FEATURE
     

Word of his crimes first leaked out in 1991, and the details were shocking. Aramony, then in his 60s, used United Way funds to woo much younger women. The United Way of America -- the umbrella organization for local United Ways -- picked up the tab for romantic getaways to London, Paris, Egypt and Las Vegas. One witness testified that Aramony propositioned her at a business meeting with a Catholic priest. After the highly publicized scandal, contributions to local United Way organizations plunged, and donations to unrelated charities also suffered. "The setback across the entire country was absolutely unreal," recalls Ross Carter, who keeps tabs on charities for the Better Business Bureau of Central Virginia.

Time has quelled the Aramony acrimony, and that's a good thing, Carter says. While the scandal pointed out the possibilities for charitable fraud, he says, it obscured the fact that the vast majority of charities, in Virginia and elsewhere, are hard-working, wise with their money and beneficial to the community.

"People should give," he says. "But that doesn't mean they should give blindly. Check organizations out carefully in every respect."

That can be a big job. There are hundreds of charitable groups in Virginia, ranging from foundations and food banks to YMCAs and United Ways. A list of the 40 largest charities that operate primarily in Virginia appears on the following page. These groups attract big money from corporations and affluent individuals, and most are run professionally and responsibly. That doesn't mean, though, that they don't deserve scrutiny.

Carter offers this basic advice: Do your homework. If you want to become involved with a charity, take the time to find out exactly what the group does with its money. Call people who sit on the charity's board; talk to the organization's officers; ask for and examine its financial disclosure forms; meet the people the charity serves, and ask their opinion of the group's performance.

"The principle is the same if you're going to donate $20 or $50,000," says J. Michael Wright of Virginia's Office of Consumer Affairs. "To be sure your money is going where you want it to go, check it out."

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When it comes to keeping an eye on charities, Carter and Wright have seen as much as anyone in Virginia. Carter has worked for the Better Business Bureau for decades, and Wright has more than 20 years of experience at the Office of Consumer Affairs.

Both men have dealt with dozens of shady charities, organizations that were either scamming the public entirely or diverting huge percentages of contributions to pad their own paychecks. But, they say, almost none of those cases involved a well-known charitable organization. Most are pure scam operations -- pseudo-charities that either spring up in the wake of a natural disaster or try to make a quick buck by exploiting people's desire to help the poor.

"Every time you get something like Kosovo, or tornado relief, or Hurricane Andrew, all kinds of things come out of the woodwork," Carter says.

In the early 1990s, a Richmond group began collecting money to send to a church in Florida to help battered women and troubled children. The Office of Consumer Affairs and Henrico County prosecutors took a closer look and found out that the Florida church knew nothing about it.

The Richmond group then incorporated itself as the Richmond Christian Children's Church, hoping to exploit a loophole that allows churches to solicit donations without registering with the Office of Consumer Affairs. It didn't work: The group was successfully prosecuted in Henrico County.

Organizations often pop up to feed off generous people who make hasty donations based on sob stories, Carter says. "These groups always touch on emotional hot buttons. That's something to watch out for." If potential givers aren't absolutely familiar with a charity, Carter says, they should take a day or two and check it out, either by calling its offices, a Better Business Bureau or a national charity oversight group like the New York-based National Charities Information Bureau.

Even better, Wright says, blow off telephone solicitors entirely. Most are professionals hired by charities to make fund-raising calls for them. The charities themselves may be honest, but the fund-raising firms keep huge percentages as their fee. "Only 10 cents to 30 cents on the dollar is going to get to charity," Wright says.

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As a rule of thumb, the Better Business Bureau says fund-raising expenditures should not exceed 35 percent of a charity's revenues, and administrative costs should not exceed 15 percent.

It's perfectly legal, however, for a charity to collect a huge sum of money and spend it on just about anything. "The Supreme Court says you can't regulate by percentages of how much they spend on what," Wright says. "To an extent, it is caveat emptor."

