USA TODAY
Some wish-granting charities take but don't give Donations pay for expenses, not ailing kids' dreams
May 2001
The fundraising calls for Kidwish USA went straight for the gut: Thousands of children are permanently disabled. Gravely ill. Dying. With the aid of a small contribution from you, the charity could make their dreams a reality. "These special children may have different wishes, but one thing they all have in common is a desire for a cherished life experience," telephone fundraisers for the national non-profit repeated again and again in 1999.
Visualizing cancer-stricken kids who might never see their 18th birthdays, donors like Stephanie Gaston of Arlington, Texas, gave generously. They helped Kidwish raise nearly $3 million from 1997 through 1999. “It sounded like a good cause," Gaston says. Heartwarming?
Not one cent of the charity's impressive fundraising total was used to grant the wishes of sick or dying children, evidence at a recent federal trial in Texas showed. In late March, a Dallas jury convicted two Kidwish USA officials of money laundering and mail fraud. The verdict means they could face 70-year prison terms. It also was the final chapter for the now-defunct charity. The case represents the most dramatic example of a crisis of confidence confronting wish-granting charities, a popular and growing sector of the non-profit industry. From fewer than a handful two decades ago, as many as 200 organizations now vie for donations by promising to send terminally ill kids to Disney World, help them meet Pope John Paul II or fulfill other once-in-a-lifetime dreams.
Prosecutors and regulators say the examples are likely just the most visible warning signs for an industry that each year taps sympathetic donors for tens of millions of dollars. A proliferation of non-profits with confusing, sound-alike names has made it difficult for contributors to determine whether a given charity is reputable. And government regulators and private watchdogs are hard- pressed to keep up.
"My sense is that the problems are probably pretty rampant," says assistant U.S. attorney Michael Snipes, the prosecutor in the Kidwish case. "This is easy prey, easy money, and very difficult to detect."
The wish-granting charity world ranges from the Make-A-Wish Foundation of America, the large and respected founder of the industry, to scores of smaller regional and local non-profits. Make- A-Wish, with 81 local chapters and 22 affiliates abroad, raises more than $12 million annually and spends 60% of its income on wish- granting, the charity's annual reports show. Other well-regarded charities like the Dream Factory, Grant-A- Wish Foundation and the Starlight Children's Foundation each have raised about $500,000 to $2 million annually in recent years. Federal tax returns show they, too, spend more than 50% of their contributions on expenses directly related to wish-granting.
Make-A-Wish reports say the charity has granted more than 83,000 wishes since its founding in 1980. Typical was the case of Jeff Luttrell, an 11-year-old leukemia patient who last year lived his dream of creating an action figure called Razor, a creature that's half man, half eagle. Make-A-Wish and other respected charities carefully safeguard their reputations, sometimes even going to court against non-profits they perceive as taking advantage of their good name.
"We get hundreds of calls or e-mails a day (from people being solicited) about chain letters or Internet queries or telephone solicitations for anything with the word 'wish' in the title," says Make-A-Wish spokesman Jim Maggio. "It is a tremendous strain on our resources." He adds that the Arizona-based non-profit giant never uses such fundraising methods.
Yet not even Make-A-Wish has been able to avoid questions about its finances. Delores Crooks, former director of the charity's Sarasota-Tampa Bay chapter in Florida, was sentenced to a 6-month jail term in March for what prosecutors said was the theft of about $6,500 in contributions. Her attorney, Stephen Crawford, declined to comment. To be sure, even the wish-granting charities that spend relatively little on their declared mission manage to fulfill wishes for some children. Cathy Witherspoon, president of the Rochester, Mich.-based Fondest Wish Foundation, said the charity had fulfilled 57 wishes in 1999-2000. Asked why the non-profit spent nearly 94% of its income on fundraising and less than 1% on wish-granting, Witherspoon said: "Definitely, the big goal is to change those percentages around. It's going to get better each year as we get our name out there."
When a Kidwish USA fundraiser called her Texas home, Stephanie Gaston says she thought the charity modeled itself on the good works of Make-A-Wish and other reputable non-profits. The similarities seemed deliberate. Kidwish mailings enticed donors with sponsorships ranging from "kisses and wishes" ($16) to "fulfill a dream" ($595). Contributors were also promised their offerings would help kids from their hometowns.
