Knoxville, Tenn.
There is nothing fancy about where Rick Bowen lives, except perhaps the shiny Cadillacs in the parking lot.
“I wouldn’t have bought that one,” Bowen says nonchalantly, nodding toward a gleaming white Escalade SUV that sits outside his modest condominium here. “But my lawyer said you can basically write it off as a business expense if you buy a car that weighs more than six tons.”
Why the head of a nonprofit that grants wishes to sick children needs such a six-ton truck is one of many questions about Bowen’s Youth Development Fund (YDF).
The fund has raised $22.5 million over the past six years, and spent $770,000 of it fulfilling the wishes of children – while paying Bowen more than $300,000 in one year alone. His 2003 salary eclipsed that of YMCA President Ken Gladish, who oversees a $4.7 billion-per-year organization that reports serving about 9.7 million youth each year.
Minnesota sued YDF over its fundraising procedures in 1997, and several charity watchdog groups question how it operates. Nevertheless, the YDF is registered to raise money with state charity monitoring bureaus in about half the states.
As Congress ponders recommendations to tighten regulations on charitable organizations, and as states crack down on charity scams related to Hurricane Katrina, Bowen’s YDF shows how a nonprofit can almost transparently raise money for children and use the vast majority of that money to pay adults.
“People assume that states are monitoring charities, and think, ‘Certainly, a state wouldn’t let them go on doing it if they’re bad,’ ” says Laurie Styron, an analyst with the American Institute of Philanthropy. “People think there’s this infrastructure in place, when it really isn’t.”
Setting up a Charity
After graduating from the University of Tennessee, Bowen made his name as owner of a local music label, Gemini Records.
“People were constantly telling me to donate to this and donate to that,” Bowen says, reclining on a couch in the condo that doubles as his office. “I thought to myself: ‘Well, I don’t know where this money’s going. ’ ”
So he started the United Children’s Fund in 1982, later changing its name to Youth Development Fund because another program named United Children’s Fund had landed in hot water with charity monitoring agencies. (See Youth Today, September and October 2002.) Among the issues Bowen’s charity said it was created to address: drug abuse, health and the wishes of sick children.
YDF’s website lists a litany of work the fund has done for kids, but also says it “pursues all other related purposes allowed to nonprofit corporations by the laws in the state of Tennessee.” Basically, it is set up to do anything that could be deemed charitable.
“We raise funds for underprivileged children, buy wheelchairs for hospitals and give out trips for dying kids,” explains Andy Smalls, one of three members of YDF’s board of directors.
As early as 2001, the website said that YDF “responded to a variety of needs within the Knoxville, Tenn., area.” But after Barbara Toms, then the director of Tennessee’s Division of Charitable Solicitations, sent inquiries to YDF’s lawyers that year asking about the fund’s activities in Tennessee, that line was removed.
After helping local kids for more than two decades, it would seem that YDF would be familiar to local youth work veterans.
“I’ve never heard of him or that organization in my life,” says Richard Bean, who has run the city’s juvenile detention center for so long that it’s named after him.
Staff members at other local youth-serving agencies, including the Emerald Youth Foundation and Big Brothers Big Sisters of Tennessee Valley, say they haven’t heard of Bowen or YDF.
Raising Money
Also difficult to pin down is how YDF has raised money locally.
At first, Bowen says, he raised money through community events. YDF’s website touts several, three of which stand out for the presence of sports celebrities: the War on Drugs Coalition Dinner and Auction, held in the Knoxville area and hosted by former football star Boomer Esiason; and two charity golf tournaments, hosted by former golf pros Lee Trevino and Arnold Palmer, atFox Den Country Club in Knoxville.
The website lists no dates for the events, and Bowen could provide no evidence that they occurred.
Representatives from Esiason’s charitable organization, the Boomer Esiason Foundation, have no record of him attending a War on Drugs Coalition Dinner and Auction, or any similar event around Knoxville.
At the Fox Den Country Club, Controller Patti Thigpen says she has no record of either golf tournament occurring, and probably wouldn’t need a record to recall something like a visit from two golf legends. “Oh yeah – we would remember that!” Thigpen says.