But there's a good reason for that ruling, he adds. Since completely unrelated and dissimilarly structured groups are all legally defined as charities, it would be unfair to judge them all by the same standards. Take a nonprofit research institution, for example. It might spend 90 percent of its donations on salaries for researchers, and that might be perfectly legitimate, Wright says. But if a food bank were showing 90 percent spending on salaries, that would suggest something shady. So there are no hard-and-fast rules that donors can use to evaluate the worthiness of every charity. Case-by-case is the only way to do it right.

As a first step, watchdogs suggest looking at a charity's tax forms. Carter and Wright make regular use of 990 forms, full financial disclosure statements that charities must file with the Internal Revenue Service. Their fundamental benchmark -- and one they recommend potential donors examine -- is the ratio between a charity's revenues and its spending on program services. In general, Carter says, the Better Business Bureau likes to see at least 50 percent of revenues spent on program services.

Most of the major charities in Virginia meet or exceed that benchmark, but some are more efficient than others. For example, the Blue Ridge Area Food Bank, based in Verona, solicits food and cash donations from businesses and individuals in 25 counties, from Winchester south through the Shenandoah Valley all the way to Charlottesville. It does direct-mail solicitations to residents in all the counties it serves. About 400,000 mailings will be sent out this November. Those mailings are expensive, but they generate lots of revenue. And 87 percent of those revenues -- $7.65 million out of $8.79 million in 1997 -- actually help feed hungry people.

"We keep fund-raising costs low and do fund raising primarily ourselves," says Phillip E. Grasty, the food bank's executive director. Grasty is the first to point out, though, that the program services-to-revenues ratio can be misleading. "Some food banks have other programs besides food distribution ... that require more overhead," he explains.

The program-services precentage also can fall dramatically when a charity is stockpiling funds for new facilities or building an endowment that will perpetuate the organization through years when donations are drying up.

One such group is Lynchburg-based Presbyterian Homes & Family Services Inc. The charity provides residential care and treatment for children who have been abused or neglected. In 1997, it had about $13.3 million in revenues from donations, government aid and investment returns. A glance at the organization's IRS 990 form shows it spent only about $3 million on program services. A red flag? Absolutely not, says the Rev. E. Peter Geitner, the charity's president. Just good fiscal sense.

Geitner says that government programs such as Medicaid pay some of the expense of caring for some of his homes' residents, but not nearly enough to cover everything. Private donations make up some of the difference, but the majority of the homes' operating revenues come from investment income. The group has a growing endowment of about $40 million, Geitner says. In 1997, the majority of that $10 million surplus went straight into the endowment.

Nonetheless, the Better Business Bureau's Carter says such surpluses are worth checking out in detail before making an investment in a charity.

"It's valid to build up an endowment, but within reason," he says. "When the income from the endowment exceeds the amount that is being spent and the endowment is still growing and they're still raising funds, that's something that has to be checked."

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In the eyes of the IRS, a charity is any organization with 501(c)3 status. These organizations do not pay income taxes, and donations to these groups are tax deductible.

It should come as no surprise that groups like the Southeastern Virginia Foodbank have 501(c)3 status. But how about the Colonial Williamsburg Foundation? Or the Wolf Trap Foundation for the Performing Arts? Or Theatre IV? All of those groups are technically charities. Each perform nonprofit educational functions that many people might not be aware of.

The Colonial Williamsburg Foundation, for instance, runs a summer teachers' institute that brings hundreds of teachers -- 359 this year -- to Williamsburg for a week-long training session on how to make history interesting for students. The institute is largely donor-funded. Colonial Williamsburg also produces a series of interactive videos, dubbed "electronic field trips," that help several million students nationwide bone up on Colonial America. Schools pay a subscription fee to receive the transmissions, but the fee only covers about 25 percent of the $1.4 million annual cost, says Jim Bradley, the foundation's public relations manager.

