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The American Institute of Philanthropy (AIP) is now CharityWatch. Updated ratings for charities mentioned in CharityWatch archived articles can be found in the current Charity Rating Guide & Watchdog Report.

From the April/May 2010 Charity Rating Guide & Watchdog Report

Feed the Children Controversies Continue
Charity Accused of Overstating Its Work in Haiti

More bad behavior has come to light after AIP handed Feed the Children (FC) its "Most Outrageous Charity Award" in our last edition of the Charity Rating Guide. After having worked three decades at the charity, FC founder Larry Jones was finally fired by its board last November after admitting to authorizing the bugging of three FC officials' offices. Jones filed a wrongful termination suit later that month and the charity countered 12/28/09 with a claim against Jones, including allegations that he took kickbacks from vendors, did not tell the truth to FC's board about giving himself and his wife unauthorized raises, and had a large stash of porn magazines hidden in his office and his private area at this Christian charity.

The charity's counterclaim alleged that Jones failed "to disclose that he entered into an improper and unauthorized 3-year contract with Affiliated Media Group... [and] that he was in business with a top executive of Affiliated Media Group in another business venture…" In a 12/30/09 article, Jones told The Oklahoman that he was paid $10,000 a month in sales commissions by Affiliated Media Group (Affiliated) because he "recruited preachers to use the company for their own fundraising spots…" and that he helped his son get a job with Affiliated. FC paid Affiliated $110 million from fiscal 2005 through fiscal 2007 according to August 22, 2008 board minutes filed with a prior lawsuit, FC v. Osteen.

Since Jones was fired from FC, he has gone from being a defender to a critic of the charity. Last summer Jones defended the Oklahoma City based charity's purchase of a $1.2 million house in the Los Angeles area "to reach out to celebrities" and told the Oklahoman that his daughter "lived and worked out of the house as intended." Yet in legal papers filed 1/19/09 against FC, he accused his daughter of "treating a business residence in California as her personal residence." In the same lawsuit he criticized other employees who worked for him for many years when he was head of the charity, including accusing FC's chief financial officer, Christy Tharp, of being incompetent even though she had worked for him as FC's CFO since 2002.

Just a month after the catastrophic earthquake struck Haiti, a CBS News investigation exposed that FC was greatly exaggerating the amount of aid it was providing to victims. The 2/18/10 story, which included an interview with AIP's president, showed that while FC's web site claimed that it was "providing medical relief for 12,000 people," the three doctors that FC employed in Haiti could realistically only treat about 100 people a day. FC's web site also said that United Nations agencies "are partnering with us to provide food and milk for the entire camp," but when CBS investigators visited the camp, they were told by FC's field manager in Haiti, who has since resigned from FC, that this was not true. CBS reported that more than two weeks after the quake struck FC had not fed anyone. When CBS reporter Sharyl Attkisson during an on-camera interview told FC Director of Communications Tony Sellars that no food had been handed out, his response was, "That does surprise me at this time, yes."

In response to the CBS piece, FC issued a press release stating: "We were advised that World Food Programme already had rations for one million people for one month as part of their ongoing programs before the quake. Accordingly, our priority was tents, blankets, medical supplies and bottled water." FC later indicated on its site that it disputes its ex-field manager's claim in the CBS report that FC had not provided food at the camp, claiming that it had distributed a significant amount of food on January 20th. FC characterizes the CBS report as inaccurate.

While AIP has been giving FC an F grade since we began reviewing the charity over a decade ago, other charity monitoring agencies that previously gave top honors to FC have only recently lowered FC's standing.

The BBB Wise Giving Alliance (WGA) had been granting FC its Wise Giving Seal, for which it paid WGA $15,000 annually, up until about the middle of last year. There is another connection between WGA and FC. Larry Jones v. FC court papers filed by the charity in 12/28/2009, state that WGA's Treasurer, Marcus Owens, Esq. had been hired by Larry Jones to help him with a failed scheme to fire FC's board "and replace them with his hand picked Pastor Board, so Larry Jones would have unfettered control over FTC [Feed the Children] and he could continue his free wheeling dominance of its affairs." Owens is also a former director of the IRS's Exempt Organizations Division and is presently an attorney with the law firm of Caplin & Drysdale. Owens told AIP that he could not comment on the lawsuit due to his professional obligations.

Be careful to not let a four star rating by Charity Navigator (CN) become a green light to give without checking further. In a November 2009 article in the Daily Oklahoman CN spokeswoman Sandra Miniutti said FC has CN's highest possible rating and "is one of those charities that has their financial health in order." CN continued to give its top rating of four stars to FC, which it heavily promoted on its web site and in press releases until February 19, 2010, the day after the CBS news story on FC was released.

