Charity Finishes Last at Car Donation Charities: Micro-Mini Share of Proceeds Go to Charity
Posted on December 18, 2015
Car Donation Foundation
Its “Wheels for Wishes” ads that mention “Make-A-Wish” have attracted tens of thousands of car donations, but it appears that many more of these “wheels” are for profits than for charitable wishes. Car Donation Foundation (CDF), the nation’s largest car donation charity, publicly uses the “Wheels for Wishes” name to solicit vehicle donations across the U.S. for the benefit of local chapters of the Make-A-Wish Foundation (MAW). The promotional-partner MAW chapters receive funds from CDF after the donated vehicles have been sold or scrapped. It turns out, however, that only about 20% of CDF’s revenue benefited charity over the 2011-2014 period. Furthermore, Minnesota’s Office of the Attorney General (OAG) is claiming that CDF, which is based in Minnesota, lacks transparency, misleads donors, and is too closely tied to two of its for-profit vendors.
Car Donation Foundation blends the identities of Wheels for Wishes with Make-A-Wish in its ads and solicitations causing donor confusion in Minnesota, according to a Compliance Report issued by the OAG in October 2015. “When people donate their cars, they have the right to know who they are donating to and where the money is going,” said Minnesota’s Attorney General as quoted in a Star Tribune article about the CDF matter. The OAG Report points to CDF’s use of the title “Make-A-Wish Car Donation” in paid Internet ads and notes that while the “Make-A-Wish” name or logo is prominently featured in Wheels for Wishes ads, the ads do not mention CDF or its professional fundraising company (at least prior to June 2015 when, as the OAG’s investigation was on-going, CDF altered some of its newspaper ads to include a footnote reference to CDF). There are several examples given in the OAG Report describing cases of certain individuals that donated vehicles to CDF under the mistaken impression that they were donating directly to MAW. Even MAW-Minnesota and the national office of MAW expressed their concern to CDF regarding the fact that its ads sometimes made it look as if Wheels for Wishes was a program of MAW rather than an independent charity, according to the OAG Report. In the meantime, it appears that the Wheels for Wishes ads have been quite successful as CDF has grown its annual revenue from $14.4 million in 2011 to $37.3 million in 2014, more than doubling the number of vehicles it sold or scrapped between those years.
Car Donation Foundation’s poor transparency and allowance of potential donor confusion with its Wheels for Wishes ads is even more deplorable given the fact that two of its major for-profit vendors are owned and operated by the same two individuals that founded and manage CDF. William Bigley and Randy Heiligman, the co-founders of CDF, also 100% co-own and operate the for-profit companies Metro Metals Corporation (MM) and National Fundraising Management, Inc. (NFM). CDF uses MM to auction and scrap the vehicles donated to CDF and uses NFM as its professional fundraising company to solicit vehicle donations from the public and manage its vehicle donation program. Furthermore, the OAG Report notes that Heiligman’s wife, a former CDF board member and officer, is executive vice-president of MM, and Heiligman’s son and daughter and Bigley’s son all are employed at NFM. With regards to NFM, CDF’s 2011 audited financial statements note: “In 2011, a new management company was formed to provide supporting services to Car Donation Foundation. The new management company provides the operations for Car Donation Foundation, and in return, receives administrative fees of 15% of net auction sales proceeds and program commissions at one-half of each location’s net income or loss.” NFM is registered to act as a professional fundraiser for CDF in about 40 states and its only client is CDF, according to the OAG Report. CDF reported paying NFM and MM combined over $56 million from 2011-2014 (based on its annual tax filings), which is more than half of the approximately $108 million in total revenue CDF collected on donated vehicles during that period. By comparison, the total direct donations CDF made to charities (almost all to Make-A-Wish chapters) from 2011-2014 was just less than $22 million and only about 20% of its total revenue.