Wolf Trap in Vienna is known for its concerts. But the foundation also has an institute for early learning that uses dance and music to teach preschoolers, says communications director Krishna K. Roy. Wolf Trap also runs a residency program that sends artists to schools nationwide to introduce students and teachers to the performing arts.

It's the same story at Richmond-based Theatre IV, says Kimberly Tutlow, the group's director of institutional development. Theatre IV stages plays at its Richmond location, but it also has a national touring company that performs at schools. Some plays, Tutlow says, deal with issues like abusive relationships. During those performances, a child-abuse counselor is on hand as a resource for kids who may identify with what they're seeing on stage and ask for help.

"It's an unusual way to approach education and human service," Tutlow says. "There are many agencies out there that provide food and shelter, but the soul needs much more."

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In addition to the charities themselves, Virginia also features a whole range of charitable foundations -- groups that collect funds and then make grants to charities. Corporate and private foundations are probably the most well-known, but a third type -- the community foundation -- is becoming more popular.

Community foundations work like this: Professional foundation managers run an umbrella group that oversees a host of smaller endowments. Donors can hand over assets to the professionals, who manage the money, file the papers, and then distribute grants to local charities. The foundation takes a small percentage of the donations, usually 1 percent to 1.5 percent, to pay for salaries and other administrative costs.

That system has been grabbing a greater share of charity dollars for several reasons, according to community foundation directors. For one thing, the foundations offer greater tax advantages than other charities. Under 1969 tax law provisions, multidonor community foundations were classified as "public foundations," meaning donors can deduct the full appreciated value of privately held assets. The same assets given to a private foundation can only be written off at cost.

In addition, busy businesspeople like community foundations because they provide trained professionals to help them find organizations they're interested in supporting. Then large donors can set up their own mini-foundations -- called named endowments -- within the community foundations. All the contributions from these endowments are made in the name of the individual donors, which makes it like having a family foundation without the overhead or red tape.

Virginia's largest community foundation, the Community Foundation Serving Richmond and Central Virginia, has $260 million in assets in its general fund. That money is spread among 220 named endowments, says Darcy M. Oman, the foundation's president.

Oman's foundation has endowments for everything from improving inner-city health care to preventing teen pregnancy. Donors can send contributions directly to the foundation and let the foundation's board decide what charity to give them to, or -- for a $10,000 minimum investment -- they can start their own named endowment.

Some of the endowment donors give huge sums, but that's hardly the rule, Oman says. She cited one family that wanted to establish a scholarship in the name of their daughter, who had been killed in a domestic attack.

"They were a regular family, not wealthy," Oman says. "They sent in money a little bit at a time -- $5, $10, $50 -- and finally got to the $10,000 threshold. This year we'll give out the first scholarship. ... The family was so happy they reached the threshold that they were crying on the phone."

Statewide, community foundations had about $430 million in assets and made about $20 million in grants last year, Oman says. The biggest groups are in Richmond, Roanoke and Norfolk, but foundations are forming fast in cities as small as Harrisonburg. "They're spreading like wildfire," Oman says.

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With so many kinds of charities to watch, Carter and Wright are getting busier each year. Wright's downtown Richmond office is piled high with boxes, most of them containing financial data that he either has pored over or swears he's going to get to soon.

They know their stuff, and they'll share their knowledge with anyone who asks. Nonetheless, they stress, there's no substitute for good old-fashioned legwork. If you're interested in giving, they say, wade into your chosen group's operation and make a nuisance of yourself until your curiosity is satisfied.

"Don't commit until you are totally comfortable with how your money's being spent," Carter says. "The main problems happen when people give without thinking about it."

Virginia's Largest Charities*

*501(c)3 organizations operating primarily in Virginia

**from most recent available fiscal year

Source: Office of Consumer Affairs, IRS 990 forms and individual charities

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© JULY 1999, Media General Business Publications Inc.,
publisher of Virginia Business Magazine