From AIP's December 2009 Charity Rating Guide & Watchdog Report

The Most Outrageous Charity in America
Larry Jones' Feed the Children

From forged audits and alleged employee theft in the late '90s to alleged burglary and board coup staging within the past year, no other major charity can match Feed the Children's (FC) record of outrageous behavior over the past ten years. The madcap antics of Feed the Children and Larry Jones, its founder and president for 30 years, may be coming to an end. In August 2009, after months of turmoil at the charity, Mr. Jones agreed to give up control of FC in order to settle a lawsuit between FC's longstanding board and a new board that he had attempted to install. Fascinating details about many alleged wrongdoings at this charity have been brought to light as a result of this lawsuit.

Last December, Larry Jones staged a failed coup in an attempt to take over the board of FC after the board decided to put an end to his "freewheeling dominance" over the charity and demanded that he take a sabbatical for an indefinite period of time. The new board members Larry Jones attempted to install consisted of prominent ministers. This board along with Larry Jones promptly fired FC's chief operating officer, chief financial officer, internal auditor and the daughter of Larry Jones, Larri Sue Jones, FC's Vice President and General Counsel. The longstanding board sued the new board in January and was reinstated by Oklahoma County District Judge Patricia Parrish in February along with the previously fired employees.

FC has continuously received an F grade from AIP since we began rating this charity in 1995. Based on FC's most recently available financial statements for fiscal 2008, only 21 to 23 percent of its cash budget was spent on program services and $63 to $65 was spent to raise each $100 cash contribution. In 2008 about 54% of FC's cash budget of $125 million was spent on "television and radio," "direct mail," and "direct mail postage" according to its audit of the same year.

Medicate the Children?

FC emphasizes feeding hungry children in its name and most of its fundraising and PR. Yet food is not mentioned in the breakouts of noncash property received in FC's fiscal 2008 tax form. These breakouts account for $736 million or 69% of the total noncash items received consisting of $584.5 million or 83% medicine; $52.2 million or 7% books; and the rest "assorted necessities" and "disaster relief supplies." FC's 2008 audit reports that one contribution of medicine accounts for about 46% of total noncash property received and the related receivable accounts for 98% of $362.4 million in contributions receivable.

The Chronicle of Philanthropy lists FC as our nation's 7th largest charity based on its private support of $932.5 million, of which $820.6 million or 88% is noncash or in-kind, according to FC's fiscal 2007 tax form. FC's ranking might not be so high if its noncash income was valued more precisely. AIP has long questioned the reported value of FC's noncash support. In an article in the April/May 2009 AIP Guide, we pointed out that FC reported donations of pharmacy discount cards that were valued on its fiscal 2007 tax form at $22.4 million, yet according to a charity that received a shipment of these cards valued by FC at about $112,000, they could not be distributed because people did not want them due to their limited use. Charities have incentive to inflate the value of the in-kind items they receive and distribute because they can take credit for the value of these goods in their program percentages and appear to be operating more efficiently as a result.

The charity's own auditors flagged how FC values its noncash goods as one of its "material weaknesses," according to FC's Board of Directors Meeting Minutes of April 11, 2008. (Note: All board minutes and resolutions cited in this article are filed with the court as part of the lawsuit, FC vs. Osteen.) When AIP asked FC on October 5, 2009 to describe these "material weaknesses," they refused to answer the question and said that FC's outside auditors have determined that its valuation process no longer has "material weaknesses." Rather than explain its valuation methodology, FC chose not to answer AIP's questions concerning how it valued the discount pharmacy cards and also its shipments of Mebendazole, a deworming drug that FC says it distributed 61 million tablets of in fiscal 2008.

Millions to Media Group

The longstanding board at its meetings related numerous incidents of major agreements being made by FC staff without formal board approval. The most eye-opening one is a television buying agreement in which FC pays approximately $40 million annually to Affiliated Media Group (Affiliated), according to minutes of a June 30, 2008 board meeting, filed with the Oklahoma court. "This purchasing function has never been let out for bids, and there has been a less than satisfactory accounting by Affiliated of the true cost of the television time." FC told AIP that it will utilize "…competitive bidding on future purchase[s] of television air time."

More detail regarding payments to Affiliated was provided in the August 22nd minutes: $37.0 million in fiscal 2005, $38.0 million in fiscal 2006 and $35.0 million in fiscal 2007. These payments represent 35.8%, 33.2% and 30.1%, respectively, of total cash spending in each of those years. FC did not identify these payments made to Affiliated, its largest vendor, in its tax forms for those years even though the IRS asks that charities list the five highest paid independent contractors for both professional and other services. FC told AIP that it is not required to list separately its payments to Affiliated on its IRS form 990.

