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Sham Cancer Charities Bilked Donors for $187 Million, Spent on Luxury

Government regulators have cracked down on four cancer charities, accusing the Cancer Fund of America, Cancer Support Services, the Children’s Cancer Fund of America, and the Breast Cancer Society of cheating donors out of $187 million.

The Federal Trade Commission (FTC), all 50 states, and the District of Columbia claim that the four foundations fraudulently told donors their money would help cancer patients. Instead, money from the donations overwhelmingly went into the pockets of charity operators, their families and friends, and professional fundraisers.

According to the complaint filed by authorities, the charities “operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted.”

The complaint further alleges that the charity executives employed family members and friends, and spent the donated funds on “cars, trips, luxury cruises, college tuition, gym memberships, jet ski outings, sporting event and concert tickets, and dating site memberships.” Professional fundraisers hired by the charities often received 85 percent or more of every donation, the FTC said.

Cancer is a debilitating disease that impacts millions of Americans and their families every year. The defendants’ egregious scheme effectively deprived legitimate cancer charities and cancer patients of much-needed funds and support,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.

The defendants took in millions of dollars in donations meant to help cancer patients, but spent it on themselves and their fundraisers,” added Rich.

Two of the charities, Children’s Cancer Fund of America (CCFOA) and the Breast Cancer Society (BCS), have agreed to settle with the government. Under the proposed settlement orders, their presidents and executive directors “will be banned from fundraising, charity management, and oversight of charitable assets, and CCFOA and BCS will be dissolved,” said the FTC.

Under the settlement, CCFOA will have to pay a $30 million fine, and the BCS will have to pay $65.5 million, corresponding to the amounts they collected from donors between 2008 and 2012. Litigation will continue against the Cancer Fund of America (CFA) and Cancer Support Services (CSS), and their president, James Reynolds Sr.

The explanation posted on the BCS homepage, signed by their executive director James T. Reynolds II, says that the organization and its officers “have not been found guilty of any allegations of wrong doing, and the government has not proven otherwise,” but that they had decided not to engage in a “highly publicized, expensive, and distracting legal battle around our fundraising practices.

Virginia Attorney General Mark Herring explained that this was the first time the FTC, all 50 states and the District of Columbia have filed a joint complaint, adding he hoped this would serve as a “strong warning for anyone trying to exploit the kindness and generosity of others.”

The allegations of fundraising for personal gain in the name of children with cancer and women battling breast cancer are simply shameful,” Herring said.

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Thirty-five states are charging the charities with filing false financial statements with state regulators by reporting inflated “gift in kind” donations, to the tune of $223 million.

The FTC and 36 states are also going after CFA, CCFOA and BCS for providing professional fundraisers with “deceptive fundraising materials” and assisting and facilitating in violations of the FTC’s telemarketing sales rule (TSR). The CSS stands accused of “making deceptive charitable solicitations.”


Feds, 50 states sue Arizona cancer charity

The Breast Cancer Society, one of Arizona’s largest nonprofit organizations, is being sued by federal authorities and all 50 states in a lawsuit claiming the charity is a sham that spent less than 3 percent of its collections helping cancer patients.

The suit, filed Monday in U.S. District Court in Phoenix, involves the various corporate identities of the Tennessee-based Cancer Fund of America and four top executives with the organization, who are described as pillaging tens of millions of dollars in donations over many years.

The “advertised charitable causes were simply the mechanisms through which they created employment opportunities for themselves, their friends, and their family members, and funded other private benefits,” the suit said. “The Corporate Defendants operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted.”

The suit is brought by the Federal Trade Commission and attorneys general in all 50 states. It targets James Reynolds Sr.; his son, James Reynolds II; Kyle Effler and Rose Perkins, all of whom have served as directors of the Cancer Fund of America, the corporate parent to the networks of charities. The Breast Cancer Society is based in Mesa. Its questionable practices were first spotlighted by The Arizona Republic in 2012.

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The suit claims the group used charitable contributions to pay for trips for their friends and family members to Las Vegas, New York, Disney World, and other locations. The donations also went to vehicles, personal consumer goods, college tuition, gym memberships, Jet Ski outings, dating website subscriptions, luxury cruises, and tickets to concerts and professional sporting events, the government said.

