WonderWork Co-Founder is No Mr. Wonderful
Posted on March 08, 2018
“From its inception, [WonderWork] has been a fundraising vehicle in search of a mission.” – Final Report of Examiner, In re WonderWork, Inc. (U.S. Bankruptcy Court)
Brian Mullaney, the man who popularized the dubious “100% to Program” claims advertised by charities like Smile Train and WonderWork, may face legal action and tax penalties, potentially for unjust enrichment, self-dealing, tax avoidance, and other claims related to his tenure as WonderWork co-founder, president, and CEO from 2011 to 2017. This comes on the heels of WonderWork’s bankruptcy and Mullaney’s subsequent resignation from the charity following an arbitration judgment against it in 2016 amounting to over $16 million in compensatory damages and legal fees. As part of WonderWork’s bankruptcy proceedings, a nearly 300-page Final Report of Examiner was filed in November of 2017 by the court-appointed Examiner detailing Mullaney’s history of employing questionable fundraising practices to play on the emotions of empathetic donors, using most of the funds raised to pay for more fundraising while also enriching himself.
“Simply an Inefficient Fundraising Operation”
Since its founding in 2011, WonderWork has raised approximately $54.4 million in donations under its legal name and the doing business as (dba) names 20/20/20, BurnRescue, FirstStep, Hole in the Heart, and Hydrocephalus. Despite WonderWork’s claims that “100% of all donations [go] towards our free surgery programs,” the charity spent very little of its resources on vision surgery, burn treatment, or other programs. According to the Final Report, WonderWork “has historically spent only 17% of the amount raised in donations on grants, and more than three times that amount on fundraising materials and supposed public education campaigns, sent with its fundraising materials to prospective and current donors.” More than $25 million was spent on printing, publication and postage, according to the Final Report.
The Examiner’s findings about WonderWork’s low program spending and high fundraising costs are consistent with the "F" ratings that CharityWatch has assigned WonderWork in our several years of reporting on the organization. The Overview of Misrepresentations contained in the Examiner’s Final Report states:
The Examiner’s review revealed that [WonderWork’s] fundraising materials are replete with misleading statements…[WonderWork] is not the highly-efficient charity, that is run like a business with virtually no overhead as its solicitation materials claim it to be. Nor is it the transformative charity that is directly saving lives through its surgical programs that donors are led to believe. In reality, [WonderWork] is simply an inefficient fundraising operation, often for other charities and NGOs, with millions of dollars spent on fundraising and only a small percentage of funds going to actually help people in need.
Among the misrepresentations cited were WonderWork’s claims to donors that “donations would be matched – resulting in double or triple the number of surgeries – when in fact the ‘matching funds’ were not used for surgeries but used instead to pay other expenses,” and claims that WonderWork “incurs virtually no overhead when in fact, donations were used for overhead expenses.” In the words of the Examiner, some of WonderWork’s fundraising practices “appear outright fraudulent.”
Misleading Solicitations Exploit Empathy for Children & Overstate Programs
Even the programs that WonderWork does fund are not always as advertised in the charity’s solicitations. Over a four-year period, WonderWork sent out 54.6 million pieces of direct mail solicitations under the 20/20/20 dba name, most of which featured photos of children suffering from blindness. Yet, according to the Final Report, “The average age of the patient is 60. Out of the 7,498 patients sampled, only 116 children – or 1.55% – were blind pre-operation according to the WHO (World Health Organization) blindness standards.” Ninety-eight percent (98%) of the surgeries were performed on adults, not children, mostly to remove age-related cataracts. When Mullaney was asked why children are emphasized in WonderWork’s solicitation campaigns, he responded, “Because we emphasize with photos, but when I write all the copy…I always [include] children and adults.” He added, “We do have some adults in the brochure. But people have much more empathy for children than adults. That’s why we use kids.”