Allen Jones, Larry Jones' son, was employed by Affiliated, according to minutes at the June 30, 2008 FC board meeting. The board at this meeting expressed concern about a possible conflict of interest with this arrangement.

Larry's Son Runs Roughshod

AIP previously reported on Allen Jones in its 1999 Guide when he received from FC a $950,000 loan or promissory note to finance a framing business that he later assumed and defaulted on. Larry Jones told The Oklahoman that FC recovered its money in the foreclosure of the business. FC told AIP in 1999 that the co-owner of Allen Jones' business also guaranteed the note.

FC's April 11, 2008 board minutes stated that Allen Jones is not an employee of FC, though he had a charity credit card and used FC's offices, equipment, vehicles, and storage space. Allen used approximately 17,405 square feet to store "his pontoon boat, sea doos and other personal items," according to August 1, 2008 board minutes. The board alleged at its June 2008 meeting that FC paid for a garage door that Allen Jones had received and electrical work performed at his home. Allen reimbursed FC for these expenses, according to a "LIST OF [FC] BOARD RESOLUTIONS AND FOLLOWUP ACTIONS [FOR BOARD] MEETINGS MAY 16, 2008 THROUGH OCTOBER 24, 2008" (FC Board Resolutions). He also oversaw a large call center building in Elkhart, Indiana on behalf of his father. It is the FC board's understanding that during a two to three year period in which Allen oversaw the building, its "components and excess equipment were being stripped and removed by… personnel [from a company whose "contact" for FC was Larry Jones] and sold for cash in the nearby towns."

Contract Disputes

The Elkhart call center had been leased and some of its equipment purchased from FC in 2006 by InService, a company FC hired to answer calls from potential FC donors. According to a lawsuit filed by InService against FC and also Affiliated, who served as FC's negotiator, FC promised that it would make InService the "exclusive provider of call services." After a dispute with FC over InService's billing practices and performance of its contract, according to InService, FC later reneged on this promise by routing some of its calls to a competitor and not paying InService's invoices. Ray Davis, the CEO of Affiliated at the time who is now deceased, stated, according to the lawsuit, "I can destroy you brother. I will take In Touch from you. I will take Lakewood [Church] from you." These were InService's largest clients, according to the lawsuit. An interesting connection is that Lakewood is also the employer of Paul Osteen, the brother of famous televangelist Joel Osteen, and one of the people that Larry Jones attempted to place on the FC Board in his failed coup attempt.

FC's June 30, 2008 board minutes state that "legal counsel had been instructed to settle this matter…due to issues with Affiliated" and that "Ray Davis had brokered the transaction originally and was heavily involved in the settlement." The minutes also said that the total loss to FC from the lawsuit and equipment at the Elkhart call center was $1,675,630.

One of a number of internal FC disputes involved Rick Ross, FC's Vice President of Donor Relations, who was "forced" by Larry Jones to sign a contract with the vendor, AMP, even though it "was not in conformance with FTC's General Counsel comments," according to FC Board Resolutions, filed with the court. This document also stated that "Rick went on record as disapproving having to sign this contract without the General Counsel's or the Finance Committee's approval." FC contradicted this document in October 2009 when it stated in writing to AIP: "There has been no contract signed by Rick Ross."

Other Family Personnel Problems

The consequence of the limited number of hours worked due to health problems by Larry Jones' wife, Frances, who held the title Executive Vice President, was discussed at the June 30, 2008 Board meeting. The Board expressed a concern that Frances' "relatively low number of hours worked in relation to her compensation paid," $182,952 plus $4,100 expense account, according to FC's fiscal 2008 tax form, "might draw unwanted attention from the IRS...." FC declined to inform AIP of how many hours Frances Jones works each week.

Ian Harris, formerly manager of international operations for FC, was criticized at a June 2008 Board meeting for continuing delays in submitting expense reports and not reporting "possible additional Grants." An audit of FC in South Africa uncovered a $100,000 embezzlement by the son of Ian Harris, according to August 1, 2008 board minutes. At the June meeting Ian Harris' brother-in-law, Peter McLaren, was criticized for refusing to submit financial data on FC operations in Thailand. FC told AIP in October 2009 that Ian Harris is no longer associated with FC.