In a statement, the FTC said, “The defendants used telemarketing calls, direct mail, websites, and materials distributed by the Combined Federal Campaign, which raises money from federal employees for non-profit organizations, to portray themselves as legitimate charities with substantial programs that provided direct support to cancer patients in the United States, such as providing patients with pain medication, transportation to chemotherapy, and hospice care. In fact, the complaint (lawsuit) alleges that these claims were deceptive.”

Today, the Breast Cancer Society website was no longer available, replaced with a note from James Reynolds II.

The statement says, “While the organization, its officers and directors have not been found guilty of any allegations of wrong doing, and the government has not proven otherwise, our Board of Directors has decided that it does not help those who we seek to serve, and those who remain in need, for us to engage in a highly publicized, expensive, and distracting legal battle around our fundraising practices.”

A network of charities

The government’s case against a cancer charity involves its various corporate entities. These include:

Cancer Fund of America, Inc., also known as the Breast Cancer Financial Assistance Fund.

Cancer Support Services, Inc.

Children’s Cancer Fund of America, Inc.

Mesa-based Breast Cancer Society Inc., also known as The Breast Cancer Society of America.

Source: Court records


Dirty secrets of the worst charities

Charities overview 1 - lead art
Dream Giveaway’s Mark Breiner (left), who is also the founder of Kids Wish Network, walks with WorldCause Foundation’s Robert Preston at the Mustang Memories Car Show in Michigan last August. WorldCause Foundation has paid Breiner’s companies hundreds of thousands of dollars to run similar car giveaways. Credit: Duane Burleson / The Associated Press for the Tampa Bay Times

The worst charity in America operates from a metal warehouse behind a gas station in Holiday, Fla.

Every year, Kids Wish Network raises millions of dollars in donations in the name of dying children and their families.

Every year, it spends less than 3 cents on the dollar helping kids.

Most of the rest gets diverted to enrich the charity’s operators and the for-profit companies Kids Wish hires to drum up donations.

In the past decade alone, Kids Wish has channeled nearly $110 million donated for sick children to its corporate solicitors. An additional $4.8 million has gone to pay the charity’s founder and his own consulting firms.

No charity in the nation has siphoned more money away from the needy over a longer period of time.

But Kids Wish is not an isolated case, a yearlong investigation by the Tampa Bay Times and The Center for Investigative Reporting has found.

Using state and federal records, the Times and CIR identified nearly 6,000 charities that have chosen to pay for-profit companies to raise their donations.

Then reporters took an unprecedented look back to zero in on the 50 worst – based on the money they diverted to boiler room operators and other solicitors over a decade.

These nonprofits adopt popular causes or mimic well-known charity names that fool donors. Then they rake in cash, year after year.

The nation’s 50 worst charities have paid their solicitors nearly $1 billion over the past 10 years that could have gone to charitable works.

Until today, no one had tallied the cost of this parasitic segment of the nonprofit industry or traced the long history of its worst offenders.

Among the findings:

  • The 50 worst charities in America devote less than 4 percent of donations raised to direct cash aid. Some charities give even less. Over a decade, one diabetes charity raised nearly $14 million and gave about $10,000 to patients. Six spent nothing at all on direct cash aid.
  • Even as they plead for financial support, operators at many of the 50 worst charities have lied to donors about where their money goes, taken multiple salaries, secretly paid themselves consulting fees or arranged fundraising contracts with friends. One cancer charity paid a company owned by the president’s son nearly $18 million over eight years to solicit funds. A medical charity paid its biggest research grant to its president’s own for-profit company.
  • Some nonprofits are little more than fronts for fundraising companies, which bankroll their startup costs, lock them into exclusive contracts at exorbitant rates and even drive the charities into debt. Florida-based Project Cure has raised more than $65 million since 1998, but every year has wound up owing its fundraiser more than what was raised. According to its latest financial filing, the nonprofit is $3 million in debt.
  • To disguise the meager amount of money that reaches those in need, charities use accounting tricks and inflate the value of donated dollar store cast-offs – snack cakes and air fresheners – that they give to dying cancer patients and homeless veterans.

