KEY PROFILE:

Public Records research busts questionable charity

This is one in a series of profiles of a person honored by the Washington Coalition for Open Government for their effective use of Washington’s access laws in ways that benefit the community.

By Peggy Watt, WashCOG Board

When Carl Hu received the phone call requesting a contribution to the Breast Cancer Prevention Fund (“BCPF”), it was an opportune moment for the callers. Several women in his family had recently successfully battled breast cancer, and the request for donations to finance mammograms for women who could not afford them struck a chord with the Bellevue man.

But before Carl wrote a check, he decided to inquire about the “charitable” organization. His research led to a series of requests under Washington’s Public Records Act, an accountant’s review that revealed loopholes in the way charities can report revenues, additional reporting by KOMO, investigations by the State Attorney General’s Office and the Internal Revenue Service that resulted in the charity losing its nonprofit status, and a 2012 Key Award from the Washington Coalition for Open Government for his effective and influential use of public records.

“I’m probably the first guy to hang up on telemarketers, but when I took this call they said their mission was to pay for mammograms,” Carl said, recalling the unsolicited phone call he got in 2010. “My wife was diagnosed a couple years before. Fortunately, they caught it at an early stage and she was able to undergo treatment. For us as a family it was a scary moment. So I understood how important this is, for women to get checkups.” He recalls asking the caller how much of the donation went toward mammograms. “They said you can pay for two women with a $180 donation. They do a good job of tying the donation request to a specific amount.”

When the follow-up letter arrived about a week later, Hu pulled out his checkbook. But before writing, he visited the BCPF website.

The website linked to a list on the Washington Secretary of State’s site displaying the expense-to-program services ratios for various charities licensed in Washington. BCPF claimed a 90 percent pay-through. United Way was listed at 70 percent, so Carl was surprised and impressed that BCPF appeared to have a better record than such a well-established organization. But when he searched further, a link troubled him: The president of the charity also owned a telemarketing company called Legacy Telemarketing – which turned out to be the organization that had called him.

When he called and emailed BCPF with follow-up questions, he received no response. So he started digging. Besides examining BCPF’s report to the Secretary of State’s Office, he obtained its IRS Form 990 to scrutinize its finances.

“I could confirm some information – like the president was the owner of the telemarketing company,” Carl said. The owner, James Paton, was also drawing what Carl called a substantial salary in his dual role.

Hu was also distressed to realize an organization could provide misleading data to the Secretary of State’s Office, which, relying on the CPA preparing the charity’s report, would post it without additional verification. So he filed a complaint with the State Attorney General’s office, alleging the phone solicitation was misleading.

BCPF answered the AG’s inquiry asserting that it complied with the law – but answered none of Carl’s questions, notably about the potential conflict of interest with the telemarketing company. The AG’s office initially said it was closing the case because BCPF responded, Carl said.

“I contacted the AG’s office in order to try to escalate the matter several times. They sent it to the Consumer Protection Office,” Carl said. “One of the first lessons I learned is you really have to be persistent.”

Here’s what else he learned: The telemarketers made 2 million calls in a year on behalf of BCPF. They raised $14 million. And only $3 million of it went directly to pay for mammograms.

Carl was stunned. That didn’t add up to 90 percent charitable support in his eyes; rather, about 80 percent of the money raised stayed with the telemarketing firm. He turned to his personal accountant, D. Edson Clark of Clark, Raymond & Co, for information on how a charity is supposed to allocates its expenses between program service and fund raising, and how and where fundraising expenses are supposed to be reported. Then he filed a Public Records Act request with the secretary of state’s office, asking for all documents related to both BCPF and Legacy Telemarketing.

“They sent me everything they had, and once I sat down and looked at that, it led to the answer,” Carl said.

Expenses were allocated was under “joint cost allocation,” which acknowledges that charities produce something with a dual purpose: part program services and part fundraising. “It’s intended for something that can be physically measured,” Hu explained, such as a charity’s brochure that provides information but also a tear-out donation section.

But Legacy based its joint cost allocation entirely on a 350-word script used by its telemarketers, a portion of which asked for money. “That’s how they came up with the 90/10 figure,” Carl said. “It has nothing to do with how they actually spend the money.”

“Eighty percent of every dollar that came in was kept by Legacy, almost the reverse of what they claimed,” Carl said. He sent the IRS a letter with his findings. He also

reported it to the AG’s office, which responded that it has begun an investigation and could not discuss the matter. But it frustrated Carl that the Secretary of State’s Office does not routinely confirm the percentage of money that goes to services; its site just displays what the charity reports.

“It’s clearly improper to use the script as the determination of funds allocation,” Clark said. “The CPA firm that authenticated the BCPF financial information posted on the Secretary of State’s website has clearly abused the relevant professional standards in order to distort what is actually going on.”

Clark praises Carl’s tenacity.

“Carl is a man with a good moral rudder and an eye for detail, and he has the inclination and intellect to pursue things that aggravate all of us,” Clark said. Such misrepresentation harms donors, he added. “People should be able to have accurate information about the organization to which they are donating.”

Carl also learned more about Legacy Telemarketing of Everett, which was then the largest independent telemarketing organization in Washington. BCPF was its only client for several years. “It’s very clearly a conflict of interest because, as the telemarketing owner, you want to maximize profit,” Hu said.

Additional reporting in November 2011 by KOMO reporter Tracy Vedder and the station’s Problem-Solvers team found owner Paton unwilling to talk to the media. Shortly after that, some contact information and names of board members vanished from the BCPF website. Both the Washington Department of Health and Swedish Hospital stopped taking funds from BCPF, given the questions about its practices and the AG’s investigation.

In 2014, BCPF lost its tax-exempt status and filed for bankruptcy. And Legacy Telemarketing – although its offices are shuttered – is listed as a creditor for its remaining assts. But ahead of the telemarketer is the state of Washington, which seeks to recover an estimated $20 million in “falsely obtained donations.” Representatives of the organizations still aren’t talking.