Paid Pro Golfer

Last July, Larry Jones told the NBC mid-Michigan affiliate: "We are incredibly thankful that [pro golfer] Lee Janzen has partnered with Feed The Children for this food distribution in Flint.".... "Lee has a servant's heart for struggling families during this difficult economic time and he is committed to reaching out to those in need…" What was not reported in this story is Mr. Janzen's interest in getting paid by FC. August 1, 2008 FC board minutes state "More discussion was had regarding the sponsorship price of $250,000 per year." Also, the board wanted a one year escape clause in Mr. Janzen's contract, yet the contract went out on FC's behalf with a 2.5 year clause that the board had not agreed to. Janzen declined to answer AIP's questions regarding his contract with FC. FC declined to provide AIP specifics about Janzen's contract and also declined to tell AIP whether or not other celebrities are paid to do promotions or fundraising for FC.

Larry's Daughter Burglarized

Rather than spending $1.2 million of donations on helping the needy in 2007, FC spent it on a new four bedroom house in tony Burbank, California for Larri Sue Jones to live and work in, according to The Oklahoman. Larri Sue filed a police report in December 2008 that stated her Burbank home had been burglarized while she was in Oklahoma City being fired and that her personal papers and a FC-owned computer had been stolen.

Upon questioning from a Burbank police investigator, FC's human resource manager, Richard Gray, admitted that an FC employee entered the house because Larri Sue was trespassing on the charity's property and "we have a right to enter and take our property." The policeman informed Gray that the person who entered the house committed a burglary. The officer also said that the house is a private residence and that the charity "is not allowed to enter and take any property… until she moves or is evicted through a legal process." Some FC directors identified Jerrald Buchanan, former VP of Information Technology, as the employee involved in the alleged burglary, according to The Oklahoman. Gray and Buchanan were subsequently fired by FC. When AIP asked FC in October 2009 who ordered the breaking in of Larri Sue's residence, their only comment was that it is a matter under police investigation.

Larry Jones told The Oklahoman that he had no regrets about the charity's purchase of the Hollywood area home because FC needed an office and a home to forge relationships with celebrities who could open doors to help FC raise more funds. Many in the entertainment world allow FC to use their image to promote this charity. FC's 2007 annual report, the latest one that FC has made available on its Internet site, had three pages of photos of celebrities entitled "Special Friends and Partners," which included Maria Shriver, Sir Roger Moore, Joan Collins, Garth Brooks, Antonio Banderas, Bishop T.D. Jakes, Kobe Bryant, Congressman Charles Rangel and many others.

Wiretapped Offices

In August a private investigator hired by FC found evidence that three of its offices had been illegally wiretapped, according to an Oklahoma City Police Department Crime Report. The Oklahoma Police investigation is ongoing and at the time of publication it is not known who orchestrated planting of the bugs. Update 11/02/09: The Oklahoman reports that police were told Larry Jones authorized placing hidden microphones in the offices of three executives, including Larri Sue Jones, previously fired by Jones, after a judge's ruling gave the executives their jobs back. Oklahoma law allows for clandestine recording of one's own conversations but it is illegal to use wiretaps to remotely eavesdrop on other people, according to The Oklahoman.

AIP has long been the only major charity watchdog to give FC a poor rating. None of FC's numerous and serious problems have kept it from obtaining the top or four star rating from Charity Navigator. FC boasts on its home page at that it "meets the extensive standards of America's most respected charity evaluator."

As we have been doing for over a decade, AIP will continue monitoring this charity and look forward to seeing FC's appointment of a new president or CEO that will efficiently and ethically fulfill its mission.

Update 11/09/09: The Board of Directors of FC announced: "Larry Jones' employment and office as president has been terminated effective immediately."

From AIP's April/May 2009 Charity Rating Guide & Watchdog Report

Charity Head Stages Failed Coup

Larry Jones, founder of the well-known hunger charity Feed the Children (FC), was recently mentioned in an ongoing court case in which the group’s longstanding board of directors claim they were unlawfully ousted by Jones, board chariman Dwight Powers, and five improperly appointed directors. Court papers reveal that after learning of the board's plans to place him on "indefinite sabbatical," Jones packed the board in his favor with directors who would be friendly to him and then fired the longstanding directors. Among the board's concerns were that Jones allegedly did not receive board approval for major purchasing commitments, including approximately $35 million per year for a "Television Buying Agreement," and evidence of a son's personal use of charitable resources. Jones, along with his new board, then fired most of FC's key staff, including the charity's chief financial officer, chief operating officer, and an internal auditor. Also fired was FC's general counsel, Larri Sue Jones, Larry Jones' daughter.

According to a February article in The Oklahoman, Jones' attorney, Leif Swedlow, said of the court case, "The suit attempts to dispute the election of five prominent pastors to Feed the Children's board of directors. Feed the Children believes that the claims have no merit." The judge disagreed, reinstating the five fired board members, and ordering no major changes in the organization until a later hearing on the matter can be held.

