From forged audits and alleged employee theft in the late '90s to alleged burglary and board coup staging within the past year, no other major charity can match Feed the Children's (FC) record of outrageous behavior over the past ten years. The madcap antics of Feed the Children and Larry Jones, its founder and president for 30 years, may be coming to an end. In August 2009, after months of turmoil at the charity, Mr. Jones agreed to give up control of FC in order to settle a lawsuit between FC's longstanding board and a new board that he had attempted to install. Fascinating details about many alleged wrongdoings at this charity have been brought to light as a result of this lawsuit.
Last December, Larry Jones staged a failed coup in an attempt to take over the board of FC after the board decided to put an end to his "freewheeling dominance" over the charity and demanded that he take a sabbatical for an indefinite period of time. The new board members Larry Jones attempted to install consisted of prominent ministers. This board along with Larry Jones promptly fired FC's chief operating officer, chief financial officer, internal auditor and the daughter of Larry Jones, Larri Sue Jones, FC's Vice President and General Counsel. The longstanding board sued the new board in January and was reinstated by Oklahoma County District Judge Patricia Parrish in February along with the previously fired employees.
FC has continuously received an F grade from AIP since we began rating this charity in 1995. Based on FC's most recently available financial statements for fiscal 2008, only 21 to 23 percent of its cash budget was spent on program services and $63 to $65 was spent to raise each $100 cash contribution. In 2008 about 54% of FC's cash budget of $125 million was spent on "television and radio," "direct mail," and "direct mail postage" according to its audit of the same year.
Medicate the Children?
FC emphasizes feeding hungry children in its name and most of its fundraising and PR. Yet food is not mentioned in the breakouts of noncash property received in FC's fiscal 2008 tax form. These breakouts account for $736 million or 69% of the total noncash items received consisting of $584.5 million or 83% medicine; $52.2 million or 7% books; and the rest "assorted necessities" and "disaster relief supplies." FC's 2008 audit reports that one contribution of medicine accounts for about 46% of total noncash property received and the related receivable accounts for 98% of $362.4 million in contributions receivable.
The Chronicle of Philanthropy lists FC as our nation's 7th largest charity based on its private support of $932.5 million, of which $820.6 million or 88% is noncash or in-kind, according to FC's fiscal 2007 tax form. FC's ranking might not be so high if its noncash income was valued more precisely. AIP has long questioned the reported value of FC's noncash support. In an article in the April/May 2009 AIP Guide, we pointed out that FC reported donations of pharmacy discount cards that were valued on its fiscal 2007 tax form at $22.4 million, yet according to a charity that received a shipment of these cards valued by FC at about $112,000, they could not be distributed because people did not want them due to their limited use. Charities have incentive to inflate the value of the in-kind items they receive and distribute because they can take credit for the value of these goods in their program percentages and appear to be operating more efficiently as a result.
The charity's own auditors flagged how FC values its noncash goods as one of its "material weaknesses," according to FC's Board of Directors Meeting Minutes of April 11, 2008. (Note: All board minutes and resolutions cited in this article are filed with the court as part of the lawsuit, FC vs. Osteen.) When AIP asked FC on October 5, 2009 to describe these "material weaknesses," they refused to answer the question and said that FC's outside auditors have determined that its valuation process no longer has "material weaknesses." Rather than explain its valuation methodology, FC chose not to answer AIP's questions concerning how it valued the discount pharmacy cards and also its shipments of Mebendazole, a deworming drug that FC says it distributed 61 million tablets of in fiscal 2008.
Millions to Media Group
The longstanding board at its meetings related numerous incidents of major agreements being made by FC staff without formal board approval. The most eye-opening one is a television buying agreement in which FC pays approximately $40 million annually to Affiliated Media Group (Affiliated), according to minutes of a June 30, 2008 board meeting, filed with the Oklahoma court. "This purchasing function has never been let out for bids, and there has been a less than satisfactory accounting by Affiliated of the true cost of the television time." FC told AIP that it will utilize "…competitive bidding on future purchase[s] of television air time."