Bowen says the events “didn’t pan out financially,” so he moved on to other fundraising tactics, such as direct mail and telephone solicitations. He says his ventures with direct mail companies were a bust.
“They rented hundreds of lists,” he recalls. “They raised $6 million in six years, and we only saw about $30,000 of it.”
The practice also landed the nonprofit in legal trouble. Minnesota Attorney General Hubert Humphrey III took Bowen’s agency (then called United Children’s Fund) to court in 1996, contending that it “misrepresented in their localized ‘Children’s Cancer Drive’ that they fight children’s cancer and save lives through prevention, detection and education, when they do not.”
YDF settled the case in 1998, agreeing to pay $30,000 in penalties; its contracted fundraiser, Direct Response Consulting Services, paid $110,000, according to court documents. YDF was also banned from soliciting in Minnesota for two years. Bowen has not registered to raise funds there since.
Later that year, Bowen’s luck changed.
Dividing Money
Bowen says he was contacted by Associated Community Services (ACS), a Michigan company specializing in telephone solicitations. ACS said it would guarantee a certain amount of money in return for handling YDF’s fundraising. “They said, ‘We can raise several million for you from now on,” Bowen recalls. “And I said, ‘Well, that sure would be nice.’ ”
Bowen says he writes the pitch about YDF’s work with sick children, which ACS uses when they call potential donors. ACS is supposed to pay YDF 18 percent of the amount that it raises, according to Bowen.
Several direct marketing experts say a guaranteed payout and the low return on money raised are tell-tale signs of a questionable fundraiser. Such companies usually have a “canned fundraising program,” says Robert Tigner, general counsel of the Association of Direct Response Fundraising Counsel. “You just find a charity [leader] with no conscience, or who is gullible.”
The pitch to the nonprofit is simple, says Kelly Browning, a board member at the Direct Marketing Association (DMA). “If you’ll hire us, we’ll raise you X amount per year. The money goes into escrow, where the costs of fundraising will be paid.”
Once the fundraiser gets to a break-even point, Browning says, it is typical that “the payout agreement kicks in: the first $100,000, an 80/20 split, whatever. A fundraiser will guarantee the charity won’t lose money.”
The fundraiser significantly cuts its costs by keeping a “house file”: a list of people who have already donated to charities. A contractor can compile this list in its work with other charities, or purchase lists from other fundraisers.
A fundraiser can use the same house file of contacts for numerous charities. The charity might not even get the list of contacts. “Nonprofits should always own their names” of people to contact, Browning stresses. “That database has value: It can be used as collateral.”
Bowen says he does not own a donor list, but sees no problem with his arrangement with ACS. “Eighteen percent of something is sure better than 95 percent of nothing,” he points out. “And we’ve had other groups call us with a 90/10 split” of the money raised.
ACS did not return several calls seeking comment.
Helping Kids
What does YDF do with its money? Bowen says the wish-granting endeavor accounts for nearly all of the program expenses. Dubbed “A Child’s Dream,” Bowen says it serves 50 to 70 families around the country each year.
“Seventy percent [of applicants] want to go to Disney World,” he says. He says the rest of the gifts “are mostly computers, shopping sprees, TVs and stereos.”
Who decides which children get which gifts? It appears to be Bowen.
“Dream applicants are referred to us by word of mouth,” YDF’s website says. “Those we help first are determined by the severity of the illness.” Bowen says he must receive faxed or e-mailed confirmation from a physician that the child has a life-threatening illness.
Smalls, the YDF board member, says the three-member board approves Bowen’s work at its once-a-year meeting.
The Phoenix-based Make-A-Wish Foundation spends a great deal of time and money promoting the same type of operation. Its national staff of 70 operates a website, issues press releases and hosts public events to spread the Make-A-Wish name. Requests are referred to local affiliates, which confirm youths’ illnesses with physicians. Children are interviewed in person to discuss their wishes.
Those helped through YDF’s A Child’s Dream project say good things about it. (Bowen provided a list of names.) Mark and Betty Graves of Mason City, Iowa, say that before their son Noah passed away, YDF paid to fly his grandmother out from Arizona to be with them. Denise Kreider of Ohio says one of her three daughters has a serious illness; the charity sent her and her three kids to Disney World last year.
