Thursday, May 4, 2017
Swanson Issues Compliance Report on Kars4Kids
Charity with well-known radio jingle overstates charitable work, lacks disclosures
Kars4Kids, Inc.—a New Jersey charity with a well-known radio jingle inviting the public to call an 800 number to donate used cars—raised $3 million from over 5,800 Minnesota donors but only spent $11,600 on charitable programs for Minnesota residents from 2012 to 2014, according to a compliance report issued by Minnesota Attorney General Lori Swanson.
“Donors need accurate and straightforward information to make informed choices. We hope this report sheds greater transparency on Kars4Kids, one of the nation’s largest vehicle donation programs, “ said Attorney General Swanson.
Kars4Kids received $87.8 million in proceeds from the sale and scrapping of about 160,000 vehicles donated nationwide between 2012 and 2014, but does little direct charitable work itself. Instead, it acts as the fundraising arm of Oorah, Inc., a New Jersey charity, which shares a headquarters and staff with Kars4Kids. Kars4Kids donated more than $40 million—or over 90 percent of its actual expenditures on charitable programming—to Oorah from 2012 to 2014.
The charity’s mission is to promote Orthodox Judaism, primarily to New Jersey and New York children. In March, the watchdog group Charity Watch sharply criticized Kars4Kids for not disclosing its relationship with Oorah or the limitations of its charitable programming. Oorah’s two largest programs are summer camps and tuition assistance. Two-thirds of participants in these programs are from New York and New Jersey. Only three Minnesota children have participated in Oorah’s summer camp and tuition assistance programs as of March, 2015.
Kars4Kids spent less than 44 percent of the proceeds of vehicle donations on its charitable mission between 2012 and 2014, the Compliance Report discovered. Kars4Kids engaged in two financial reporting tactics to make it appear to donors that more of its money was spent on charitable programs (as opposed to fundraising and overhead). First, Kars4Kids claimed that $12 million spent on fundraising ads (about one-third of its $38 million advertising budget) served a charitable purpose because they mention its website. Second, rather than report the gross proceeds from vehicle sales and report the fundraising costs associated with the processing of these vehicles, it instead reported the net proceeds from vehicle sales, thereby failing to disclose another $9.7 million it spent on fundraising costs associated with the processing of donated vehicles. By failing to report this $22 million as fundraising and overhead expenses, Kars4Kids publicly claimed to have spent 63 percent of the proceeds of vehicle donations on its charitable mission (vs. the actual 44 percent).
Kars4Kids does not adequately monitor Oorah, the report found. Kars4Kids and Oorah lost about $9.7 million in real estate investments, most of which were managed by a cousin of the organizations’ president, since 2007. Real estate losses include an outlet mall, strip mall, and hotel in Staten Island, New York and a condo development in New Jersey.
The Attorney General’s Office forwarded the Compliance Report to the Internal Revenue Service, which grants and can revoke the tax-exempt status of a charitable organization.