Minnesota’s AG stated: “[O]ne of the most disconcerting aspects of the Compliance Report is the simultaneous management and ownership by Bigley and Heiligman of the network of non-profit and for-profit organizations. […] [T]he interlocking relationships raise questions about the arms-length negotiations by the charity with the for-profit vendors,” according to the OAG’s press release. Bigley, Heiligman, Heiligman’s wife, and Craig Greenberg, whose law firm also represents Metro Metals and National Fundraising Management, made up four of the five board members/officers of Car Donation Foundation until mid 2013, when CDF was audited by the Internal Revenue Service (IRS). The IRS noted, according to the OAG Report, that a charity should not serve as a “lead generator to get business for the founders’ for-profit companies,” and the IRS questioned whether CDF should keep its charitable tax-exempt status given the significant benefit imparted on MM and NFM by Bigley and Heiligman through their control of CDF. CDF’s 2013 audited financial statements note that as a result of the IRS examination, “the Organization made some changes to its organizational documents and board of directors,” and the change in the board was that Bigley, the two Heiligmans, and Greenberg all resigned. The IRS appeared satisfied, according to the OAG Report, that with these “mass resignations” an arm’s length relationship could now be created between CDF and MM and NFM. However, the Report also notes that immediately after the change in the CDF board, the new board members delegated the day-to-day management of CDF to Bigley and Heiligman, anyway, and Greenberg was even given authority over making payments and signing checks for CDF. Furthermore, CDF’s annual tax filings report that CDF had no employees from 2011-2014, thereby reinforcing Bigley and Heiligman’s control over CDF’s operations and its reliance on MM and NFM to provide operational, fundraising, and administrative services for the charity.
The close ties between Bigley and Heiligman’s charity and their two for-profit companies that provide paid services to Car Donation Foundation raise serious questions about the stewardship and governance of the charity, according to the OAG Report. As directors and officers of CDF, Bigley and Heiligman have a fiduciary duty to be loyal to and act in the best interests of the charity, but instead, they appear to have allowed blatant conflicts of interest to exist in CDF’s transactions with Metro Metals and National Fundraising Management. Given these conflicts of interest, it’s not surprising that both CDF’s and Make-A-Wish’s respective independent auditors also raised concerns regarding the governance of CDF. The OAG Report notes that these outside auditors identified problems and voiced concerns related to the overlap in the management of CDF, MM, and NFM, including questioning the invoicing and payment practices between CDF and NFM, for which they found cases of millions of dollars in payments being made by CDF to NFM that lacked sufficient documentation or substantiation for the amounts being invoiced to and paid by CDF. MAW’s auditors also questioned the lack of competitive bidding for the auction services being provided by MM, and they stated in the conclusion of their audit that CDF had “control issues that would not be acceptable at any charity that was operating independently and in the best interest of its donors and beneficiaries,” all according to the OAG Report.
Adding another shocker to the story, it appears that National Fundraising Management and Metro Metals made payments to the former chief executive officer (CEO) of Make-A-Wish-Minnesota for his assistance in arranging vehicle donation promotional contracts between CDF and other local chapters of MAW, according to the OAG Report. The Report describes that the CEO resigned from MAW-Minnesota in June 2015, one day before the chapter’s board of directors scheduled a special meeting to investigate the payments being made to the CEO. By that time, however, the CEO had received more than $70,000 from NFM and MM, based on payments of $5,000 for each local chapter of MAW that signed a contract with CDF, according to the OAG Report.
Following the issuance of the OAG Report, Make-A-Wish-Minnesota announced on October 20, 2015 that it has cut ties with Car Donation Foundation. CDF, in its defense, claimed in a statement made that same day that the OAG Report “is grossly misleading and shows a fundamental lack of understanding about how charitable car donation programs operate,” according to an Associated Press report. The Minnesota AG lacks authority to file charges against CDF, but according to the OAG’s press release, it has asked that CDF, as well as MAW-Minnesota, file a report with the OAG documenting the steps being taken to correct the problems identified in the Report. The OAG also notes that it forwarded the Report to the IRS with a request that it investigate the charitable tax-exempt status of CDF; moreover, the OAG also is conducting reviews of several other charitable vehicle donation programs.
Cars 4 Causes and People’s Choice Charities
Following in Minnesota’s footsteps, California’s Attorney General sued two California-based car donation charities in December 2015 claiming that they each have misrepresented their charitable programs, misappropriated millions of dollars from donated vehicles, and accrued excessive administrative costs, according to California’s OAG. Cars 4 Causes (C4C) and People’s Choice Charities (PCC) are the two charities subject to the California lawsuits, and California’s AG wants them each to pay damages and penalties and be shutdown. Although C4C and PCC have collected considerably less in proceeds from donated vehicles than Minnesota’s Car Donation Foundation has over the past four or five years, the general allegations that donors are being misled and only a small percentage of funds are actually being directed to charity are the same.