WonderWork, contrary to what some donors might infer from its solicitations, does not run its own surgery programs. Instead, it acts as a middle man, raising funds from donors to grant to other organizations that perform surgeries. On its 20/20/20 solicitations, giving levels are featured describing what services WonderWork will fund based on the donation amounts given. It promises that for a $300 donation it will be able “to provide a full eyesight-restoring surgery.” A $150 donation will “pay for half a[n] eyesight-restoring surgery.” Lower donation levels of $75, $50, and $25 are said to provide anesthesia, surgical supplies for two surgeries, or surgical supplies for one surgery, respectively. However, the Examiner’s review revealed that WonderWork “never paid $300 for a surgery, and nothing close to it. Instead, in virtually all cases, [WonderWork] paid only $25 towards a surgery,” and “also never made any grants for the purpose of providing anesthesia or surgical supplies…” According to the Final Report, even if WonderWork had spent a higher portion of the donations it collected on surgeries it would have had no way to ensure that specific donations funded specific surgeries or supplies, as it “did not track, record or monitor amounts donated for specific purposes.” In the Examiner’s opinion, “The device was simply a tool to manipulate donors into giving higher sums of money.”
In its marketing materials, WonderWork leads donors to believe that its programs are far-reaching, with “74 partners, programs, and partner hospitals in 60 of the world’s poorest countries.” The Examiner describes this characterization as a “gross overstatement,” stating that WonderWork “is simply a United States based fundraising organization that makes grants overseas.” WonderWork made grants in only 22 countries, and these grants were made to grantees, not partners. Essentially, WonderWork “is effectively taking credit for the global work of these other entities [its grantees],” according to the Final Report.
Separate “Payroll Ledger” for Mullaney Raises Questions
Beginning in 2012, WonderWork president Brian Mullaney received an annual salary of $475,000. He also received discretionary bonuses of $250,000 in each of the years 2013, 2014, and 2016, and a bonus of $200,000 in 2015. Despite being cautioned by an outside consulting firm that Mullaney’s base salary “was at the high end of competitive for the peer group considered,” and that his bonuses were “a very high amount in a non-profit environment” and based on an “unorthodox approach” to compensation structuring, WonderWork’s board reluctantly approved Mullaney’s salary and bonuses – with one exception. In a June 2012 board meeting, WonderWork’s board of directors approved a base salary increase for Mullaney from $275,000 per year to $475,000 per year, which Mullaney then instructed the CFO to put into effect retroactively for the year, apparently without any records detailing the board’s decision. Mullaney justified his high compensation to WonderWork’s board of directors by citing his decade-long track record of fundraising at the charity he formerly headed, SmileTrain, and by claiming to hold multiple titles as WonderWork’s CEO, Chief Marketing Officer, and Chief Development Officer. This information contradicts WonderWork’s annual IRS Form 990 tax filings, which reflect that Mullaney worked an average total of 40 hours per week as “Co-founder, president & CEO.” No other job titles are listed.
According to the Final Report, after Mullaney was terminated as SmileTrain’s CEO in 2010 in the midst of internal feuding at the charity, he took much of the executive staff with him to his new venture, WonderWork. This included SmileTrain’s Vice President of Finance and Administration, Hana Fuchs, who, also according to the Final Report, was terminated by Smile Train not long after Mullaney’s departure. Fuchs was appointed as WonderWork’s Chief Financial Officer (CFO) in 2011 at a salary of $200,000 per year, plus a $120,000 signing bonus. Fuchs had over 37 years of experience working in accounting functions at Smile Train, Avon, and Sesame Workshop, but, as stated in the Final Report, had “no professional training in finance or accounting” and “learned her accounting skills on the job.”
At Mullaney’s instruction, Fuchs maintained a separate payroll ledger for his compensation in a spreadsheet that was not integrated with WonderWork’s formal accounting system. Fuchs used this spreadsheet to tally Mullaney’s personal and claimed business expenses, which she then charged against his compensation in the ledger. According to the Final Report, many of these expenses, which in total exceeded $400,000, were not substantiated with receipts or other documentation. The apparent purpose of this ledger was to help Mullaney avoid paying income taxes on his bonus pay by subtracting personal and claimed business expenses from it, then only reporting the net amount of cash he received after expenses as income to the IRS – a scheme blatantly against IRS rules. In total, WonderWork failed to report $700,000 of Mullaney’s 2012 through 2015 bonus compensation to the IRS, according to the Final Report, which stated that “…Mullaney has never paid taxes on any bonus, no bonus has ever appeared on [WonderWork’s] Form 990, no bonus was ever reported on any W-2 Form, no FICA taxes were paid with respect to any bonus and no bonus to Mullaney has ever appeared on [WonderWork’s] general ledger or in its audited or unaudited financial statements.”