Over the past six months, the Times and CIR called or mailed certified letters to the leaders of Kids Wish Network and the 49 other charities that have paid the most to solicitors.

Nearly half declined to answer questions about their programs or would speak only through an attorney.

Approached in person, one charity manager threatened to call the police; another refused to open the door. A third charity’s president took off in his truck at the sight of a reporter with a camera.

Kids Wish has hired Melissa Schwartz, a crisis management specialist in New York City who previously worked for the federal government after the 2010 BP oil spill.

Schwartz said Kids Wish hires solicitors so its staff can focus on working with children, not on raising donations. According to its 2011 IRS filing, the charity has 51 employees. Schwartz also said donors who give directly to the charity instead of in response to solicitations ensure that 100 percent of their pledge will be spent granting wishes.

She declined to answer additional questions about Kids Wish’s fundraising operations, saying the charity “is focused on the future.”

Charity operators who would talk defended their work, saying raising money is expensive especially in tough economic times.

“No parent has ever turned me down for assistance because we got our money from a telemarketer,” said David Thelen, who runs the Committee for Missing Children in Lawrenceville, Ga. The charity is No. 13 on the Times/CIR list.

Over the past decade, the charity paid its solicitors nearly 90 percent of the $27 million it raised. It spent about $21,000 each year on its cause, most often buying plane tickets to reunite families.

The charity’s efforts primarily consist of giving advice to families whose children have been abducted. Thelen said his group has worked with about 300 parents since 1997.

But he publicly claims credit for reuniting as many as 1,600 children with their families, even if his charity’s involvement was as minimal as posting the child’s picture on the charity website.

Doug White is one of the nation’s foremost experts on the ethics of charity fundraising. A consultant to nonprofits for more than 30 years, White teaches in Columbia University’s fundraising management master’s degree program.

He said charities with high fundraising expenses often rationalize that such costs are inevitable in the early years. But White said the Times/CIR findings, based on a decade of data, show that the nation’s worst charities can’t use that excuse.

White also criticized reputable nonprofits that refuse to condemn bottom-tier charities.

“When you start a charity, you have a sacred compact with society,” said White, one of 30 charity experts interviewed for this series. “They are ripping off the public under the guise of an organization that’s supposed to do good for society.”

What happened to Gina Brown’s mother-in-law is a classic case.

Brown said the 72-year-old woman was struggling with dementia when the phone calls started.

From 2008 to 2011, telemarketers representing some of the worst charities in the nation persuaded her to write checks and charge donations to her credit card for a total of nearly $15,000.

Among those on the Times/CIR list that got multiple donations, sometimes only months apart, were Cancer Fund of America, Children’s Cancer Fund of America and the Committee for Missing Children.

“She was such a vulnerable person, she must have been on the A-list,” Brown said.

The Minnesota woman discovered the donations, which ranged from $10 to nearly $1,000, only after her mother-in-law was placed in an Alzheimer’s facility.

“It’s hard to come to grips with the thought of her as a victim because she had been such a bright woman,” Brown said. “This can happen to anyone.”

How the list was made

To identify America’s 50 worst charities, the Times and CIR pieced together tens of thousands of pages of public records collected by the federal government and 36 states. Reporters started in California, Florida and New York, where regulators require charities to report results of individual fundraising campaigns.

The Times and CIR used those records to flag a specific kind of charity: those that pay for-profit corporations to raise the vast majority of their donations year in and year out.

The effort identified hundreds of charities that run donation drives across the country and regularly give their solicitors at least two-thirds of the take. Experts say good charities should spend about half that much ­– no more than 35 cents to raise a dollar.

For the worst charities, writing big checks to telemarketers isn’t an anomaly. It’s a way of life.

The Times and CIR charted each charity’s performance over the past decade and ranked it based on the total donations diverted to fundraisers, arriving at the 50 worst charities. By this measure, Kids Wish tops the list.

Tracking donations diverted to fundraising is just one way to rate a charity’s performance. But experts called the rating fair and said it would provide a unique resource to help donors avoid bad charities.

White, the Columbia University professor, dismisses the argument made by charities that without telemarketers they would have no money.