Who Profits?
Federal tax records show that the arrangement between ACS and YDF has produced some support for kids, a hefty salary for Bowen and a lot of payments to ACS.
YDF reported bringing in $22.5 million from 1997 through 2003, and the biggest beneficiaries were those who raised the money. From 2000 through 2003, YDF paid ACS $12.1 million for “fund raising,” and paid an Iowa-based company, Telequal, $845,000 for the same purpose. Dating back to 1997, YDF paid six other companies a total of $2.4 million to raise money.
YDF’s spending on program services totaled $7.2 million from 1997 through 2003, according to its tax returns. But YDF’s federal tax returns show that most of the program service expenses were for “joint-cost allocations”: money spent on mailings that serve as both fundraising and educational devices.
“You might want to write this down: Solicitation is, by nature, education,” Bowen says firmly. “You’re telling them about something they don’t know anything about.”
“In order to allocate to education, we have to ask people to take action,” Bowen continues. “And one of the ways we do that is, we’ll ask if they know any kids that need a wish granted. That’s one call to action that we do that justifies” designating money spent on joint costs.
YDF spends 90 percent of its program service dollars on such phone calls. Which means that from 1997 through 2003, about $774,600 was spent on other things, including granting wishes to sick and dying children. That’s about 3.5 percent of the money YDF took in.
YDF reported spending $3.4 million on fundraising in 2003, to raise a little more than $4 million. That same year, Make-A-Wish Foundation reported spending $4.8 million to raise $30 million. According to the Make-A-Wish tax returns, 68 percent of its income went either to cover the national office’s program service costs or to its 76 local affiliates, to help them grant children’s wishes.
Meanwhile, Bowen made money on par with youth work’s elite executives. From 2000 through 2003, he earned nearly $1.5 million from YDF and another nonprofit based at his home address, Crusade for Child Safety. That includes $342,000 from YDF in 2003 – $128,000 more than Make-A-Wish President Paula Van Ness made in 2004.
Bowen offers several justifications for his pay. He says he was paid next to nothing for the first 10 years of YDF’s existence. He says his original board of directors promised to make up the difference later.
Bowen went through tough financial times in those early years. As of April 1990, he owed the IRS more than $224,000 in back taxes, and landed in court after failing to repay more than $5,000 of a YDF promissory note with Security Trust Federal Savings and Loan Association, according to court documents.
Bowen also says that his pay is no larger than that of people who run large organizations. He points to a five-year-old list of CEO compensation at large organizations, such as the Boy Scouts of America and Memorial Sloan Kettering Cancer Center. “I looked at salaries of these other [national] people, and thought well, you know, I need to be paid what I’m worth.”
Some of Bowen’s salary also goes to pay for the production and airing of his series of scuba diving videos, “Underwater Explorer,” which he films and distributes on his own.
Bowen says Underwater Explorer is a public education program done under the umbrella of YDF’s charitable status. Filming for the series has taken Bowen to such destinations as Key Largo, Fla.; Lake Tahoe, Nev.; and Aspen, Colo. “The Cayman Islands was the best episode,” Bowen recalls.
Bowen says he has filmed 14 episodes since 1993, and that the series costs about $100,000 a year to produce and air on local Tennessee stations, such as Knoxville’s public access television station, CTV.
CTV General Manager David Vogel says Bowen pays a $24 annual fee to air his shows. “They’re excellent shows,” he adds.
Monitors ‘Overmatched’
Nonprofits that put a lot of work into keeping themselves clean might wonder how YDF survives.
In December 2004, YDF made the “100 F-rated Charities” list, published by the American Institute of Philanthropy in its annual Charity Rating Guide & Watchdog Report. Four months later, the Chicago-based charity monitor ran a scathing two-page report on YDF. “It’s really hard to find much charity going on at the Youth Development Fund,” the institute’s report began.
In Minnesota, an official involved in the case against YDF says it was common practice to disseminate information on resolved cases to other states, and knows that Tennessee was informed about the settlement. But YDF is still registered to raise money in 27 states, including Tennessee, according to the nonprofit’s 2003 tax returns.
