The ads are everywhere: Donate your car, help the needy, get a tax
break in return -- everybody wins.
Cynthia Schwager heard one of those pitches from the California
Council of the Blind and decided it was the perfect solution to her 1994
Ford Taurus with the bum engine.
So, like hundreds of thousands of Americans each year, she gave her
car to a nonprofit group.
What she didn't know is that most of the proceeds would go to
overhead expenses for the car-donation program -- and to the middleman
company that runs it. In 2002, the latest year for which figures are
available, the Council of the Blind received just 17 percent of the
proceeds from vehicles sold on its behalf.
"That's all?" asked Schwager, who donated her car in February. "That
seems kind of low."
It's not just the Council of the Blind. Charities across California
are increasingly using vehicle donations to raise cash, but more than
260 are letting for-profit middlemen handle the details, from
advertising to towing to sales. And while these middlemen must disclose
their revenues and profits to the state -- in 2002, they sold $45.6
million worth of vehicles -- there are no rules on how much they must
return to the charities.
California charities got back all of 26 percent of the money raised
from donated car sales in 2002, according to an analysis of the state
attorney general's latest figures. Ten charities in the Bay Area took in
10 percent or less.
"Is it moral? It is what it is," said Harvard "Pete" Palmer,
co-founder of the state's biggest car-donation middleman, the Vehicle
Donation Processing Center, which handles donations for the Council of
the Blind. "If you don't have advertising, don't have the tow trucks,
don't have the auctions, there's no money.
"Nobody's getting rich here."
But critics say the system is ripe for abuse. A Knight Ridder
investigation found:
• A look at the 29 middlemen that
reported at least $1,000 in donated car sales in 2002 shows huge
variations in returns. Only one gave more than half of the money to the
charity -- 55 percent -- while two returned as little as about 3
percent.
• While most reputable middlemen
generally split profits with the charities they serve, Cars For Kids, an
East Bay company, has kept almost 10 times as much money in commissions
and employee benefits as it passed along to a charity. And nothing
prevents middlemen that double as towing companies from taking an
additional cut for hauling away donated cars.
n Donors also are taking advantage of the system. The cars they
contribute often are junkers: One Bay Area middleman estimates that
seven of 10 vehicles offered for donation end up as scrap metal and
spare parts.
• The IRS believes the value of
donated cars is often wildly inflated on tax forms. Auditors seldom find
out, because it's difficult to determine the condition and mileage of a
donated vehicle. A bill in Congress would require donors to claim only
the amount for which their car sold -- not their estimate of its market
value.
Middlemen are not unique to the car-donation business; they handle
the detail work for many types of charity fund raising, from phone
solicitations to auctions. And charities, in general, benefit greatly:
In 2002, California middlemen returned almost half of the $211 million
they raised in those types of fundraising campaigns.
But observers -- and even participants -- say car donation campaigns
raise especially troubling questions.
"It's a dirty business on both ends," said Peter Lauber, whose
Redwood City company, Hansa Trading International, returned 75 percent
of the $15,300 it collected in donated car sales in 2001 for Bay Area
charities. Its numbers weren't included in the 2002 report. Hansa
Trading does no advertising and accepts only cars in good condition, a
rarity among middlemen, Lauber contends.
"You've got so-called donors with a piece of junk who would like to
cheat a charity out of towing expenses ... and you've got fund-raisers
who get good cars and don't give anything to charities."
Still, the system persists -- and it's easy to see why. Donors get
rid of their cars in exchange for a tax write-off, charities get money
they wouldn't otherwise see -- and there's no hassle on either end.
Once Schwager responded to the Council of the Blind's radio ad, all
she had to do was arrange a time for her Taurus to be towed, then fill
out some paperwork. "It went like clockwork," said Schwager, a flight
attendant from San Carlos who will take her tax write-off on her 2004
return. "It was great."
The Council of the Blind feels the same way. It received $255,105 in
car donations in 2002 -- money it uses to fund scholarships and hardship
grants.
State records show that the Monrovia-based middleman for the
nonprofit, the Vehicle Donation Processing Center, kept more than 11/2
times that amount for its commissions, fees and salaries. And it spent
even more on towing, repairing and advertising.
But Catherine Skivers, a volunteer and past president for the
Hayward-based Council of the Blind, said she had no problem with those
numbers. "You can't run a business without expenses," she said. "We
don't have to do anything except to accept what they give to us, and we
allow them to use our name."
The story is similar at other major charities. The Polly Klaas
Foundation in Petaluma raked in $1.2 million in car donations in 2002 --
a quarter of the $4.9 million worth of vehicles sold on its behalf. The
Multiple Sclerosis Foundation received just 13 percent of the $255,300
in donated car sales.
"It's easy money," said Daniel Borochoff, president of the American
Institute of Philanthropy, a Chicago-based watchdog group. Charities
always say, "It's money we wouldn't ordinarily have -- they love that
line. But they're completely violating the intentions of their donors."
Just how much money the charities receive depends on the middleman.
Last year, 35 for-profit middlemen registered in California. They run
the gamut, from towing companies to used car dealers to auction houses.
Middlemen argue that they are part of a high-overhead business, and
that it's harder than it might appear to return big percentages to their
charity clients. Cars need to be registered; others need to be towed and
repaired.
"If we were to restrict donations to cars that only sell for $5,000
or $6,000 each, we could give 80 percent back to charity," said Palmer
of the Vehicle Donation Processing Center, which returned 21 percent of
the $10.8 million in donated cars it sold in 2002. "But we'd be lucky to
get a car or two a year."
Even so, some of the returns are particularly paltry.
In 2002, Cars for Kids collected and sold $1.275 million worth of
cars and boats on behalf of Fuente de Vida, a San Francisco church with
40 parishioners. The return to the church: $42,200, or 3.3 percent.
Pastor Saulo Villatoro said it wasn't his idea to solicit car
donations; Cars for Kids approached him, promising to give 10 percent of
the net proceeds to the church. Villatoro said he is grateful for the
money, which funds scholarships for poor Bay Area children to attend
summer camps and church activities.
But he acknowledged the percentage seems low.
"Probably he is taking advantage of me," Villatoro said. "But if I
complain, he'll probably say, 'I can't help you anymore.'"
Luis Pallais, the owner of Cars for Kids, said he runs an honest
operation, and blames the low returns for Villatoro's church on
advertising costs, personnel costs and the high number of worthless
junkers that are donated.
According to paperwork filed with the state Attorney General's
Office, Cars for Kids in 2001 kept $277,101 in commissions and employee
benefits, almost 10 times the amount it gave to Villatoro's church that
year.
In 2002, the middleman claimed a mere $25,668 in commissions and
employee benefits, much less than it gave Villatoro's church. But a
close look at the numbers reveals that it took an additional $176,210 in
management fees. It expensed $5,064 for travel, $4,294 for Christmas and
$1,797 for uniforms. And its rent expenses in 2002 nearly quadrupled
from the year before, to $118,650, according to state records.
When asked to explain why the figures had changed so much, Pallais
said, "Just look at the papers. The numbers are there."
The company was suspended by the California Franchise Tax Board in
December for failing to pay $414 in taxes.
People who question Pallais' company "don't know how this business
works," he said. "We want to help the church and non-profits somehow,"
he added, "but it's a business, like any U.S. company, but we don't see
the profit that we should be getting for all the work we do."
The attorney general can file civil cases against non-profits and
revoke a middleman's fundraising license, but Deputy Attorney General
Belinda Johns said her office has never revoked a license. When
consumers raise concerns, authorities rarely have the time or resources
to investigate.
"We get complaints from all sorts of sources," said Johns, who
supervises 10 lawyers who investigate those complaints and a single
clerk who handles all the paperwork submitted each year by about 85,000
charities.
The office recently eliminated its auditor during budget cuts, Johns
said.
"Charities have an obligation, too, to know what's happening to
donations that people are raising in their name," Johns said.
Philanthropy experts urge donors to look beyond the advertising and
check out a non-profit's status and reputation before giving away
vehicles.
Schwager doesn't regret donating her Ford Taurus, but she said she'll
do more homework in the future. "Next time, I'll find a place that gives
more money to the charity."
Source: Better Business Bureau, IRS, California
Attorney General's Office