“When you weigh that in terms of values, of what the charity is supposed to be doing and what the donor is being told in the process, the house comes tumbling down,” White said.

Collectively the 50 worst charities raised more than $1.3 billion over the past decade and paid nearly $1 billion of that directly to the companies that raise their donations.

If that money had gone to charity, it would have been enough to build 20,000 Habitat for Humanity homes, buy 7 million wheelchairs or pay for mammograms for nearly 10 million uninsured women.

Instead it funded charities like Youth Development Fund.

The Tennessee charity, which came in at No. 12, has been around for 30 years. Over the past decade it has raised nearly $30 million from donors by promising to educate children about drug abuse, health and fitness.

About 80 percent of what’s donated each year goes directly to solicitation companies.

Most of what’s left pays for one thing: scuba-diving videos starring the charity’s founder and president, Rick Bowen.

Bowen’s charity pays his own for-profit production company about $200,000 a year to make the videos. Then the charity pays to air “Rick Bowen: Deep-Sea Diving” on a local Knoxville station. The program makes no mention of Youth Development Fund.

In its IRS tax filings, the charity reports that its programming reaches “an estimated audience of 1.3 million.”

But, according to the station manager, the show attracts about 3,600 viewers a week.

Bowen, who runs the charity out of his Knoxville condo, declined to be interviewed. He defended the practice of hiring his own company with the public’s donations.

“We just happened to be the low bidder,” he said.

Obvious differences

America’s worst charities look nothing like Habitat for Humanity, Boys and Girls Clubs or thousands of other charities, large and small, that are dedicated to helping the sick and needy.

Well-run charities rely on their own staff to raise money from a variety of sources. They spend most of their donations on easy-to-verify activities, whether it’s running soup kitchens, supporting cancer research, raising awareness about drunken driving or building homes for veterans.

The Times/CIR list of worst charities, meanwhile, is littered with organizations that exhibit red flags for fraud, waste and mismanagement.

Thirty-nine have been disciplined by state regulators, some as many as seven times.

Eight of the charities have been banned in at least one state.

One was shut down by regulators but reopened under a new name.

A third of the charities’ founders and executives have put relatives on the payroll or the board of directors.

For eight years, American Breast Cancer Foundation paid Joseph Wolf’s telemarketing company to generate donations.

His mother, Phyllis Wolf, had founded the Baltimore-based charity and was its president until she was forced to resign in 2010.

While she ran the charity, her son’s company, Non Profit Promotions, collected $18 million in telemarketing fees.

Phyllis Wolf left the charity after the payments to her son attracted media attention in 2010. The charity has since stopped using telemarketers, including Joseph Wolf’s.

Phyllis and Joseph Wolf did not respond to several calls seeking comment.

The nation’s worst charities are large and small. Some are one-person outfits operating from run-down apartments. Others claim hundreds of employees and a half-dozen locations around the country. One lists a UPS mailbox as its headquarters address.

Several play off the names of well-known organizations, confusing donors.

Among those on the Times/CIR list are Kids Wish Network, Children’s Wish Foundation International and Wishing Well Foundation. All of the names sound like the original, Make-A-Wish Foundation, which does not hire professional telemarketers.

Make-A-Wish officials say they’ve spent years fielding complaints from people who were solicited by sound-alike charities.

“While some of the donations go elsewhere, all the bad public relations that comes with telemarketing seems to come to us,” said Make-A-Wish spokesman Paul Allvin.

Donors who answer calls from the 50 worst charities hear professionally honed messages designed to leverage popular causes and hide one crucial fact: Almost nothing goes to charity.

When telemarketers for Kids Wish call potential donors, they open with a name you think you’ve heard before.

Then they ask potential donors to “imagine the heartbreak of losing a child to a terminal illness,” according to scripts filed with North Carolina regulators in 2010.

Kids Wish, the callers say, wants to fulfill their wishes “while they are still healthy enough to enjoy them.”

They leave out the fact that most of the charity’s good deeds involve handing out gift cards to hospitalized children and donated coloring books and board games to healthy kids around the country. And they don’t mention the millions of dollars spent on salaries and fundraising every year.

