What Gives in Charity Oversight?
Help the Needy case shows failure of measures meant to keep tabs, experts say.
March 9, 2003
By Frank Brieaddy
People who keep an eye on charities are dismayed, but not surprised, that the Syracuse-based Help the Needy managed to raise at least $5.5 million from donors over eight years without offering a public accounting of where the money went or gaining federal recognition as a legitimate nonprofit organization. Those experts say a combination of too much donor trust in charities and a lack of government oversight have created a situation where some charity dollars are wasted on inefficiency and fraud.
Few people approach a charitable donation with the kind of scrutiny they give to the purchasing of clothes or appliances, said Daniel Borochoff, president of the Chicago-based American Institute of Philanthropy, which publishes the Charity Rating & Watchdog Report.
"It's not like we're buying a product or a service where we get something back and judge it," Borochoff said.
The number of ways to examine a charity has expanded radically thanks to the Internet. Yet there was no information available about Help the Needy available from either charity watchdog groups or the government. That alone should have raised alarms among donors, Borochoff said.
"I don't know what it's going to take for people to catch on," he said.
According to an indictment and supporting documents, the four men charged Feb. 26 in U.S. District Court here with operating a sham charity and violating U.S. sanctions by sending money surreptitiously to Iraq told donors they were buying food and medicine for orphans and families in Iraq.
Instead of providing a public accounting of that money, court documents show the group took great pains to hide its financial activity.
Experts in the field say donors should not trust the government to catch charities that are breaking the law.
In an article posted in October on the Internet site of Charity Navigator, a charity rating group, the organization's president predicts a nonprofit scandal rivaling the financial meltdowns at Enron and WorldCom.
"The victims will be the most vulnerable members of our society: the poor, the homeless, and the needy," Trent Stamp wrote in the article. "And when this failure happens, it will be because people who could have done something about it, America's government, decided to look the other way. America's charities are operating with very little regulation or oversight."
Stamp contends that the increase in the number of charities and the decline in government resources devoted to regulating them is a recipe for fraud.
Help the Needy was off the Internal Revenue Service radar screen because it didn't bother to register as a nonprofit organization until 2002, at least seven years after it began operations.