More detail regarding payments to Affiliated was provided in the August 22nd minutes: $37.0 million in fiscal 2005, $38.0 million in fiscal 2006 and $35.0 million in fiscal 2007. These payments represent 35.8%, 33.2% and 30.1%, respectively, of total cash spending in each of those years. FC did not identify these payments made to Affiliated, its largest vendor, in its tax forms for those years even though the IRS asks that charities list the five highest paid independent contractors for both professional and other services. FC told AIP that it is not required to list separately its payments to Affiliated on its IRS form 990.
Allen Jones, Larry Jones' son, was employed by Affiliated, according to minutes at the June 30, 2008 FC board meeting. The board at this meeting expressed concern about a possible conflict of interest with this arrangement.
Larry's Son Runs Roughshod
AIP previously reported on Allen Jones in its 1999 Guide when he received from FC a $950,000 loan or promissory note to finance a framing business that he later assumed and defaulted on. Larry Jones told The Oklahoman that FC recovered its money in the foreclosure of the business. FC told AIP in 1999 that the co-owner of Allen Jones' business also guaranteed the note.
FC's April 11, 2008 board minutes stated that Allen Jones is not an employee of FC, though he had a charity credit card and used FC's offices, equipment, vehicles, and storage space. Allen used approximately 17,405 square feet to store "his pontoon boat, sea doos and other personal items," according to August 1, 2008 board minutes. The board alleged at its June 2008 meeting that FC paid for a garage door that Allen Jones had received and electrical work performed at his home. Allen reimbursed FC for these expenses, according to a "LIST OF [FC] BOARD RESOLUTIONS AND FOLLOWUP ACTIONS [FOR BOARD] MEETINGS MAY 16, 2008 THROUGH OCTOBER 24, 2008" (FC Board Resolutions). He also oversaw a large call center building in Elkhart, Indiana on behalf of his father. It is the FC board's understanding that during a two to three year period in which Allen oversaw the building, its "components and excess equipment were being stripped and removed by… personnel [from a company whose "contact" for FC was Larry Jones] and sold for cash in the nearby towns."
The Elkhart call center had been leased and some of its equipment purchased from FC in 2006 by InService, a company FC hired to answer calls from potential FC donors. According to a lawsuit filed by InService against FC and also Affiliated, who served as FC's negotiator, FC promised that it would make InService the "exclusive provider of call services." After a dispute with FC over InService's billing practices and performance of its contract, according to InService, FC later reneged on this promise by routing some of its calls to a competitor and not paying InService's invoices. Ray Davis, the CEO of Affiliated at the time who is now deceased, stated, according to the lawsuit, "I can destroy you brother. I will take In Touch from you. I will take Lakewood [Church] from you." These were InService's largest clients, according to the lawsuit. An interesting connection is that Lakewood is also the employer of Paul Osteen, the brother of famous televangelist Joel Osteen, and one of the people that Larry Jones attempted to place on the FC Board in his failed coup attempt.
FC's June 30, 2008 board minutes state that "legal counsel had been instructed to settle this matter…due to issues with Affiliated" and that "Ray Davis had brokered the transaction originally and was heavily involved in the settlement." The minutes also said that the total loss to FC from the lawsuit and equipment at the Elkhart call center was $1,675,630.
One of a number of internal FC disputes involved Rick Ross, FC's Vice President of Donor Relations, who was "forced" by Larry Jones to sign a contract with the vendor, AMP, even though it "was not in conformance with FTC's General Counsel comments," according to FC Board Resolutions, filed with the court. This document also stated that "Rick went on record as disapproving having to sign this contract without the General Counsel's or the Finance Committee's approval." FC contradicted this document in October 2009 when it stated in writing to AIP: "There has been no contract signed by Rick Ross."
Other Family Personnel Problems
The consequence of the limited number of hours worked due to health problems by Larry Jones' wife, Frances, who held the title Executive Vice President, was discussed at the June 30, 2008 Board meeting. The Board expressed a concern that Frances' "relatively low number of hours worked in relation to her compensation paid," $182,952 plus $4,100 expense account, according to FC's fiscal 2008 tax form, "might draw unwanted attention from the IRS...." FC declined to inform AIP of how many hours Frances Jones works each week.