The biggest difference between good charities and the nation’s worst is the bottom line.

Every charity has salary, overhead and fundraising costs.

But several watchdog organizations say charities should spend no more than 35 percent of the money they raise on fundraising expenses.

The Make-A-Wish Foundation of Central and North Florida is one of dozens of Make-A-Wish chapters across the country.

Last year, it reported raising $3.1 million cash and spent about 60 percent of that, $1.8 million, granting wishes.

The same year, Kids Wish raised $18.6 million, its tax filing shows. It spent $240,000 granting wishes – 1 percent of the cash raised.

The formula

The path chosen by Jacqueline Gray shows exactly how a worthy cause can be turned into one of the nation’s worst charities.

In 2007, Gray and her husband, Kevin, started Woman to Woman Breast Cancer Foundation in Lauderdale Lakes, Fla.

For a year, the couple struggled to raise money by hosting golf tournaments and making phone calls to potential donors themselves.

Then they met Mark Gelvan, a New Jersey consultant who has spent two decades transforming fledgling charities into money-making machines.

“He said he had the best dialers on the market,” Jacqueline Gray recalled.

Gelvan introduced the Grays to what sounded like a winning formula.

He would help the charity expand if it signed a contract with telemarketer Community Support Inc.

Staff members at Community Support would handle everything. They would create the marketing materials and run the call centers.

The telemarketer even gave the Grays $30,000 in seed money to cover bills related to the expansion. All the Grays had to do was agree to let Community Support keep the majority of every dollar raised, then sit back and wait.

The transformation was immediate.

From donations of less than $15,000 in fiscal 2008, contributions to Woman to Woman through its professional solicitor increased to $1.5 million in 2009, then leaped to $6.3 million in 2010 and $6.7 million in its most recent filing.

What the charity got to keep was far more modest. It netted about $50,000 its first year with Community Support and $544,000 in 2011.

That was still enough for Gray, her husband and her daughter to start taking salaries. In the latest year, the trio received $84,000 in total compensation. Each member of the family also has a vehicle provided by the charity.

Excerpts from our list of the worst charities in America

International Union of Police Associations, AFL-CIO

Donations to this labor group are not tax deductible, but that hasn’t kept the public from giving more than $57 million over the past decade. Most of that money stays with the professional telemarketers who tell people donations will help families of fallen officers and provide scholarships for union members. In 2011, solicitors kept about 92 percent of the $8.1 million raised. That year, the group spent $15,000 on scholarships, $5,000 on death benefits and $5,000 for a handicapped children’s foundation outside Sarasota, Fla.

Optimal Medical Foundation

Optimal President Janet Greenhalgh once ran a charity in Canada that claimed to have a hand lotion that could kill the HIV virus. Canadian officials closed that charity in 2011 saying it spent too much on fundraising. Michigan-based Optimal, meanwhile, has paid solicitors 97 percent of nearly $8 million raised over the past decade. The charity’s biggest research grant – $10,000 – went to a for-profit company where Greenhalgh is vice president.

Association for Firefighters and Paramedics

In 2010, the Association for Firefighters and Paramedics paid $100,000 to settle a lawsuit filed by California’s attorney general who said the charity lied to donors about how much money would go to burn victims and spent donations on a Caribbean cruise for board members. In 2011, solicitors kept nearly 90 percent of the $1.2 million raised. Less than $20,000 went to fire victims or hospital burn units. While the charity pays $6,600 a year for office space, the address on its IRS filing is a UPS mailbox. Michael Gamboa, who has been president since the charity started in 2001, is paid about $54,000 a year.

Children’s Charity Fund

Ken Bowron, a motorcycle mechanic, started Children’s Charity Fund in 1994. Now he draws a retirement check from the charity, which is run by his wife, Sheryl, and daughter Ashley. In 2011, family members were paid more than three times the amount spent on medical equipment and sick children’s “wishes.” In 2011, the charity raised $1.3 million. It gave 81 percent to its telemarketers. Sheryl Bowron said charities like hers have no choice but to take whatever percentage a solicitor offers. “People here don’t want to give until they need it.”