FC, which has consistently received an F grade from AIP for low program spending and high fundraising costs, continues to receive a failing grade based on its 2007 tax form and audit, the most current available. For more than a decade AIP has been reporting on issues related to FC's financial efficiency, accountability, and governance, and is interested in what additional information may be revealed while following the ongoing case as it unfolds.

Update: In order to settle the above-cited lawsuit, Larry Jones agreed to step down as head of Feed the Children and focus his efforts on public relations and fundraising, according to an August 14, 2009 statement from the charity.

From AIP's April/May 2009 Charity Rating Guide & Watchdog Report

Charity Questions the Value of Donated Goods

How $118,000 Shipment May Be Worth Less Than $7,000 to Recipients

Feed the Children (FC) is practically a household name thanks to its celebrity endorsers and television infomercials featuring malnourished children in impoverished areas of the globe. The charity claims on its web site that it spends 83% of its budget on its programs. What some donors may not realize is that hundreds of millions of dollars worth of donated goods are included in this high program percentage, some of which are "worthless to most people" according to one Oklahoma based charity, Mission Shawnee (MS).

FC receives a large share of its donations from its "corporate partners," such as Avon, Frito-Lay, ADM Co., Coca-Cola, among a long list of other companies. Companies have incentive to give in-kind donations of what FC refers to on its web site as "unsaleables, overages, and dated products" to charities such as FC in exchange for the lucrative tax deductions such donations may generate. In fact, FC lists tax savings as the first reason companies should consider donating, touting that companies "can receive up to twice the cost of the products you donate," and that FC works to "maximize benefits to your company."

Unfortunately, not all of the items FC accepts and later distributes to its partner charities are in usable condition or appear to be worth the value that FC is placing on them. MS received a shipment from FC late last year that included 265 cases of canned goods, most of which were "severely dented or rusted," or "without labels" and had to be thrown away, according to MS president, Dr. Robert Dawson. This shipment, which also included 1 pallet of containers, 72 cases of bottled water, 50 bags of flour, and 1 case of discount pharmacy cards, was valued by FC at $118,932.61, according to the "Certificate of Donation" FC provided to MS. This amount seemed extremely high to Dawson, who later contacted FC for a breakout of how the different items were valued. He discovered FC was valuing the pharmacy cards at "about $23 per card," accounting for about $112,000 of the shipment's total value, according to Dawson.

In its 2007 tax form FC reports accepting donations of pharmacy cards worth over $22.4 million, but does not provide a breakout of the amount it distributed to other charities or, more importantly, explain how it determined that the cards are really worth this amount. Similar cards are readily available for free through numerous web sites and organizations. At least some of the pharmacy cards were initially donated to FC from marketing services company Vertrue Inc. According to the informational material attached to the pharmacy cards MS received, people using the cards may "save an average of 20% on prescription drugs." Dawson said he was not able to distribute any of the pharmacy cards he received from FC due to lack of interest because they cannot be used in conjunction with any other discounts, such as with a person's health insurance. "If one side were blank we could use them for scratch paper," said Dawson, referring to the cards.

While it does appear that some cardholders may be able to take advantage of drug discounts by using the pharmacy card for certain purchases, AIP questions the high value FC is placing on the cards. Charities have incentive to inflate the value of the in-kind items they receive and distribute because they can take credit for the value of these goods in their program percentages. This can have the effect of making a charity appear to be operating efficiently even if very little of the cash donations it receives are being used for its charitable programs. According to FC's Board of Directors Meeting Minutes of April 11th, 2008, the charity's own auditors flagged how FC values its noncash goods as one of its "material weaknesses," specifically naming the "Vertrue pharmacy card situation."

This is not the first time AIP has caught a charity using donated cards of questionable value to puff up its program percentage. Help Hospitalized Veterans (HHV) took credit for $18,750,000 worth of "phone cards" it received and passed through to its related charity Coalition to Salute America's Heroes (CSAH) in fiscal 2006. These "phone cards," which were distributed to overseas military personnel by CSAH, were not for soldiers to call home to their family but rather to make free calls for sports scores with ads provided by a company called EZ Scores. HHV and CSAH, who share the same president and founder, each counted $18,750,000 of the sports score cards as a contribution and program expense in their respective fiscal 2006 financial statements. These sports score cards and $2 million in donated public service airtime accounted for 85 percent of CSAH's total program expenses reported in its 2006 financial statements.

MS received only one shipment from FC prior to the one containing the mostly unusable items. It included a large volume of items for infants and toddlers, most of which MS was able to distribute to the needy and were "very useful" according to Dawson. However, it can be expensive for some small groups to request items from FC since it requires charities like MS to pick up the tab for any costs to transport available donated items from its warehouse. "We have to get ahold of a refrigerated truck to pick up the items," said Dawson, who cited this as the primary reason why MS did not regularly request additional goods from FC after the first shipment. He said that arranging transportation for the items was costly and that the goods made available to his charity by FC were not always items his small charity could easily use or what was most needed. "Usually we have limited use for a half a train car of pickled beets," he added.

Since FC does not purchase the donated goods that it distributes, nor does it pay to deliver goods to its recipient partner charities, donors who contribute to FC may be wondering what happens to their cash donations to the group. About 60% of FC's cash was spent on "television and radio" and "direct mail" in 2007 according to the group's audit reporting of the same year. AIP determined that in 2007 FC spent only 18-19% of its budget on its programs once noncash items are excluded.

As of publication FC has not responded to AIP's requests for comment on this story.

From the April/May 2005 Watchdog Report

Food is Only a Small Portion of What Feed the Children Distributes

Feed the Children (FC), an AIP F-rated charity that spends only 18% of its cash budget on program services and spends 60% on direct mail and television and radio ads, has been enormously successful obtaining gifts in kind. In fiscal 2004 FC received $865 million in donated goods, a 79% increase from fiscal 2003. 64% of its in kind donations came from three corporations, according to FC’s fiscal 2004 audit.

FC has repeatedly declined to fulfill AIP’s request to disclose what it is actually distributing to which specific charities. Finally, in February of this year FC did disclose to us in a letter the basic categories and amounts of $796 million worth of goods distributed. This letter did not cite the time frame in which the distribution occurred and omitted any information on which charities received the goods, saying, “Our policy to not disclose the names of the charities that we distribute to is fully compliant with nonprofit law.” FC cited privacy as their reason for not disclosing who received the goods. This would be an understandable concern if we had requested the names of people who had received the goods. Since AIP is asking only for the names of charities, not individuals, AIP does not believe that providing such information violates anyone’s privacy.

Donors should be cautious not to read too much into a charity’s name—Feed the Children’s distribution of “assorted food,” “produce,” and “beverages” accounts for only 14% of the total distributed. By not disclosing more specifically what types of in-kind food or drink are distributed, there is no way of knowing how much of it is non-nutritious or empty-calorie foods, such as soda pop and chips (Frito Lay is a “corporate partner” of FC). The biggest category of distribution is “medical” at 66%. After food, the next largest categories cited are “miscellaneous” at 9% and “books” at 5%. Knowing which charities received these goods could give the public insight as to whether or not these items are used to benefit children or others in need.

From the November 2000 Watchdog Report

Charity Circulated Forged Audits

When are audited financial statements unaudited? When the accompanying audit report is fake. The fiscal 1999 and 1998 financial statements of Feed the Children (FTC), formerly Larry Jones International Ministries, Inc., distributed to AIP and state regulators contain the forged signature of Arthur Andersen L.L.P., a major public accounting firm.

According to FTC, its former Chief Financial Director Monty Rainwater confessed that he forged Arthur Andersen’s name on FTC’s ’98 and ’99 financial statements. Tim Hackler, a spokesperson for FTC, said that Mr. Rainwater had told officials that he did it because he got behind in his work. Mr. Hackler said no one told Mr. Rainwater to forge the documents and that he did not do so for financial gain.

Mr. Hackler said that he feels at this time that the unaudited numbers used in the financial statements are good. He also said that Arthur Andersen is currently conducting an audit of FTC’s 1998 and 1999 finances.

FTC became suspicious a few months ago when officials could not get a few financial documents from Mr. Rainwater in a reasonable amount of time, according to Mr. Hackler. FTC then asked Capin Crouse, a Chicago accounting and consulting firm that specializes in nonprofits, to take a look around the finance department. At the time of Capin Crouse’s investigation, Rainwater admitted creating the forged audits and was fired shortly thereafter, according to a statement from Capin Crouse.

Although FTC has stated that it does not doubt that the 1998 and 1999 forged statements are materially accurate, AIP still is concerned that FTC’s Board of Directors did not discover over a two-year period that a real audit was not conducted. Typically at nonprofit organizations, the board or an audit committee of the board annually approves an audit and also receives communications from the auditor concerning the organization’s internal controls and other financial management practices. Barry Gardner of Capin Crouse told AIP that FTC’s audit committee approved the forged fiscal 1998 audit and he did not know if the committee had approved the forged fiscal 1999 audit. FTC’s audit committee approved the 1998 audit in spite of the fact that it had not received direct communication from its auditor. Mr. Rainwater, according to Mr. Gardner had circumvented direct communication between FTC’s board and its auditor.

Wesley Billings, a former FTC finance officer, says he quit his job in 1998 at the charity because he was asked to create false paperwork to cover up a $20,000 bribe that was allegedly made by the charity to a Russian official, and because he was concerned about other purported financial irregularities, which he said he described in memos to FTC officials. Mr. Hackler told The Oklahoman that Mr. Billings was referring to a $30,000 bribe that a Moscow customs official demanded to allow goods to clear customs. FTC was given the option to pay $58,000 in government fees in lieu of the bribe and this is what the charity chose to do. Mr. Hackler accused Mr. Billings of making vague accusations against FTC.

Feed the Children continues to receive an “F” grade from AIP for spending only 12% of its fiscal 1999 cash budget on program services that are not conducted in conjunction with fundraising. FTC also continues to spend most of its cash budget on television programming and advertising, direct mail and postage, which accounted for $37 million, or 75% of total cash expenses, in fiscal 1999.

AIP believes strongly that an organization with a name like Feed the Children should devote more of its efforts to collecting and distributing food. Only 13% of the $243 million of gifts in kind that FTC distributed in fiscal 1999 was “Food and child care items,” this category accounted for 23% of gifts in kind in fiscal 1998. FTC continues to distribute far more dollars worth of “Medical, dental and optical supplies, equipment and services” and “Other materials and services” than food.

These problems have not been obstacles to FTC’s rapid growth. According to FTC’s unaudited figures for fiscal 1998 and 1999, cash contributions have jumped 168% from $25.0 million in 1994 to $67.0 million in 1999, including a 41% increase from 1998 to 1999. Gifts-in-kind or donated goods contributions have rocketed 251% from $69.9 million in 1994 to $245.2 million in 1999, including a 60% boost from 1998 to 1999.

From the Fall 1999 Watchdog Report

Charity Accused of Trying to Squelch Unflattering News About Itself

The Daily Oklahoman reported that the son of Larry Jones, founder and president of Feed The Children (FTC), AKA Larry Jones Ministries International, stated in a personal bankruptcy filing that he owed his father’s charity $950,000. When the Oklahoma City newspaper pursued its story, FTC appeared to attempt to squelch the news. “These are disturbing and reprehensible tactics, of the kind you would expect from the worst elements in society, not from our religious leaders,” commented Stan Tiner of the Oklahoman in an editor’s note that accompanied the story.

The editor of the Oklahoman reported that Larry Jones said he would give the newspaper a story "twice as good" if it did not publish its story, and FTC’s lawyer and other third parties insinuated that information about the private lives of the reporters covering the story had been obtained. A Feed the children spokesperson told AIP that the “twice as good” story Larry referred to was about the work of Feed the Children, and information about a reporter was discussed, not insinuated, with an Oklahoman editor “off the record and on background.”

Many charities encourage their employees to spread the word about their good works and fine leaders. At FTC employees are required to sign a confidentiality agreement as a condition of employment. The Oklahoman reported that one section of this agreement states: “The undersigned agrees not to write or publish, or cause to be written or published, anything relating to, or alluding to, Larry Jones International Ministries, Inc., Feed the Children, or any other subsidiary or about Larry Jones and his immediate family, or staff members, past, present or future or concerning vendors. This includes, but is not limited to television, radio and all other media.” While it is a common practice in the nonprofit field for employees to respect the privacy of donors and clients and not to reveal the trade secrets of any for-profit subsidiaries, FTC’s confidentiality agreement is exceptionally broad, and it may deter the scrutiny that every charity needs. FTC told AIP that it is reevaluating its employee confidentiality agreement.

AIP’s summer Charity Rating Guide reported on FTC employee thefts at its Nashville warehouse, the low percentage of its cash budget being spent on program services, accountability problems and other concerns. Since AIP’s summer publication, the Oklahoman has looked further into FTC’s practices and activities. Some of the newspaper’s findings follow:

  • A $950,000 loan or promissory note to finance a framing business was later assumed and defaulted on by Larry Jones’s son, Michael “Allen” Jones. Larry Jones told the Oklahoman that FTC recovered its money in the foreclosure of the business. FTC told AIP that the co-owner of Allen Jones' business also guaranteed the note.
  • Nearly none of the $47.5 million in cash raised in fiscal 1998 was spent on food. FTC told AIP that this is true but that “there is a lot more to Feed the Children than feeding children.”
  • An unnamed staff member quit his job at FTC after learning that only $2.8 million of the extra $6.7 million in cash contributions raised during the aftermath of the 1995 Oklahoma City bombing went to help victims. When asked by the Oklahoman why less than half of the extra money went to bombing victims, Larry Jones said this happened because donors did not specify where the extra money was to be spent.
  • A resolution was approved by FTC’s board that “any real estate transaction” be conducted by The Gene Geren Company, which is owned by Gene Geren. Gene Geren and his wife serve on FTC’s board. Mr. Geren has received over $110,000 since 1992 for real estate services. FTC has also transacted business with two board members who are car dealers. FTC told AIP that it uses a competitive bidding system and that directors abstain from voting on transactions in which they are involved.