“There is no formal process for states to talk,” says Toms, the former director of Tennessee’s Division of Charitable Solicitations (DCS), who says she doesn’t recall hearing from Minnesota about YDF. Since the Minnesota case, Tennessee has received two complaints against the group, both from citizens. One, a former lawyer living in Ohio, wrote, “I would think the Volunteer State should not license an obvious scam of this magnitude,” referring to Tennessee’s official nickname.
The Tennessee DCS opened an investigation on YDF two years ago, but DCS Director Judy Bond-McKissack recently refused repeated requests to provide the results.
YDF renewed its registration with the state last year, but as of last month, it had not renewed that registration for this year. It expired in June.
The inability of monitors to exact significant penalties from questionable charities and marketers hurts the efforts of real charities, fund-raising experts say. “Some states have been really aggressive – like Michigan, New York and Pennsylvania – and some are just overmatched,” says Charlie Cadigan, former chairman of the Ethical Business Practices Committee at the Direct Marketing Association.
States that aren’t aggressive “allow a forum for these groups to pretend to be something they’re not,” he says. “It gives everyone else in the market a black eye. There’s so much work that’s fabulous, and then some out there that are dancing on the line.”
Part of the problem is volume. There are more than 1 million registered nonprofits in the United States, with thousands registered to raise money in any given state. Some states have only a few employees monitoring charities; 11 states don’t require charities to register.
“Few, if any, states have the resources or infrastructure in place to analyze all of the financial information a charity provides and act on it accordingly,” says Styron of the American Institute of Philanthropy.
The federal system isn’t any better. The Internal Revenue Service says that each year, nonprofits file about 796,000 of the “Form 990” tax returns, and it audits just 1 percent of them.
When the IRS does find something amiss, it can only share its information with state revenue officers. Because state charity officials are not housed in revenue departments, they are not privy to IRS data on audited nonprofits.
Nevertheless, many states that require charities to register ask those charities to declare if they have been in trouble with other state charity bureaus, Styron says.
“Certainly, states should be more proactive,” she says. “YDF has such a blatant tax return, they’re literally telling you how bad they are, right there. You don’t even need to have experts on staff, even if [a state] just had a red-flag system in place.”
It isn’t that the states have no resources to act. After the onslaught of charitable giving that began after Hurricanes Katrina and
Rita, state attorneys general across the country moved with lightning speed to roll back the tide of opportunistic swindlers creating dummy donation sites online.
That effort, Styron says, should not surface only in times of crisis.
Contact: YDF (865) 690-8521, www.youthdevelopmentfund.org.
John Kelly can be reached at jkelly@youthtoday.org.
Ideas for More Charity Oversight
The Panel on the Nonprofit Sector, created at the request of the Senate Finance Committee, recently submitted proposals to Congress on how to improve the governance and accountability of nonprofits.
Several of those proposals seek to improve the monitoring of charities by states. The panel asked Congress to authorize funding to increase oversight of charitable organizations or to establish oversight in states that have no formal systems. It also recommended changing tax laws to enable the Internal Revenue Service to share information with nonrevenue officers, such as state monitors.
The panel wants all Form 990s, the federal tax forms used by charities, to be filed electronically. That could help small charity monitoring bureaus search for red flags, rather than manually reading each form. The panel would require audits or financial reviews for larger organizations.
Some recent federal changes have made it easier to detect questionable activities. Since 2002, agencies that file Form 990s have had to indicate whether they used widely accepted accounting standards to determine joint-cost allocations, or decided for themselves what portion of their mailings were educational.
The Youth Development Fund decided for itself, reporting on federal tax returns that $1.5 million of its $4.1 million in phone solicitation expenses in 2002 was educational. When the charity followed accounting standards for 2003, it reported only $171,000 of its $3.7 million phone solicitation campaign as educational.
YDF founder Rick Bowen says the evolving fundraising regulations are “just going to ruin the charity business.” Bowen says he’ll counter increased regulation by dumping his contracted fundraiser next year and hiring his own network of telephone fundraisers around the country.
“Therefore, we won’t have any fundraising costs, because they’re all in-house,” he says confidently. “That’s what most charities using telemarketers will do. It’s a real change for a nonprofit and a lot more risky, but we’re willing to take the chance.”
