Fraud and Abuse

A New York Times Editorial, "An Intolerable Fraud", tells of a "charity" that hides behind a patriotic name – "The Coalition to Salute America’s Heroes" and its sister "Help Hospitalized Veterans" – to bilk unknowing donors trying to send funds to soldiers harmed by the war, only to squander 70% to 80% of their funds.

According to the New York Times, the guy running this outfit, Roger Chapin, spent nearly $125 million (75% of funds raised) in "fund-raising, administrative expenses, fat salaries and perks. Mr. Chapin gave himself and his wife $1.5 million in salary, bonuses and pension contributions over those three years, including more than $560,000 in 2006. The charities also reimbursed the Chapins more than $340,000 for meals, hotels, entertainment and other expenses, and paid for a $440,000 condominium and a $17,000 golf-club membership." 

Just as pathetic, much of the funds the troops got was in the form of "’charitable’ phone cards sent to troops overseas in 2006 — not to let them call their families, but rather to call up a stateside business that sells sports scores."

Rep. Henry Waxman held hearing about it, called the group’s activities “an intolerable fraud" and called for more investigations.

That is not enough.  While I am not a fan of bureaucratic legislation, either government or the private sector should take a stronger lead in creating a standard of transparency and full disclosure (with occasional audits) to ensure these abuses do not take place.  And citizens should not donate to any charity without being able to ensure that funds raised are being used exclusively to advance the stated mission.

These fraudulent outfits, which are also in existence in the area of Israeli-Palestinian peace efforts, not only steal from the public but also exploit causes that people believe in and ultimately harm the causes they claim to advocate.  Most are not as patently abusive as the above outfit, but many just allow the institutional interests of fundraising to reign over the cause of just ending the conflict once and for all!  It is the reason many are understandably skeptical of the "peace industry" where many professionals have institutional interests in ongoing management of the conflict. I often encounter people that are rightfully turned off about these activities.

Full disclosure: I run the PeaceWorks Foundation which seeds and guides the OneVoice Movement but have the fortune of being able to subsidize 100% of my modest compensation from the funds that I personally donate to the Foundation from my company, PeaceWorks Holdings LLC.  In 2007, I spent about 80% of all my working time to advance the goals of the movement and the organization at zero cost to the organization, and on top of that donated additional funds to support its programs.  And the culture in the organization is one of frugality and entrepreneurial resourcefulness.  Even in our fundraising efforts to date, we’ve shunned big galas which would increase exposure among our donor communities but are inefficient fundraising vehicles because of the high expenses to cover the dinner events.  We rather send more funds to our Palestinian and Israeli partners.

Not everyone is fortunate to be able to have this arrangement, and there are very many admirable people who have total sincerity of purpose and yet need salaries to sustain their efforts.  They are worthy of support (with a small list of examples including Hand in Hand, IPCRI, All for Peace Radio, the Reut Center, PARC, the Center for Jewish-Arab Economic Development, and others).

But all the more reason why everyone should rally behind pushing for greater transparency and have no tolerance for internal or external abuses which hurt us all.

A new standard should be adopted where budgets are published online for anyone to see.  People should know exactly how funds are being spent, and based on THAT determine whether or not to support efforts further.  Results are most important, and groups should be evaluated accordingly also.  But use of funds is an objective way to ensure integrity and focus.  And reports should not be in silly catch-all categories where you can hide anything. It should be with sufficient degrees of precision to get people to understand what the money is being spent on.

I will ask my colleagues at the PeaceWorks Foundation and our affiliates at the OneVoice Movement to start publishing their use of funds online for anyone to see.

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  1. Eric Cook said:

    As the founder of a new Jewish Charity called, I’ve Done My Part, Inc., I am in total agreement with you. the one area which may present a challenge to full disclosure would be for new charities. It is not that I am against it, but with full disclosure, my fear is that people will not donate to charities because they are too small. Thus, it would be more difficult for new charities to get off the ground. The IRS already slows this process down considerably by taking months to approve your 501(c)(3) status. Without full 501(c)(3) status a new charity can not receive any grants and donations are limited due to donor skepticism. By forcing full disclosure on new charities, it can be difficult to raise funds if, for example, donors knew we only took in $200.00 last month or last quarter. My feeling is after a time period of 3-5 years all charities should be required to disclose donations each quarter or semi-annually.

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