Project Cure

Project Cure says it educates the public about alternative medical treatments. But the education mostly consists of health warnings on donor letters, like one about possible links between aluminum and Alzheimer’s. In IRS tax filings, the group says its solicitors only get about 40 percent of donations. But that figure ignores millions of dollars in marketing expenses reported separately. The huge amounts paid to professional solicitors still isn’t enough to cover costs. Project Cure ended 2011 owing its solicitor more than $3 million.

United States Deputy Sheriffs’ Association

Until his death in April 2010, Stephen Van Dyke ran United States Deputy Sheriffs’ Association with his wife, Judy. Its mission is to train officers, donate equipment to rural departments and help families of fallen officers. From 2005 to 2010, professional solicitors raised $23 million in donations for the charity. The solicitors kept 70 percent. More than $7.6 million was spent on salaries. Less than $135,000 went to grieving families or equipment grants.

Defeat Diabetes Foundation

In 1991, retirees Andy Mandell and his brother Jerald launched Defeat Diabetes Foundation to raise awareness about the disease. Each brother is paid about $30,000 a year; their sister is also on the payroll. In 2011, the charity raised $1.2 million and gave away about 300 blood sugar meters that had been donated to the group. Total cash out of pocket: $761 to ship the meters. Andy Mandell, who calls himself “Mr. Diabetes,” visits about 80 schools a year, warning students to eat right and exercise to avoid diabetes.

Firefighters Charitable Foundation

Over the past decade, Firefighters Charitable Foundation has given about $5 million to people affected by a fire or disaster. But it paid $55 million to the for-profit companies that solicits donations. For six years charity president Frank Tepedino has said he plans to reduce the waste. But year after year, fundraisers take more than 85 percent of donors’ money. Before anything gets spent on the needy, Tepedino and his wife, Lori, the charity’s secretary, get combined pay of about $83,000.

The Grays’ decision to sign on with professional fundraisers transformed Woman to Woman into one of the nation’s worst. It falls at No. 22 on the Times/CIR list.

Woman to Woman raised $14.5 million in donations from 2009 to 2011, tax filings show.

It paid nearly 95 percent of that to its for-profit fundraiser and spent about $700,000 on overhead and salaries.

That left an average of less than $20,000 a year to provide mammograms and other diagnostic services for women with breast cancer.

Jacqueline Gray, herself a breast cancer survivor, said she is as shocked as anyone by how much money has been raised in her charity’s name and how little of it has reached patients. She said she is angry that phone solicitors take more than 90 percent of the revenue.

But she vehemently denies that she’s to blame.

“Why would I be to blame for a system that’s dysfunctional?” Gray asked. “We are doing what we’re supposed to be doing.”

She showed a reporter several emails she has sent Gelvan in the past year trying to renegotiate Woman to Woman’s contracts for better returns.

His response, according to Gray: If they didn’t like 10 percent, Gelvan would replace Woman to Woman with another charity.

“In the tele-funding business sector, it is common for nonprofit organizations to renew PFR (professional fundraising) contracts under the same terms and provisions of the previous contract,” Gelvan wrote in an email that Gray shared with Times/CIR reporters. “This is part of the ‘if it’s not broken, don’t fix it’ principle.”

Instead of giving the charity a better return, Gelvan introduced the Grays to the next piece of the formula – gifts-in-kind.

Gifts-in-kind are donated items like generic drugs and medical supplies. Getting them to the sick and poor in developing countries can be an important role for a charity.

But for charities that spend most of their money on for-profit solicitors, gifts-in-kind can function as an accounting gimmick.

The value of these shipments is often highly inflated, with pills that sell for pennies priced at $10 each on paper.

Several charities also can pitch in to pay the overseas transportation costs of the same shipment of medical supplies.

Under accounting rules, each charity is then allowed to take credit for the entire value of the shipment as if it alone provided the supplies to those in need.

The result: A charity’s revenues and good deeds are boosted, and fundraising costs look smaller.

That makes donated items especially useful for charities that fear being criticized for having excessive fundraising costs on their public IRS filings.

Kevin Gray, the charity’s chief financial officer, said Gelvan made no pretenses when he suggested the charity start shipping goods overseas.

“Mark said it was a way to make our 990 (IRS filing) look better,” Kevin Gray said.

