Costly and Continuous Kars4Kids Ads Disguise Charity's Real Purpose
Posted on March 10, 2017
Described by many as annoying and by SFGate.com as the subject of “widespread, ubiquitous hate,” the catchy advertising jingle for the charity known as Kars4Kids can now be heard not only on radio stations nationwide, but also on major TV networks. Kars4Kids debuted a TV commercial in November 2014 that features a “specially spruced up” version of the “1-877-Kars4Kids” jingle and “some real kuties jamming away in Kars4Kids’ brand color Hot Pink,” according to a Kars4Kids press release. The TV spot has aired on popular networks such as ESPN and Fox News and has been viewed over 880,000 times on YouTube, with each play of its earworm jingle lightheartedly encouraging people to “donate your car today.” By now, you are probably (begrudgingly) familiar with the Kars4Kids jingle, but just how familiar are you with how Kars4Kids spends the money it makes from all those “kars” that get donated “4” kids?
The Kars4Kids commercials claim that the charity provides for “quick and easy” pick up of car donations, and that the car donations will in some way be used for the benefit of kids. An important question potential donors should ask, though, is: Just how much do kids benefit from the cars donated to Kars4Kids? Also, with hundreds of millions of kids in the world, exactly which kids will benefit, and how are those kids helped?
Cars for… an Orthodox Jewish Cause
Nowhere in the Kars4Kids ads (in most states) does the charity inform potential donors of how their car donations will help kids. A visit to the “kars4kids.org/howtohelp” website displayed at the end of the TV commercial is similarly vague as to how kids will benefit, simply encouraging people to “take action” for the “1.2 million kids [that] leave school without a diploma each year” by volunteering to “mentor, fundraise, advocate or run an awareness campaign.” (This “take action” message likely is a strategic one designed for Kars4Kids to take advantage of an accounting rule that allows charities to report a portion of advertising costs as program instead of fundraising expenses.) When going to the website address shown in the TV commercial, only by scrolling all the way down to the fine print that includes Kars4Kids’ copyright notation at the bottom of the page will donors eventually learn what activities their donated cars support: “Your donation will benefit Kars4Kids, a national organization dedicated to addressing the educational, material, emotional and spiritual needs of Jewish children and their families [emphasis added].”
In CharityWatch’s view, the Kars4Kids ads deceive potential donors by failing to inform them that donated cars will benefit a Jewish organization and kids of Jewish faith. Furthermore, the youth programs Kars4Kids supports promote an Orthodox Jewish lifestyle, which CharityWatch believes compounds the deception perpetrated by the Kars4Kids ads. Oorah, Kars4Kids’ “sister charity,” is the organization that actually runs the “educational, developmental, and recreational programs for Jewish youth and their families” described in Kars4Kids’ mission statement. Kars4Kids and Oorah share a principal officer, Eliyohu Mintz, the son of their founder, Rabbi Chaim Mintz, and both organizations are located at the same address in the heavily-Orthodox Jewish town of Lakewood, New Jersey. Oorah, which means “awaken” in Hebrew, “specializes in outreach to non-observant Jews, operating summer camps and other programs that seek to make non-Orthodox Jews more observant,” according to an October 2016 article in the Forward, which covers news for a Jewish-American audience.
While supporting Orthodox Jewish organizations is a worthy endeavor for those donors who are intending to do so, many donors of other faiths may not be pleased to learn that the car they donated to Kars4Kids may have funded religious teachings that are in conflict with their own faith or personal beliefs. Orthodox Jews, who follow the traditional interpretations of Jewish law with strict observance of Jewish ritual, make up only about 10% of Jewish adults in the U.S., according to a 2013 survey published by the Pew Research Center in August 2015. Moreover, many secular Jews are not enthusiastic about funding Orthodox organizations, as suggested by an official of The Jewish Agency for Israel, a nonprofit that inspires Jews throughout the world to connect with their People, heritage, and homeland. The official said: “The Jewish mainstream, certainly in North America but in other places as well, is not Orthodox and isn’t interested in organizations that proselytize to non-religious Jews,” according to an August 2016 article in Haaretz, Israel’s daily newspaper.