Among the expenses charged against Mullaney’s compensation in the ledger were $82,000 in commuting costs and 100 five-star hotel stays in New York City amounting to more than $44,000; a dinner with friends; a limousine for his wife’s birthday; a hotel stay for a trip his daughter took; $12,000 to pay for the cost of a writer to accompany Mullaney to India and assist him with writing a book; over $2,000 for Harvard Club membership dues; and $25,000 toward defraying the costs of a trip taken by Mullaney, his wife, and his daughter that was only partially program-related. Other expenses included a camera that Mullaney verbally claimed cost “about $3,500;” $3,000 for Photoshop lessons in April 2015; $3,750 for more Photoshop lessons in August 2016; and $5,000 for a computer in October 2016. Legitimate business expenses such as Mullaney’s health insurance and program-related trips “appear to represent only a small percentage of the overall deductions made by Fuchs over the years. And in any case the concept that Mullaney was actually ‘paying’ them was bogus,” stated the Examiner in his Final Report. WonderWork also paid expenses related to Mullaney’s various personal legal disputes, such as $14,000 for travel to London, and $58,539 in legal invoices. In addition to his generous salary, Mullaney also enjoyed perks on WonderWork’s dime, such as first and business class air travel for himself and in some cases, his spouse, and non-program related overseas travel with WonderWork staff members to the Taj Mahal and on safari.
When the Examiner conducted formal interviews of select WonderWork staff in August through October of 2017, he noted that he “found Fuchs to be evasive and inconsistent throughout the interview, and when confronted with e-mails or with documents, forgetful, particularly with respect to Mullaney’s [compensation].” The Examiner further stated that “by facilitating Mullaney’s concealment of his salary from the state and federal taxing authorities and the public, Fuchs exhibited her loyalty to Mullaney, which was fostered over a course of a fifteen year working relationship, over her loyalty to [WonderWork].” The Examiner expressed a general view that “several of the interviewees were less than candid” and that WonderWork’s employees, “all deferred to Mullaney to provide answers to topics that should have been within their purview and knowledge.”
Is There Legal Trouble Ahead for WonderWork’s Leadership?
As previously reported by CharityWatch, Mullaney resigned from WonderWork in November of 2017 amid allegations of fraud and misdeeds, about 11 months after WonderWork filed for bankruptcy in the wake of an arbitrator’s decision requiring WonderWork to pay another charity, HelpMeSee, $16 million in legal fees and damages. The judge in the bankruptcy case called for an independent trustee to take over management of WonderWork. The Examiner’s analysis concluded that of WonderWork’s total net assets of $20.2 million, $16.3 million are legally restricted for use in specific programs like 20/20/20, BurnRescue, and FirstStep, and only $3.9 million are unrestricted and can be used for other purposes, such as paying debts. This makes it unclear if HelpMeSee or WonderWork’s other creditors will ever receive payment for the debts the charity incurred.
The Final Report included an “Attorney General Referral” of WonderWork to the New York Attorney General’s office for investigation and further action, stating:
Mullaney and Fuchs, and potentially the Board of Directors, may be subject to claims by the Attorney General for breach of fiduciary duty under…the Not-for-Profit Corporation Law for failing to maintain proper financial records, failing to comply with the terms of restricted gifts, failing to account for and track restricted donations, and for engaging in improper fundraising practices. In addition Mullaney and Fuchs may be subject to additional duty of loyalty claims for structuring and perpetuating improper compensation and expense arrangements for personal benefit. Should the Attorney General become involved, the Examiner believes it would have viable causes of action to pursue.
For example, the Examiner suggested that Mullaney may be forced to pay back a portion of his compensation to WonderWork under unjust enrichment or excess benefit claims. The Examiner also suggested that Mullaney and WonderWork both face potential tax liabilities and penalties for failing to properly report his compensation to tax authorities.
Because WonderWork conducted business in multiple states, New York is not the only state that can pursue legal action against the charity and its officers. As of this article’s publication date, CharityWatch is not aware that any states have yet taken steps to legally bar Mullaney from working for or with other charities in the future. CharityWatch believes that Mullaney should no longer be allowed to work in the nonprofit sector so that he will never again be in a position to prey upon unsuspecting donors.
Click on the links below to view the Final Report of the Examiner and WonderWork's Response: