From the April/May 2005 Watchdog Report
Gifts In Kind International Distributes $14.2 Million of Donated
Goods to the Wrong Place
"Through in kind giving,
companies get their tax deductions, charities collect their cash
fees and can inflate their reported program expense, whether or
not the poor or needy actually benefit."
-Daniel Borochoff, AIP President
According to an FBI search warrant and affidavit,
an individual named Jeff Lowe posed as an employee of Citizens Opposed
to Domestic Violence (CODA), a small, abused women's shelter in
Beaufort, South Carolina, in order to obtain $14.2 million of goods
intended for poor or needy people. The affidavit states that a Gifts
in Kind International's (GIK) audit revealed that during 2004 it
delivered to what was purported to be CODA's warehouse $14.2 million
in "clothing, shoes, watches, toothbrushes, razors, personal
care products, coffee makers, purses, books, and jewelry."
GIK typically charges recipients of its donations a handling and
administrative fee. Lowe paid $119,000 to GIK in fees, according
to the affidavit.
The FBI affidavit, which was used in this ongoing
federal investigation, states that GIK received an application signed
by Bonnie Lawrence, the executive director of CODA, dated November
2003 with a $125 money order. The application listed Lowe as the
co-coordinator for GIK, who would receive all product announcements.
Veronica Watson, CODA office manager and mother of a son who works
for Lowe, was listed as the contact person. According to the affidavit,
Lawrence said that Lowe was not a volunteer or employee of CODA,
that she gave no one permission to join GIK and that her signature
on the application was a forgery.
Why would a small women's shelter with a $750,000
budget that is funded primarily by the government be able to receive
$14.2 million in donated goods from GIK? According to the affidavit,
in January 2004, Lowe sent GIK a $1,000 money order so that CODA
could be a GIK affiliate and warehouse, and distribute goods to
other charities. Judy Mercadal, Vice President of Network Development
at GIKI, declined to provide details about the CODA situation while
the investigation was still ongoing. She told AIP that it is "highly
possible that it [the small charity] serves the entire community."
CODA had long been an upstanding agency, according to Mercadal.
When AIP asked her what a local domestic violence program would
be doing with a giant warehouse, she replied that some small charities
are sophisticated and can borrow or obtain resources.
Lawerence told AIP that she had no communication with
GIK regarding the $14.2 million distribution of goods. She said
Watson filled out forms, sent tax reports and other information
and signed Lawrence's name without her knowledge. Lawrence also
said the office manager had intercepted all the calls, email and
regular mail regarding the gifts in kind. " Watson was recently
arrested and charged with embezzling over $120,000 from CODA over
a four-year period, according to The Beaufort Gazette.
While GIK in 2003 received and distributed over $400
million in gifts in kind, it must pay its employees and other operating
expenses with cash. GIK receives most of its cash income from fees
paid by the nonprofit recipients of its donated goods. According
to its 2003 tax forms, GIK received $3.3 million in administration
and registration fees from nonprofits that take delivery of its
goods but only received $1.7 million in cash contributions from
the public. In AIP's opinion, charities need to be careful to not
let their need for cash fees overly influence their in-kind grant
Businesses that want tax deductions on unwanted donated
inventory may put heavy pressure on GIK and other nonprofits involved
in gifts in kind to find charity outlets for their donated goods.
AIP asked Mercadal what due diligence GIK performs in choosing and
monitoring its affiliate distribution centers. She said that typically
the local United Way serves as the GIK distribution center. If the
United Way is not interested in doing this, GIK will ask it for
an endorsement of a local agency that wishes to manage the GIK program
in the community. GlK does not regularly receive the network affiliates'
distribution plan but does require that it be kept and made available,
according to Mercadal.
AIP called the Beaufort United Way to find out whether
it had endorsed CODA to serve as a GIK distribution center. Clarise
Walker, president of Beaufort United Way, stated that the Beaufort
United Way never gave GIK an endorsement for CODA to serve as a
distribution center. Ms. Walker stated that the United Way had no
idea that CODA or someone purporting to represent CODA had applied
to be a GIK distribution center. Walker confirmed that the Beaufort
United Way is typical in that it holds the affiliate GIK membership
and distributes donated goods to local agencies when these agencies
submit a request for such goods.
When AIP asked Mercadal how GIK knew if the donated
goods are really making it to people in need, she said that GIK
holds training sessions at several distribution facilities and that
GIK "trusts that they are serving the community." She
also said that GIK does spot checks of the names and phone numbers
on the distribution plan provided by the network affiliate to see
if these groups have actually received the donated goods on the
list. When asked how they know if the phone numbers on the list
are correct, Mercadal replied that GIK trusts the name of the organization
as given by the person answering the phone. AIP finds this quite
disconcerting since it would be very easy for someone that wants
to wrongly receive donated goods to set up an extra phone line that
they could falsely answer with a charity's name or do so on their
regular phone line when GIK's name and number show up on the caller
According to Mercadal, most of the communication is
between the affiliate distribution center and the charity that uses
or gives the donated goods to individuals. The distribution center
makes site visits and occasionally sends a report of the visit to
GIK. Handling fees set by the distribution center may be charged
to the end user charity. In AIP's opinion, GIK's limited oversight
makes it difficult for it to identify and stop an errant distribution
Lawrence told AIP that she's a victim of identity
theft and that "I'm sure that other places have problems"
having donated goods falsely ordered in their name. She said that
CODA may need to have their internal controls improved. In the meantime,
Lawrence is still getting calls from companies offering to give
CODA donated goods. She was recently offered some electrical equipment
that her agency would have no use for.
AIP asked Mercadal if GIK is doing anything differently
in light of the alleged $14.2 million misappropriation of donated
goods. Her response was that we'd see "subtle" changes
and that GIK staff have met several times concerning this incident.