The State of California claims that Cars 4 Causes has misled donors, misappropriated funds, and used deceptive financial reporting practices, in addition to paying excessive and unreasonable salaries and engaging in self-dealing transactions. Although C4C claimed it “worked smarter” to “get the most money for charity,” the lawsuit alleges that C4C has actually directed only about 13% of donated vehicle proceeds to charity from 2009-2014, while 87% of the donations have been used to pay for advertising and administrative costs, with the majority of proceeds paying for ad campaigns “so extensive even a C4C director deemed them ‘harassing’,” as well as salaries and careers for C4C’s officers and directors and their families and friends, according to the complaint. The complaint claims that C4C has paid over $650,000 to the sister of C4C’s president and over $2.4 million to two for-profit vendors that have related party ties to a C4C officer/director, who “were all paid to do the same, or substantially similar, work – online fundraising.” Further, C4C has reported as part of its total contributions to charity over $10 million in advertising and other costs such as towing, repairs, and DMV and smog fees, describing them as “indirect contributions” related to “preparing donated vehicles for sale.” By comparison, C4C’s direct cash contributions to charities totaled just over $5 million for its 2010-2014 fiscal year period. C4C, however, “significantly overstated the proportion of donated funds to be forwarded to other charities and created the illusion that C4C spent donors’ money properly” by “deceptively” reporting advertising and other operating costs as if they were donations made to other charities, according to the complaint. To illustrate this deception, the complaint describes that C4C reported donating a total of approximately $2 million to other charities in its fiscal year 2014, which is 41% of the proceeds it received from donated vehicles that year, but approximately $1.5 of this $2 million consisted of the so-called “indirect contributions,” including almost $1.4 million in advertising costs, while only about $495,000 (or just 10% of the donated vehicle proceeds) actually was cash donations made to charities.
People’s Choice Charities, the other car donation charity sued by the State of California, represented to donors that it would maximize vehicle sale proceeds and control costs to get the highest net return for donors’ chosen charities, according to the lawsuit. Part of PCC’s advertised cost control claims included that towing is “100% free” and that PCC employed experienced staff to repair and sell the donated vehicles. The lawsuit, however, alleges that PCC’s claims are false and misleading and that PCC deducts towing fees from the donated vehicle sale proceeds and has paid “hundreds of thousands of dollars” to outside vendors for repair work since it doesn’t employ any of its own such personnel. Further, PCC has failed to accurately report the actual dollars that it has donated to other charities in that it reported $732,125 was given to charities from 2007-2012, but the State of California found that the actual amount was only $185,520, or about 3% of the donated vehicle proceeds received by PCC, according to the complaint. In other words, the lawsuit claims that PCC has spent about 97% of its car donation proceeds on administrative costs such as towing, car repairs and advertising, with only about 3% then going to donors’ chosen charities or other legitimate charitable programs.
The Minnesota and California AG investigations into car donation charities should be a cautionary reminder regarding some of the potential shortcomings of donating a vehicle to charity. Many charities hire third-party, for-profit agents to operate their vehicle donation programs, and in such cases, it is likely that the charity is only receiving a relatively small portion of the sales price of the donated vehicles, or even a flat fee per vehicle that sometimes can be as little as $45. It could also be that the car donation charity collecting your vehicle does not have a contractual relationship with the specific charity who is the intended recipient of your car donation. This makes it much easier to conceal how much is being raised on a charity’s behalf and what portion of the proceeds are remitted to it. In other cases, a charity may have merely licensed the use of its name to a for-profit company soliciting vehicle donations, and while the charity receives payment under such an arrangement, since the charity has not established an agency relationship with the for-profit collecting and processing the vehicles, these vehicle donations are not eligible for a tax-deduction. Additionally, keep in mind that for vehicle donations that are tax-deductible, the tax law generally limits the deductible amount to the actual sales price of the used vehicle received by the charity, unless the donor has documentation that the charity itself makes significant use of the vehicle for its charitable programs, in which case the fair market value can be deducted. Click here to view all of CharityWatch’s Tips for Donating a Car to Charity.