Cars, Kids and Nonprofit Scammers

Our trip to Russia last year to teach peer-to-peer fundraising led us to review data concerning the number of Russians who expressed confidence in charitable organizations. The number is low (only 29%) in part due to scams that sprang up when the Soviet Union dissolved, and the country experienced severe economic spasms. That statistic got us looking at Americans’ confidence in charities, which is around 60%, with 27% saying that they do not.

We found that number surprising — it seemed so low. How could it be that only six out of 10 Americans have confidence in the sort of great organizations that we have the privilege to have as clients? Nonprofits like the ALS Association, Susan G. Komen, March of Dimes, Church World Service, the Cystic Fibrosis Foundation?

As a psychologist, I’m always on guard for the kinds of biases to which I know people fall prey. I thought that my confidence in nonprofits might be due to the “availability heuristic.” It’s a common mistake that our brains make by assuming that the examples that come to mind easily are also the most important. In my case, maybe I believe charities are worthy of my confidence because the examples that are most available to me happen to be some great ones.

I patted myself on the back for being so self-reflective and decided that I wasn’t a victim of the availability heuristic. People should have high confidence in charities, just like I do. Then recently, something happened that made me understand that 27% a bit better.

Katrina and I have a division of responsibilities in our marriage. I’m in charge of the big things, like our position on nuclear disarmament and fossil fuel regulations. She’s in charge of the little things, like what kind of car I drive. That’s why I’m driving a 2009 Ford Flex (she’s frugal). It’s approaching 150,000 miles, so I’m contemplating the day I will get something new. Newer, at least.

I looked up the value of the Flex and wasn’t surprised to find that it’s only around $2,000. I thought about donating it instead of selling it, and as soon as I did, a little song started to play in my mind:

“1 877 Kars for Kids…  Donate your car today.” 

I decided to do some research on Kars4Kids. Aside from the radio ads, I didn’t know anything about them or where their donations went. What kids might be helped out if I donated the Flex? Here’s what I learned.

There’s a good chance that you can hear that little jingle in your head when you read “1 877 Kars for Kids.” You just can’t unhear it — no matter how much you may want to. It’s catchy; it works. In 2005, Kars4Kids didn’t run any radio commercials and had annual revenue of $5.6 million. In 2009, they began running the radio ads, and their revenue increased four-fold, to $24.6 million.

It turns out that Kars4Kids is the fundraising arm of an organization called Joy for Our Youth, which then distributes the funds raised to Oorah, Inc. Tax records show that the funds got diluted, much in operating fees, as the money changed hands.

Oorah, Inc. is a religious organization that runs day camps for kids. There’s nothing wrong with raising funds for religious groups. On the back of my Ford Flex is a bumper sticker from one of my favorite faith-based charities, Church World Service. However, Kars4Kids tries to hide their religious affiliation, presumably because they think it might impact their revenue.

Kars 4 Kids was fined $65,000 twice — by the State of Washington and the State of Oregon — and $40,000 by the State of Pennsylvania for misleading practices for failing to disclose their religious affiliations. Also, their practice of offering donors a voucher for a free vacation is one of the most notable indications that a car donation organization is not legit, according to the IRS and a number of state Attorney Generals. It turns out that the voucher for the free three-day vacation they talk about on their radio ads is a come-on for a timeshare.

There’s more, like when Kars4Kids lost $5 million in donations in real estate investments that went belly up. But it’s challenging to get to every financial transaction because Kars4Kids doesn’t exist as far as the IRS is concerned, rather just the charities that they fund — Joy for Our Youth and Oorah, Inc.

Kars4Kids is representative of a serious problem in our industry that is a source of public distrust of charities. At best, it’s seen in a lack of transparency about how donations intended to support good causes are used. At worst, it’s seen in the for-profit telemarketing companies that operate as cash machines that return meager amounts of funds donated to missions.

For example, Ohio Attorney General Mike DeWine in 2017 called Ohio Cops for Kids a “purported charity” when the state of Ohio sued the group for allegedly defrauding donors. The lawsuit alleged that the group spent merely 2% of the money raised toward its stated mission of helping children whose families were victims of crime. According to the complaint, Telcom Enterprises, a for-profit fundraiser the charity hired, kept a whopping 79% of those funds, and the nonprofit spent the rest on its salaries and overhead.

For-profit fundraisers aren’t all bad. In some situations, using them can be more efficient than hiring in-house staff. But the conditions for malfeasance make it all too easy for there to be abuse. A 2017 study by the New York State Attorney General’s office revealed that 18% of the time, telemarketers charged charities more in fees than they ended up collecting in donations, leaving these organizations worse off than when they started — unless the effort is purely to create a list of new names for later nurture.

On the legal side, state and federal agencies are limited in their ability to regulate nonprofits and for-profit fundraisers. And we all know that nonprofits tend to resist new regulations, arguing that we can police ourselves. Still, nonprofits are reluctant to point their fingers at others.

There aren’t any easy solutions. The Ohio Cops for Kids case showed how state authorities can rein in bad actors. But enforcement cases like these are rare; there aren’t the resources available to pursue prosecutions. And the fact that the offenders in many cases may operate for years without legal consequences highlights one reason that more than one in four Americans lack confidence in nonprofits.

How can we make things better? First, organizations need to examine their use of contractors for telemarketing critically. The New York Attorney General found that charities that rely on contractors for telemarketing campaigns wind up raising less money for the charity’s operations than they do for the telemarketers, especially when they are paid on commission.

Second, organizations need to go overboard to be transparent with their constituents regarding their finances. That sounds like a no-brainer, but we don’t always act in our own best interest. It wasn’t so long ago that a coalition of nonprofits helped to defeat efforts to require telemarketers to disclose to donors how their gifts are spent.

As for me, if anyone is interested in a well-maintained 2009 Ford Flex, it will be on the market soon.