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Donors' Intentions Violated at For-profit Thrift Stores

Published 01/22/2015

 

 

See May & June 2015 Updates

When you donate unwanted clothes or household goods to a charity for resale at thrift stores, just how much of the dollar value of those items actually goes to the charity you’ve intended to support? In some cases, the answer to that question can be more complicated than you might think. Further, depending on the thrift store that receives your donated goods, a for-profit company may be benefiting from your donation far more than the intended charitable organization. Worse yet, donors may be misled regarding the true nature of the relationship between such for-profit companies and the charities on behalf of which they solicit donated goods.

A Compliance Review report (the Report) filed by the Minnesota Attorney General’s Office (OAG) in November 2014 illustrates many of the problems related to the handling of donated goods by for-profit companies soliciting on behalf of charities. These problems include failure by the for-profit solicitor to disclose its identity separate from the charity and the cut it retains from the value of the donated goods received; the commingling of donated goods intended for specific charities; and tax receipts being given to donors for items the full value of which is retained by the for-profit thrift store. The focus of the Report is the relationship between the for-profit thrift stores operated by Savers, LLC and several Minnesota charities, including Vietnam Veterans of America and the Lupus Foundation of Minnesota. “Three bedrock principles of charities law are to respect the intent of the donor, protect charitable assets, and be transparent. This report identifies deficiencies in all three areas,” said the Minnesota Attorney General in the OAG’s November 24, 2014 press release on the Report. 

Savers, LLC, which has over $1 billion in annual revenue and claims to be the largest thrift store chain in the U.S., either on its own or through a subsidiary (collectively, “Savers”) solicits donations of clothing and household goods using charity-partner names, picks up the donations, and sorts and brings the donations to Savers retail stores for sale to the public, according to the Report. The Report and OAG press release describe that Savers uses telemarketing, direct mail, radio and television advertisements, and the Internet to solicit donations of clothing and household goods on behalf of charities and also operates “community donation centers” at its retail stores to collect “On Site Donations.” The OAG’s investigation into Savers occurred after citizens complained about being confused as to whether it was the charities themselves or Savers calling them for donations, according to a December 2014 article in The Chronicle of Philanthropy.

Each charity has its own contract with Savers to solicit clothing and other household goods and is paid a contract-negotiated rate based on the volume of contributed goods collected, according to the Report. For example, if a donated pair of pants collected by Savers sells for $6.50 at one of its thrift stores, the donor of those pants would be able to deduct $6.50 on his tax return. Savers, however, may be paying its charity-partner only $0.57 per cubic foot of clothing donated based on the contracted terms with that charity. Retained by Savers, then, is the more than $5.93 difference in the value of those donated pants between the resale price paid at the thrift store and the per cubic foot portion paid by Savers to the charity.

The issues addressed in the Report primarily reflect six concerns regarding Savers’ relationship with the four Minnesota charities for which contracts were reviewed as part of the investigation. Among these concerns was that in some cases, it appears that Savers either commingles the goods it accepts from donors designated for specific charities, and/or it does not take steps to ensure that donors’ intent is followed regarding the charity on behalf of which the donation was made. In other words, even though donors may have wanted their contributed goods to benefit one charity and reported that related tax deduction accordingly, a portion of the value of those goods may have actually been paid to a different charity (or for many goods donated at once, paid to multiple charities). The Report also addressed that the manner in which Savers measures and reports the charitable contributions it receives may result in the charities being paid less than they are rightfully owed (thereby unjustly enriching Savers). Additionally, the Report describes that Savers appears to mislead donors regarding the tax deductibility of non-clothing contributed goods, such as books, china, electronics, furniture, jewelry, toys and other household goods. Savers solicits and gives donors receipts for non-clothing items collected, but Savers does not pay any money to the charities for non-clothing items that are donated. The Report findings show that Savers collected a total of over $1 million that was not paid to the four charities reviewed based on the amount of donated goods, including non-clothing items, not reported to the charities in 2013.

The charities also are criticized in the Report as it notes that it appears that the charities reviewed do not appropriately monitor the contributions and activities conducted by Savers. The Report recommends that the board of directors of the charities perform their own due diligence and take any necessary action to bring their organizations into compliance with applicable nonprofit laws and proper governance practices. According to the Report, the charities also should require:  accurate reporting of total fundraising expenses incurred for each solicitation campaign; contracts that set forth the methodology used to determine the payment amounts for donations made at community donation centers, with a required accounting and financial report to be provided for these donations; and disclosure by the for-profit company of the total amount of funds it receives from the sale of donated goods collected on behalf of each charity.

Unfortunately, the concerns and problems addressed in the Report are not unique to Savers’ thrift store operations. Charitable donations of clothing and household goods collected by for-profit private companies often aren’t properly tracked or measured, and these operations tend to lack accountability, transparency and regulatory oversight. Further, charities enter into agreements with such for-profit companies that tend to favor the for-profit to a much greater extent than the charitable organization and fail to ensure that donors’ wishes will be honored. To help make certain that your intentions aren’t violated, before donating goods to a charity via a for-profit thrift store, find out what portion of the value the charity will receive and if the charity is taking responsibility for the oversight of the tracking and measuring of your donation.

Update: On May 21, 2015, the Minnesota Attorney General (AG) announced that she has filed a lawsuit against Savers, LLC, claiming that Savers has seriously misled the public about how much of the proceeds from donated clothing and furniture actually go to charity. The lawsuit claims eight separate counts of charities law violations, including allegedly: (1) telling the public that it pays charities for "every donation" when it does not directly pay charities for donations of household products; (2) enticing the public to make donations of clothing to benefit a specific charity, when the small residual that goes to charity may be for an entirely different charity than the one the donor intended; and (3) concealing from the public its role as a for-profit fundraising company and the limited extent to which donations benefit the charitable mission of the intended charity versus Savers' for-profit enterprise, which also includes Unique Thrift and Valu Thrift stores. The AG called Savers' practices a "triple scam" at a news conference, and said she has no reason to think it is unique to Minnesota, as reported by the Star Tribune.

In a statement, the President and CEO of Savers expressed disappointment that the lawsuit was filed claiming that Savers has been changing its practices in response to the concerns raised in the AG’s November 2014 compliance report, but "...we now have no choice but to vigorously defend our business and we are confident that we will prevail," according to the Star Tribune. Although several charities, including the Lupus Foundation of Minnesota, have stopped transacting with Savers following the issuance of the compliance report, Epilepsy Foundation of Minnesota, Disabled American Veterans, Department of Minnesota and Vietnam Veterans of America continue to do business with Savers in Minnesota.

Update: A regulatory agreement was approved on June 25, 2015 to resolve the lawsuit against Savers that was filed by the Minnesota Attorney General in May 2015. As part of the agreement, Savers will be more transparent with donors regarding its role as a for-profit fundraising company and the amount it pays a charity for donations. Savers also has agreed to pay a total of $1.8 million to six of its Minnesota partner charities ($300,000 to each).  Click here for more information on the agreement.