If the truth about Kars4Kids’ mission as a Jewish organization and its funding of Oorah’s Orthodox Jewish outreach is an unwelcome surprise to some donors, perhaps they will be comforted to learn that since 2010, Kars4Kids also has conducted various charity events and giveaways for the benefit of needy children, regardless of their religious affiliation. These events have included several backpack giveaways and coat distributions in parts of New Jersey and New York. Kars4Kids also released a free smartphone app in mid-2014 designed as a safety alert for parents to remind them not to leave young children in the backseat of hot cars. Nonetheless, Kars4Kids’ grants to Oorah still represented more than 91% of its program spending over the two-year period from 2014-2015, thereby making Jewish children the primary “kids” that benefit from its car donation proceeds – a fact that many Kars4Kids donors likely never end up knowing.
Donors should also be aware that even though the Kars4Kids ads are broadcast across the country, the vast majority of the children that benefit from the cars donated to Kars4Kids live in the Northeast, particularly in New York and New Jersey. According to a 2017 compliance review conducted by the Office of the Attorney General of the State of Minnesota (OAG), over 99.9% of the $90 million raised by Kars4Kids from 2012-2014 was spent on charitable programs under the direction or control of Kars4Kids’ “sister charity,” Oorah. Oorah’s two largest programs are its summer camps and tuition assistance programs for Jewish children, according to the OAG, with the camps being operated at two New York locations. The OAG reports that of the total number of children that benefitted from Oorah’s summer camps and tuition assistance programs from 2012-2014, 67% and 65%, respectively, were from either New York or New Jersey. The OAG compliance review also provides a broader geographical breakdown by region (Northeast, South, Midwest and West) showing that 79% of the children that benefitted from Oorah’s summer camps and tuition assistance programs lived in the Northeast; less than 10% lived in the Midwest and West combined. Furthermore, CharityWatch noted that even the backpack giveaway and coat distribution events run by Kars4Kids for the benefit of needy children, regardless of their religion, seem to be highly concentrated in the Northeast, based on the information available on the Kars4Kids website.
How Many Seconds Does It Take to Say “Kars4Kids Supports Jewish Youth”?
CharityWatch thinks it is highly unlikely that Kars4Kids would be enjoying the same level of success as it has, averaging over $30 million a year in donated car proceeds from 2010-2015, if its ads disclosed that donated cars are used to fund Orthodox outreach programs for children of Jewish faith. Kars4Kids reportedly has insisted that it is not trying to mislead anyone with its ads, claiming that a 60-second spot does not allow for time to inform people of its mission and that Kars4Kids does not hide that it is a Jewish organization if donors visit its website. After describing how car donations to Kars4Kids work, the kars4kids.org homepage does state that Kars4Kids is “a registered nonprofit Jewish organization who, together with Oorah, our sister charity, help thousands of children develop into productive members of the community.” But should donors have to go online to find out which kids are supported by Kars4Kids and its unforgettable advertising jingle? CharityWatch doesn’t think so, and we question Kars4Kids’ claim that there is not enough time in its 60-second ads to let donors know that car donations will benefit Jewish children. In our opinion, Kars4Kids should be disclosing the religious nature of its organization in all of its ads, something that Kars4Kids already has been under legal scrutiny for not doing in the past.
