast Cancer Funds), and Long Island Responds (LI Responds) (or collectively,"the three Long Island charities"). Having such high fundraising costs is alarming in and of itself, but the story behind the three Long Island charities and their professional fundraiser, Mure Associates (Mure), includes even more shockers that should caution all donors against giving to any unfamiliar charity on a whim.

Bi-County Helpline, Breast Cancer Funds, and LI Responds collectively raised about $2.4 million in cash donations from 2006 through 2012 in the name of their respective, very popular missions related to assisting victims of domestic violence, raising funds for breast cancer research, and providing education and support for food pantries and shelters. To raise these contributions, each charity used the fundraising services of Mure, which kept between 75% and 90% of the funds raised. A mere 2.3%, or about $54,000, of the $2.4 million in contributions was reported by the charities as being distributed as direct cash assistance for charitable purposes. These extremely poor financial efficiency ratios alone should create cause for suspicion about the true intentions of the three Long Island charities.

In fact, suspicion was raised at the New York State Office of the Attorney General (OAG), which began investigating the three Long Island charities after the Charities Bureau of the OAG issued its December 2012"Pennies for Charity" report showing that each of the three Long Island charities kept just 20% of the gross receipts raised by Mure. Following its investigation, the OAG alleged that the three Long Island charities essentially were charities in name only, created by the two women who were founders and co-owners of Mure—Lillian Kleppe (who died in December 2013) and Harriet Waldbaum—and run, at least on paper, by their family members and a former Mure employee primarily for the personal benefit of the involved parties.

In February 2014, New York's Attorney General filed a complaint against Mure, the three Long Island charities, Waldbaum, and four other named defendants ("the Complaint"). According to the Complaint, each of the three Long Island charities entirely ignored the governance and corporate requirements imposed by New York's not-for-profit laws; they did not have a functioning board of directors, hold board meetings, or maintain proper books and records. Also per the Complaint, the annual tax filings of each included false information and incomplete disclosures, such as false descriptions of and claimed dollar amounts spent for program service accomplishments; failure to disclose the familial relationships with Mure's co-owners; incorrect amounts claimed of hours worked and compensation awarded for the reported directors or officers; and reporting all or almost all amounts paid to Mure for fundraising as program expenses in some years. Nonetheless, the three Long Island charities collectively reported paying Mure approximately $2.13 million since 2006, or about 90% of the $2.37 million in cash contributions received during the same period, according to the charities' tax filings.

Based on the Complaint, Kleppe and Waldbaum of Mure appear to have formed and controlled the three Long Island charities. The following allegations from the Complaint provide a glimpse into how Kleppe and Waldbaum orchestrated this alleged triple charity scheme on Long Island for over a decade.

  • Kleppe's sister, Kleppe's sister-in-law and her sister-in-law's mother, and a former solicitor at Mure were identified as various officers or directors on the respective filings for Bi-County Helpline (BCH), LI Responds (LIR), and Breast Cancer Funds for Research (BCFR) upon each charity's formation. Other than two family members of the former Mure employee with respect to BCFR, no other individuals are identified as officers, directors, trustees, or key employees on any of each charity's filings dating back to 2006.

  • The phone number of BCH's supposed "24-hour helpline" rang to the home of Kleppe's sister where there were no trained responders.

  • Kleppe and Waldbaum of Mure were allowed to open all mail addressed to LIR.

  • When soliciting for donations for each respective charity, Mure's telemarketers used a script with false and misleading statements about the charity's mission.

  • The fundraising contracts that Mure entered into with each charity allowed Mure to receive either 75%, 80%, or 90% (depending on the contract date) of all funds raised for the charity. No attempts were made by the three Long Island charities to seek out any other professional fundraisers that could have provided the charities with better fundraising returns than Mure.

  • Kleppe and Waldbaum of Mure had full control over the respective bank accounts of LIR and BCFR and caused each charity to pay Mure for additional fees beyond the 80% or 90% already being paid to Mure for funds raised.

  • Each charity permitted Kleppe and Waldbaum of Mure to write checks from its respective bank account by providing them with blank signed checks or unsigned blank checks with either improper authorization to sign the name of Kleppe's sister (for BCH) or unsupervised, full use of a rubber-stamped signature of Kleppe's sister-in-law (for LIR) and the former Mure employee (for BCFR).

  • Kleppe's sister used donated funds to BCH to pay her own personal expenses.

  • Kleppe and/or Waldbaum, using LIR checks and the rubber-stamped signature of Kleppe's sister-in-law, caused LIR to make periodic payments to Kleppe's sister-in-law. The total dollar amount Kleppe's sister-in-law improperly received from LIR was not identified; no amounts were reported on LIR's tax filings as her compensation, nor did she report income from LIR on her personal tax returns.

In addition to the above, the Complaint describes that through introduction by Kleppe and Waldbaum, the three Long Island charities used the same accountant, a principal of Portfolio Planners, to assist them in the scheme by preparing tax filings and purported reports of audits and reviews of financial statements that contained material misstatements. The purported audit reports and financial reviews prepared by Portfolio Planners also failed to identify any of the improper activities involving Kleppe and Waldbaum of Mure, and the accountant, Richard Thomas, has never been a licensed certified public accountant, all according to the Complaint.

Amounts paid to Mure many times larger than direct cash assistance provided by the Three Long Island Charities.

How successful were Kleppe and Waldbaum of Mure in profiting from their triple charity scheme? And how much of the cash donated to the three Long Island charities was actually directed to each of their charitable causes? The bar chart, above, illustrates the direct cash assistance provided by the three Long Island charities over the fiscal 2006-2012 period, compared to the amounts paid to Mure and total cash donations raised.

Even though this triple charity scheme run by the co-owners of Mure was localized to Long Island and was exposed and shuttered before it reached a larger scale, the parties involved were successful in deceiving generous New York donors out of millions of dollars that could have been used much more efficiently by highly-rated, legitimate charities. The pending settlement between the state of New York and the parties involved in the scheme includes a $500,000 total judgment against the defendants and permanently bars Waldbaum, Kleppe's sister, Kleppe's sister-in-law, and the former Mure solicitor from any future service as an officer, director or fiduciary of any charitable organization registered in New York. However, no admission of liability by any of the defendants is made in the settlement. Also, terms of the settlement do allow Waldbaum and Kleppe's sister, under certain restrictions, limitations and compliance measures, to be employed by and/or solicit funds for charitable organizations registered in New York. In fact, an attorney for Waldbaum told Newsday that he is pleased that Waldbaum can "resume her work in supporting efforts of charitable organizations." Further, the bans and restrictions imposed against the involved parties per the settlement terms cover only New York and, therefore, do not prohibit Waldbaum and/or any of her cohorts from trying again in any other state to make millions by deceiving innocent donors with a new charity scheme.

Let this rather crudely operated triple charity scheme on Long Island serve as a cautionary tale. While you can rely on CharityWatch for guidance when it comes to hundreds of the charities that raise funds nationwide at annual levels that typically reach more than $1 million, take extra care when being solicited by small, local charities that go unmonitored by CharityWatch and others. Unfortunately, it can be quite easy for such charities to act without truly charitable intentions and slip through the cracks of state or federal oversight. Moreover, as in the case of the three Long Island charities, even when bad actors are caught and legally reprimanded, jurisdiction may be limited to the state level. The good news is that protecting yourself from being a victim of a charity scam can be as simple as never giving in response to pressure from telephone solicitors or others. The key is to always know the charity, including how the charity will spend your donated dollars, before you give.

 
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