But federal prosecutors filed a 32-count mail fraud and money- laundering indictment against the charity last August, acting on tips from parolees working for Non-Profit Telemedia, Kidwish's Arkansas- based telemarketing firm. The children that Kidwish donors believed they were helping? Non- existent, prosecutors said. Those heartwarming wishes described to contributors? Soothing fiction, a government audit showed. In fact, prosecution evidence presented during a 3-week trial in March showed the only wish granted was what the indictment termed the "personal enrichment" of Michael Manzer and Richard Carbonaro, the president and executive director, respectively, of Long Island, N.Y.- based Kidwish. Manzer and Carbonaro, childhood friends who ran Kidwish as a sidelight to other jobs, received a combined total of about $66,000 through Kidwish consulting deals they arranged, trial evidence showed.
More than 95% of the about $3 million raised from 1997 to 1999 for the charity went directly to Non-Profit Telemedia, a large telemarketing firm that government records list as a fundraiser for numerous charities. The company's chief executive, Kerry D'Amato, got most of the money raised for Kidwish, Snipes said.
Shortly before the trial began, D'Amato and Dennis McCormick, another Non-Profit Telemedia executive, pleaded guilty to money laundering and conspiracy to commit mail fraud. They did not return calls seeking comment. With D'Amato testifying as a government witness, prosecutors showed that Kidwish's only gesture toward fulfilling its purported mission amounted to contributions of a few thousand dollars each to several hospitals that serve children. "It was not very significant compared with the amount of money they pulled in," says Robert Elliott, a $30 contributor from Garland, Texas, who testified as a prosecution witness.
Manzer and Carbonaro underestimated the difficulty of raising funds and simply got in over their heads, defense lawyers contended. They said the hospital donations served as proof of the charity officials' good intentions. "There were no dinners, gifts, expense accounts or anything else charged off to the charity," said Manzer's attorney, William Aronwald. Unbowed by the guilty verdicts returned by the jury, defense lawyers plan an appeal based in part on arguments that the judge's legal instructions confused the panel. But Kidwish donors who complain they were hoodwinked say the charity's executives and telemarketers were not only guilty of the federal charges, they were responsible for an even broader offense. "They put a dent in fundraising things for other organizations because now you don't know who to trust," says Gaston, who adds she'll think twice before duplicating her $36 Kidwish contribution for another charity.
Charity donors can't automatically look to government regulators and private watchdogs for guidance on giving. The Federal Trade Commission lacks legal jurisdiction over non-profits. Most non- profits file annual tax returns with the Internal Revenue Service, but the agency audits less than 2% of the more than 650,000 filings. California, New York and a few other large states assign sizable staffs, often 20 lawyers, accountants and other employees, to charity regulation. But with 38,000 charities registered in New York alone, "we certainly could use more staff," says Assistant Attorney General Karin Kunstler Goldman.
A 1988 U.S. Supreme Court decision also made it more difficult for state regulators to rein in charities that strike Faustian bargains with for-profit fundraisers. The ruling barred states from limiting the percentage that telemarketers may keep as payment for charity fundraising. "I think the decision did make it more difficult to separate the wheat from the chaff," says Assistant New Mexico Attorney General Daniel Moore, current president of the National Association of State Charity Officials. Many wish-granting charities and other non-profits also use an accounting loophole that allows them to classify large portions of their telemarketing and direct-mail costs as educational expenses related to the charities' main missions. For instance, if a telemarketer asks potential donors whether they know a terminally ill child with an unfulfilled wish, part of the cost of those calls may be classified as a wish-granting expense.
"The general public may not even be aware that requests for money by themselves may be construed as an official program activity," said Bennett Weiner, chief operating officer of the BBB Wise Giving Alliance, a charity watchdog program run by the Council of Better Business Bureaus. The Virginia-based organization and the American Institute of Philanthropy, a similar watchdog in Bethesda, Md., try to help donors make sense of the often confusing finances by issuing regular reports on hundreds of charities. GuideStar, the Web site of a Virginia non-profit called Philanthropic Research, posts the tax returns of more than 200,000 public charities.