Ian Harris, formerly manager of international operations for FC, was criticized at a June 2008 Board meeting for continuing delays in submitting expense reports and not reporting "possible additional Grants." An audit of FC in South Africa uncovered a $100,000 embezzlement by the son of Ian Harris, according to August 1, 2008 board minutes. At the June meeting Ian Harris' brother-in-law, Peter McLaren, was criticized for refusing to submit financial data on FC operations in Thailand. FC told AIP in October 2009 that Ian Harris is no longer associated with FC.
Paid Pro Golfer
Last July, Larry Jones told the NBC mid-Michigan affiliate: "We are incredibly thankful that [pro golfer] Lee Janzen has partnered with Feed The Children for this food distribution in Flint.".... "Lee has a servant's heart for struggling families during this difficult economic time and he is committed to reaching out to those in need…" What was not reported in this story is Mr. Janzen's interest in getting paid by FC. August 1, 2008 FC board minutes state "More discussion was had regarding the sponsorship price of $250,000 per year." Also, the board wanted a one year escape clause in Mr. Janzen's contract, yet the contract went out on FC's behalf with a 2.5 year clause that the board had not agreed to. Janzen declined to answer AIP's questions regarding his contract with FC. FC declined to provide AIP specifics about Janzen's contract and also declined to tell AIP whether or not other celebrities are paid to do promotions or fundraising for FC.
Larry's Daughter Burglarized
Rather than spending $1.2 million of donations on helping the needy in 2007, FC spent it on a new four bedroom house in tony Burbank, California for Larri Sue Jones to live and work in, according to The Oklahoman. Larri Sue filed a police report in December 2008 that stated her Burbank home had been burglarized while she was in Oklahoma City being fired and that her personal papers and a FC-owned computer had been stolen.
Upon questioning from a Burbank police investigator, FC's human resource manager, Richard Gray, admitted that an FC employee entered the house because Larri Sue was trespassing on the charity's property and "we have a right to enter and take our property." The policeman informed Gray that the person who entered the house committed a burglary. The officer also said that the house is a private residence and that the charity "is not allowed to enter and take any property… until she moves or is evicted through a legal process." Some FC directors identified Jerrald Buchanan, former VP of Information Technology, as the employee involved in the alleged burglary, according to The Oklahoman. Gray and Buchanan were subsequently fired by FC. When AIP asked FC in October 2009 who ordered the breaking in of Larri Sue's residence, their only comment was that it is a matter under police investigation.
Larry Jones told The Oklahoman that he had no regrets about the charity's purchase of the Hollywood area home because FC needed an office and a home to forge relationships with celebrities who could open doors to help FC raise more funds. Many in the entertainment world allow FC to use their image to promote this charity. FC's 2007 annual report, the latest one that FC has made available on its Internet site, had three pages of photos of celebrities entitled "Special Friends and Partners," which included Maria Shriver, Sir Roger Moore, Joan Collins, Garth Brooks, Antonio Banderas, Bishop T.D. Jakes, Kobe Bryant, Congressman Charles Rangel and many others.
In August a private investigator hired by FC found evidence that three of its offices had been illegally wiretapped, according to an Oklahoma City Police Department Crime Report. The Oklahoma Police investigation is ongoing and at the time of publication it is not known who orchestrated planting of the bugs. Update 11/02/09: The Oklahoman reports that police were told Larry Jones authorized placing hidden microphones in the offices of three executives, including Larri Sue Jones, previously fired by Jones, after a judge's ruling gave the executives their jobs back. Oklahoma law allows for clandestine recording of one's own conversations but it is illegal to use wiretaps to remotely eavesdrop on other people, according to The Oklahoman.
AIP has long been the only major charity watchdog to give FC a poor rating. None of FC's numerous and serious problems have kept it from obtaining the top or four star rating from Charity Navigator. FC boasts on its home page at feedthechildren.org that it "meets the extensive standards of America's most respected charity evaluator."
As we have been doing for over a decade, AIP will continue monitoring this charity and look forward to seeing FC's appointment of a new president or CEO that will efficiently and ethically fulfill its mission.
Update 11/09/09: The Board of Directors of FC announced: "Larry Jones' employment and office as president has been terminated effective immediately."