CharityWatch REPORT
Issued February 2017

CharityWatch Analysts perform an in-depth analysis of charities' audited financial statements and IRS tax filings, and often review other documents such as state filings, annual reports, and fundraising contracts during their evaluations. Below are select notes that CharityWatch believes may be of interest to donors.

Any time an Analysts' Note refers to a charity's Audited Financial Statements or IRS tax form, CharityWatch encourages interested donors to obtain a copy of the referenced documents so that they may view the information in context. Please contact the charity directly to request a copy of any referenced document. Charity tax forms and audits may also be obtained from a number of online databases. For a list of sources, please visit our LINKS page.

According to the Kars4Kids consolidated audit of December 31, 2015 (Note 6, Related Party Transactions):

"The organization distributed most of its grants to an affiliated nonprofit organization under common management. Total grants to related organizations during 2015 amounted to $17,196,997... In addition, the organizations share premises, and certain overhead costs are allocated between them based on usage."

"The organization is a guarantor on a $12,000,000 term note for the same affiliated organization with an outstanding balance of $11,051,574 at December 31, 2015. The note matures in September 2022 and is secured by real property of the related organization. The note accrues interest at a per annum rate equal to the bank's prime rate plus .75%, with an interest rate floor of 3.75% per annum. Interest and principal payments of $63,340 are due monthly for the remaining term."

*NOTE: Oorah Inc. (tax ID# 22-3746051) is the "affiliated nonprofit organization under common management" referenced above. Kars4Kids' $17 million grant to Oorah in 2015 represents approximately 93% of Kars4Kids' total program spending for the year (adjusted for joint solicitation costs).

Once Kars4Kids' and Oorah's overhead expenses are considered in aggregate, only about 38% of Kars4Kids' donated car proceeds were spent on bona fide programs in 2015.

CharityWatch does not provide a separate rating for Oorah at this time, primarily because Oorah received only about $600,000 in total contributions from unrelated parties in 2015 (net of losses on fundraising special events). Approximately 90% of Oorah's cash contributions that year were received from Kars4Kids.
Approximately 95% of Kars4Kids' Contributions in 2015 were from donated cars, other vehicles, boats and planes; and approximately 5% was from donated real estate. (See the Kars4Kids 2015 IRS Form 990, Schedule M.)

According to the Kars4Kids consolidated audit of December 31, 2015 (Note 1, Donated Goods and Services):

"...Donations of used cars, which account for a majority of the organization's revenue, are valued at the estimated net proceeds of subsequent sales of such vehicles..."

As noted above, Kars4Kids reports its car donation proceeds on a net basis and fails to report the associated vehicle processing expenses for those donations in either its 2015 IRS Form 990 or audited financial statements. If Kars4Kids reported the value of its car donation proceeds on a gross basis and included its vehicle processing expenses as fundraising costs, as should be done, its Program Percentage and Cost to Raise $100 would likely be a few percentage points lower and a few dollars higher, respectively.
According to the Kars4Kids consolidated audit of December 31, 2015 (Note 9, Contingencies, Trademark Settlement):

"The organization had reached an agreement under the terms of a trademark infringement settlement in which Kars 4 Kids Inc. was required to make certain payments in exchange for specific trademark rights. The parties are currently disputing the enforceability of the settlement and the terms thereof and the case has been referred back to the court for a ruling."

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