In connection with Kars4Kids’ failure to disclose in its ads that donated cars are used to benefit children of a specific religion, and not needy children in general, Kars4Kids paid tens of thousands of dollars in settlements to the states of Oregon and Pennsylvania in 2009. (CharityWatch informed donors of these fines in our Catchy Jingle Not a Green Light to Donate article published in 2010.) Under the settlements, Kars4Kids was also required to change its solicitations in those states to include adequate disclosure of the religious purpose of its programs. “It is unacceptable for charities to deceive Oregon consumers,” the Attorney General said in an April 15th, 2009 press release announcing the Kars4Kids settlement, which also involved claims that Kars4Kids misled donors with its offer to provide a “free vacation” with every car donation. Apparently, however, the Oregon and Pennsylvania settlements did not convince Kars4Kids to add a disclosure related to the religious nature of its organization to its ads being run in other states – most likely, in CharityWatch’s view, because Kars4Kids does not want to risk losing potential donors who may not want to support Jewish youth outreach programs.
High Fundraising Costs Signal a Red Light
The religious affiliation of the kids that benefit from the cars donated to Kars4Kids may not matter to some donors, but what should concern all donors is what portion of the car donation proceeds get spent on bona fide charitable programs versus fundraising and other overhead costs. Unlike many car donation charities, Kars4Kids claims to do all of the car donation processing “in house” rather than through middlemen. Processing the donated cars in-house theoretically cuts down on the related overhead costs, leaving a larger portion of the car proceeds to be used on programs. Kars4Kids’ total fundraising costs, however, are still relatively high. For example, about one-half of the average resale value of each donated car in 2015 went to pay for Kars4Kids’ fundraising and advertising expenses that year. Therefore, although Kars4Kids may have cheaper processing costs than many other car donation charities, it still spent more on overhead than it did on programs in 2015, when just 47% of its cash budget went to programs – an unsatisfactory level by CharityWatch’s standards. Moreover, at almost 51%, the amount that Kars4Kids spent on fundraising and advertising relative to its donated car proceeds in 2015 has increased considerably since 2010 when less than 33% of donated car proceeds were used for fundraising and advertising.
Kars4Kids’ low rate of program spending is also particularly concerning given that the vast majority of Kars4Kids’ program expenses consist of grants to its “sister charity,” Oorah, which runs the “educational, developmental, and recreational programs for Jewish youth and their families” funded by Kars4Kids, per its mission. About 93% of Kars4Kids’ cash-based program spending in 2015 was in the form of a grant to Oorah in the amount of approximately $16.9 million. By comparison, Kars4Kids reported spending about $17.1 million on advertising and promotion in 2015 – about $150,000 more than its cash grant to Oorah. Furthermore, as a percentage of the funds Kars4Kids generated from donated vehicles (including boats & planes) in 2015, its grant to Oorah represented only about 46% of those total funds raised.
Additionally, as the car donation proceeds get passed along from Kars4Kids to Oorah, Oorah itself has fundraising and general administrative costs to pay for, which it does primarily with the grant money it receives from Kars4Kids. Therefore, the proceeds Kars4Kids generates from car donations get another “hair cut” when they make their way to Oorah. Fortunately, Oorah’s cash-based program spending percentage was 74% in 2015, which is above CharityWatch’s reasonableness benchmark of 60%. Even with Oorah’s very reasonable rate of program spending, though, once Oorah’s and Kars4Kids’ overhead expenses are considered in aggregate, only about 38% of Kars4Kids’ donated car proceeds were spent on bona fide programs in 2015. In other words, based on the average resale value of about $365 for a car donated to Kars4Kids in 2015, less than $139 actually went towards benefitting “kids,” who, as a reminder, are mostly Jewish youth that participate in Oorah’s Orthodox Jewish outreach programs.