From the Summer 1999 Watchdog Report

Feed the Children Execs Accused of Stealing Donated Supplies Intended for the Needy

After conducting a four-month investigation, WTVF, a Nashville television station, recently reported that it had secretly videotaped Feed the Children’s (FTC) Nashville front office “from the executive director on down” regularly taking boxes of donated goods. WTVF reported that “even family members [of FTC staff] got in on the action.” Warehouse workers, who tipped off WTVF about the alleged thefts, told that station that they saw staff takes boxes they believed were intended for Kosovar Refugees and Oklahoma Tornado Victims. The Associated Press reported that Tennessee Bureau of Investigation agents had raided the charity’s Nashville office and the homes of six administrative employees producing boxes of shoes, videos, blankets, food and other goods they believe were donated for the needy. “Merry Christmas to me” was written on one box according to the AP.

Steve Highfill, who was recently replaced as director of the Nashville center, one of FTC’s two U.S. distribution centers, told WTVF: “If they're taking stuff home and giving their little brother a pair of shoes or some food, I don't have much to say about that. If that’s wrong, fine. I don't think so and I don't think people are going to think so.” Larry Jones, founder and president of Feed the Children, responded later at a press conference by saying: “Donated items are not perks for employees. The executive director was not acting with my authority or approval with the decisions that he made regarding the employees taking donated items, and he was not acting in conformance with company policy.” FTC has temporarily closed its Nashville center and laid off all of its staff.

Questions remain about whether staff members at FTC’s Oklahoma City headquarters knew about the alleged employee pilfering. According to WTVF, Nashville warehouse workers were apparently ignored when they called the Oklahoma headquarters several times in December and January to report that administrative employees were using the warehouse as a personal shopping mall. Emilee Truelove, a FTC spokesperson, told AIP that she could not confirm or deny whether FTC received such calls. In response to the allegation that such calls were ignored, Mr. Jones told the Associated Press, “I hope our investigation brings that out because that’s new to me.” He also told the AP that he had hired investigators after learning that some Oklahoma City workers were taking goods, and those workers were subsequently arrested and prosecuted.

Ms. Truelove told AIP that Larry Jones learned in April that warehouse employees had a tape of alleged warehouse thefts, but that they had not sent it to him as he had requested.

Feed the Children receives an “F” grade from AIP because in our opinion it spends only about 14% of its cash budget on program services that are not conducted in conjunction with fundraising. In fiscal 1998, FTC spent almost $13 million on television programs and almost $12.9 million on direct mail and postage. These two items account for about 70% of its $37 million cash budget. FTC, whose primary purpose is to distribute donated goods and supplies to the needy, spent only $944 thousand, or less than 3% of its cash budget, on shipping, handling and storage in fiscal 1998.

Feed the Children distributed $140 million of donated goods in fiscal 1998. About 23% of this amount was for “food and child care items.” (Note: FTC changed this category in fiscal 1998 from “food and grains.”) FTC distributed far more dollars worth of “Medical, dental and optical supplies” and “Other materials and services” than food in fiscal 1998.

Feed the Children appears to have an accountability problem. In the past it has not received “open book” status from AIP because it has failed to send us requested documents. Since the recent warehouse problems were exposed, however, FTC has said that it will comply with AIP’s document requests. FTC, also known as Larry Jones International Ministries, Inc., is not a member of the Evangelical Council for Financial Accountability, which requires that its members uphold standards for financial accountability, ethics and reporting.

FTC owns a for-profit trucking company that is headed by Larri Sue Jones, Larry Jones’ daughter. (She is also Legal Counsel for FTC.) This is of concern to informed donors since for-profit companies are not required to publicly disclose their financial statements. It is also not clear why FTC should be in the for-profit trucking business unless it can demonstrate that it can ship the charity’s donated goods more efficiently than outside transportation companies. Ms. Truelove told AIP that “Larry Jones created an empire from the ground up” and that he set up his own trucking company because he does not want to rely on outside people. She said that the trucking company was set up as a for-profit so that its trucks could bring back loads after making shipments of donated goods. She also said that none of the Jones family receives pay or benefits from FTC’s for-profit trucking firm. Larry Jones, his wife Francis Jones, who is Executive Vice President of FTC, and his daughter Larri Sue Jones together received compensation, benefits, expense accounts and other allowances totalling nearly $269,000 in fiscal 1998, according to FTC’s fiscal 1998 IRS Form 990.

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