Gelvan told them to hire a company that rounds up donated goods and ships them overseas for charities, according to the Grays.

He handed them a binder laying out options like a Sears catalog.

“I shared this info, but did not author it nor publish it,” Gelvan wrote in an email.

They could send blood pressure monitors to Ghana, maternity ward equipment to the Philippines or surgical supplies to Guatemala.

The Grays rejected the idea.

“I can’t figure out why I’d pay to ship medicines out of the country while people need the stuff right here,” Kevin Gray said. “Why would I want to spend money that way?”

But the Grays say their charity would have no money if not for professional fundraisers, so they have continued paying them.

Reaping the benefits

The fundraising formula that raised millions of dollars for the Grays’ charity has been adopted by hundreds of charities.

They use it to deceive donors and turn their causes into profit centers.

Few have been more successful than Mark Breiner, the founder and one-time president of Kids Wish Network.

Breiner relied on professional fundraisers and donated items to build his charity into a nearly $20 million annual operation.

He is among the beneficiaries. The charity he founded has paid him or his companies nearly $4.8 million in the past 10 years – $1.5 million more than what the charity spent on direct cash to children, according to tax filings.

While Breiner was still president of Kids Wish, earning $130,000 a year, he joined a former employee as a partner in a fundraising company called Dream Giveaway.

In 2008 and 2009, Kids Wish paid Dream Giveaway nearly $1.7 million in consulting fees to run automobile giveaways that raised money for the charity. The charity’s IRS filings do not specify how much it netted on these early sweepstakes.

Breiner continued making money after he retired from Kids Wish in mid-2010 and left his mother-in-law on the seven-member charity board. In 2010 and 2011, the charity paid two of Breiner’s companies $2.1 million for licensing, consulting and brokerage fees.

Kids Wish violated IRS rules by waiting four years to disclose the money it paid Breiner’s companies.

The charity first reported the payments in amended tax filings last year after an employee took her concerns about insider dealings to the charity’s board.

Meanda Dubay, who had been a wish coordinator for six months, told Kids Wish’s directors she was seeking protection under the charity’s whistle-blower policy.

She was fired immediately after she raised her concerns.

Kids Wish officials accused Dubay of stealing proprietary information from the company’s database and said they had been preparing to dismiss her prior to her appearance before the board.

The charity asked the FBI to investigate Dubay. The FBI found no wrongdoing.

Kids Wish then sued Dubay for breach of contract and defamation. Dubay, who declined to talk to reporters, has denied all allegations in the civil case, which is pending.

Kids Wish officials said in an email that the omissions in the IRS filings resulted from “inadvertent errors made by the former accounting firm.”

Officials at the Tampa, Fla., accounting firm, Guida & Jimenez, did not return calls seeking comment.

Breiner declined to answer questions about his fundraising and consulting businesses, which received an additional $1.26 million from Kids Wish for a car giveaway in 2012.

But he said in an email that the charity recently completed an IRS audit that included a review of its contracts with his companies.

“They found no indication of private inurement or conflict of interest with founders or board members,” Breiner said.

An IRS spokesman said federal law prohibits the agency from commenting on a specific individual or organization’s tax issues.

Breiner has cashed in on other close relationships in the charity industry as well.

His consulting business was paid nearly $1 million over two years by a charity founded by a former Kids Wish board member. And when Kids Wish’s longtime telemarketer started a charity so his son could have a job, he turned to Breiner for fundraising help.

“Mark’s a genius,” said Robert Preston, who paid Breiner’s companies more than $375,000 in 2011 to run a Porsche giveaway for the charity, WorldCause Foundation.

Breiner’s consulting arrangements may be perfectly legal, but such relationships are bright red flags to charity experts. They create the appearance of a conflict of interest and make it easy to turn charitable donations into personal profit, experts say.

Putnam Barber at the University of Washington, who has been writing and teaching about nonprofits for more than 20 years, said, “That kind of arrangement makes me fume.”

Times researcher Caryn Baird, computer-assisted reporting specialist Connie Humburg and Web developer Bill Higgins contributed to this report, along with CNN Senior Producer David Fitzpatrick.


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