Pulled Over for Misreporting Donated Car Receipts
The findings reported in a 2017 compliance review regarding Kars4Kids conducted by the Office of the Attorney General of the State of Minnesota (OAG) show that Kars4Kids has been misreporting its car donation proceeds and understating its fundraising costs on its annual IRS Form 990 tax filings. The IRS Form 990 instructions state that car donation receipts should be reported at the fair market value at the time of donation, without deducting for any costs or expenses. Kars4Kids, however, has been reporting its car donation receipts net of the associated vehicle processing expenses (i.e., the costs to tow, scrap and auction the donated vehicles). Furthermore, Kars4Kids does not otherwise disclose the amount of these related processing costs. By incorrectly reporting its car donation proceeds on a net instead of a gross basis, which Kars4Kids also does on its audited financial statements, Kars4Kids is giving the false impression that it is more financially efficient than it truly is. “The effect of this misreporting is significant,” according to the OAG compliance review, “[i]t makes it appear that Kars4Kids spends more of its revenue on charitable programming and less on fundraising expenses than is actually the case.”
The OAG found that Kars4Kids failed to include approximately $9.7 million of vehicle processing expenses in total from 2012-2014 on its IRS Form 990 filings. If Kars4Kids had reported this $9.7 million as part of its gross receipts, the overall share of revenue it reportedly spent on charitable programs in 2012-2014 would have decreased from 63% to 56%, according to the OAG. Additionally, since the vehicle processing expenses should be considered fundraising costs for Kars4Kids, if Kars4Kids had included the approximately $9.7 million in vehicle processing expenses in its reported fundraising costs for 2012-2014, the OAG notes that Kars4Kids’ overall fundraising and other overhead costs would have increased by more than 30%. As summarized by the OAG: “Kars4Kids’s Form 990 thus makes its vehicle donation program appear more efficient than it is in reality, presenting the donating public with a misleading financial picture of its operations.”
Other Bumps in the Road
Since 2010 when CharityWatch last wrote about Kars4Kids and the more than $100,000 it paid related to misleading advertising claims in Oregon and Pennsylvania, news reports have identified Kars4Kids and/or Oorah in connection with additional cases involving legal accusations or other questionable financial dealings. These include getting caught up as victims in an alleged Ponzi scheme related to speculating on real estate development; Oorah losing a federal lawsuit over more than $300,000 in allegedly unpaid scholarship funds; an ongoing payment dispute with the Young Israel of Eltingville synagogue that includes tax fraud allegations against Oorah; and Kars4Kids paying to settle claims of trademark infringement.
Especially costly were Kars4Kids’ and Oorah’s real estate investments in an alleged Ponzi scheme in which they were victimized and lost more than a combined $7.6 million in 2009 and 2010. To put the $7.6 million in context, Oorah’s total cash spending on Jewish youth programs was approximately $12.2 million over that same period. The real estate developer behind the alleged investment scheme, which reportedly caused $200 million in total losses, was sentenced to 22 years in prison. Even though Kars4Kids and Oorah were victims, some donors may seriously question the judgment of Eliyohu Mintz, the principal officer of Kars4Kids and Oorah, and their other respective board members in deciding to risk donated charitable funds on real estate speculation.
Given all of these issues, it is no surprise that Kars4Kids and Oorah together have averaged almost $500,000 a year in legal fees from 2009-2015. Kars4Kids alone reported spending over $670,000 in legal fees in 2015, which is when it “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,” according to its audited financial statements. Such legal expenses take a bite out of the charitable funds available “4” the kids – or, in other words, for Oorah’s Orthodox Jewish youth outreach programs.
Backed by memorable TV and radio ads or not, car donations are notorious for being one of the most costly ways to give to charity. Kars4Kids certainly has a catchy advertising jingle and may be among the more financially efficient charities when it comes to processing donated cars, but ultimately it, together with Oorah, still only spent about 38% of car donation proceeds on charitable programs in 2015. Donors should also be aware that the vast majority of those programs are for Orthodox Jewish youth outreach, and do not benefit needy “kids” in general. Before deciding to donate your car to any charity, see CharityWatch’s Tips for Donating a Car to Charity.
* Updated 05/19/2017 to include some of the findings, as cited, from the "Compliance Review of the Charitable Solicitation Activities and Financial Reporting of Kars4Kids and Its Relationship to Oorah, Inc.," conducted by the State of Minnesota Office of the Attorney General, 2017.