But the ultimate responsibility still rests with donors. Asks Moore: "Are we devoting enough resources to strengthening the public's trust? Clearly, we'd like to see more resources devoted to the oversight of charitable organizations." The alleged activities of several wish-granting charities dramatically underscore the need. * Pennsylvania charity regulators charge that Children's Wish Foundation International broke faith with givers by donating $136,500 in toys, books and othersupplies to Ronald McDonald House Charities, then valuing the gifts in tax records at $1.6 million. The alleged inflation enabled Children's Wish to claim it was devoting more of its resources to charity than was actually the case. Officials of Ronald McDonald House Charities did not respond to several messages seeking comment.Children's Wish President Arthur Stein and his wife, Linda, secretary-treasurer of the Atlanta-based charity, spent charity funds on luxury trips to stay at four-star hotels in London, Puerto Rico and Zurich, Switzerland, according to the October 2000 civil complaint filed by Pennsylvania Deputy General Counsel Steven Turner. Additionally, the state says the charity executives improperly used Children's Wish credit cards to charge gifts at Victoria's Secret and Tiffany & Co.
"Children's Wish states that its charitable purpose is 'to fulfill the favorite wish of children who have a limited life expectancy,' " Turner said when the complaint was filed. "But we have documented evidence that the Steins used charitable contributions for lavish, exorbitant and luxurious European travel, hotels, meals and purchases." Errol Copilevitz, a non-profit law expert representing the charity and its executives, said Pennsylvania regulators erroneously calculated the value of the Ronald McDonald House gifts. The Steins, who traveled for meetings with overseas affiliates of Children's Wish, properly used administrative funds to pay for all expenses, Copilevitz said.
An administrative hearing on the charges has not yet been scheduled but is expected to be held later this spring. Wishing Well Foundation USA tells potential donors that the charity's mission is to "fulfill the fondest wish of any child not expected to reach age 18." What the charity doesn't highlight is its fundraising agreement with Non-Profit Telemedia, the company whose top officials pleaded guilty in the Kidwish USA case. A copy of the 2000-02 contract shows that the telemarketing firm is entitled to keep 90% of all contributions it raises for Wishing Well, leaving just 10% for the charity.
Tax records show the charity raised more than $2 million in 1999 but spent just $79,757 -- less than 4% of its public support and slightly more than the $62,500 salary of Wishing Well President Elwin LeBeau -- on specific aid to children and their families. The rest of the charity's 1999 income covered salaries, fees and other overhead, the tax records show. The revelations alarm Joe Vandenheuvel, a Cannon Falls, Minn., resident who remembers the hard-sell fundraising call he got from Wishing Well telemarketers in 1999. "They wanted me to write out a check then and there," he says.
Vandenheuvel and others who got similar calls filed affidavits to support Minnesota Attorney General Mike Hatch's 1999 allegations that Wishing Well used deceptive fundraising tactics. Hatch charged that the charity falsely implied it was based in Minnesota and would help many terminally ill children from the state. Without admitting any wrongdoing, Wishing Well settled the case by paying $22,500 to the state and establishing a $38,000 fund to benefit Minnesota kids with severe illnesses. The settlement barred the charity from raising funds in Minnesota until 2004. But Minnesota officials had no legal authority to stop the charity from raising funds elsewhere. "If you're banned in Minnesota, you should be banned all over," Vandenheuvel says. "What they're doing is taking advantage of people under false pretenses."
In a written response to questions, LeBeau said Wishing Well had been unaware of the guilty pleas by Non-Profit Telemedia executives. He stressed that the charity operates legally and said thousands of charities use professional fundraisers who keep the bulk of the contributions they raise. "What you are referring to as 'fundraising' also includes several components necessary to the successful operation of the charity, including providing public awareness of the charity's functions so that those in need of its services are able to take advantage of the services offered," LeBeau wrote. * Charity regulators in Tennessee say they have been investigating Youth Development Fund since late 1998, when Knoxville officials complained about alleged deceptive fundraising practices by the charity headquartered in their city.
Barbara Toms, director of the state's Division of Charitable Solicitations, declined to discuss specifics of the case. Youth Development Fund President Richard Bowen predicts the investigation would show the complaints were groundless. The charity stopped all fundraising in Tennessee about 2 years ago, he says. In 1998, the non-profit halted its fundraising in Michigan after charity regulators there threatened but did not file formal legal action for alleged deceptive fundraising. The charity raised nearly $1.7 million in Michigan, yet spent just $30,769 to help seriously ill children from the state, then-attorney general Frank Kelley charged. That same year, the charity paid $15,000 to settle similar allegations filed in Minnesota. Bowen blamed the charges on a direct- mail fundraising campaign that he says the charity has since scrapped. "We do everything the proper way," says Bowen of the charity's wish-granting. "It's a small part of what we do, but it's one of our most popular programs."