Pennsylvania Accuses Children’s Charity of Financial Improprieties

By DEBRA E. BLUM

An Atlanta charity that distributes toys, airline tickets, and other gifts to terminally ill children and their families has grossly overstated the value of some of the gifts, and the group’s leaders — a husband-and-wife team — have used the charity’s money to support “an extraordinary lifestyle,” authorities in Pennsylvania have charged.

Pennsylvania’s Bureau of Charitable Organizations accused Children’s Wish Foundation International of 95 violations of the state’s charitable-solicitations laws. If the charges are upheld, the charity could lose its right to raise money in Pennsylvania or conduct other business in the state. It also could be fined up to $1,000 per violation.

“When Pennsylvanians donate their hard-earned dollars, they deserve to know their contribution goes to the mission the charity represents,” Karl E. Emerson, Pennsylvania’s top charity regulator, said in a statement announcing the charges.

Officials of Children’s Wish denied the allegations. “We feel confident that we can answer each and every one of the 95 counts they allege,” Linda Stein, executive director of Children’s Wish, said in a written statement.

The 15-year-old group has come under scrutiny in the past in other states, including Connecticut and Georgia.

Pennsylvania’s allegations mark that state’s second action against Children’s Wish and underscore the aggressive steps regulators have taken against nonprofit organizations that they believe have violated state charitable-solicitations laws.

Challenge on Registration

Another complaint filed this month by Pennsylvania also demonstrates the extra effort the state is putting into making sure that charities register to raise money within its borders. The state has charged the Declaration Foundation, a nonprofit group founded by the independent presidential candidate Alan L. Keyes, with 887 counts of soliciting contributions over the last two years without registering to do so. The organization, which seeks to promote the principles of the Declaration of Independence, faces fines of up to $1,000 for each count, which reflect the number of Pennsylvanians — 877 gave a total of about $27,000 — who made individual contributions. Officials from the group could not be reached for comment.

Pennsylvania began beefing up its charity oversight five years ago after the collapse of the Foundation for New Era Philanthropy, a Pennsylvania nonprofit group that had run what amounted to a $350-million Ponzi scheme. Among other measures, the state has hired investigators and auditors to examine the financial documents that charities must submit before being allowed to raise money in Pennsylvania.

Children’s Wish has been registered to solicit contributions in Pennsylvania since 1990.

Ms. Stein created Children’s Wish in 1985, seven years after her daughter died of bone cancer, and since then the charity has expanded globally. The charity aims to fulfill the wishes of children who have life-threatening illnesses, giving them gifts, sending them on trips, and helping hospitals and other organizations to obtain toys, books, and other items that can be used by the children and their families.

Children’s Wish raised $26.9-million last year and spent $17.3-million on its programs, according to informational tax returns that the charity filed with the Internal Revenue Service and submitted to Pennsylvania regulators.

But the regulators alleged that the group overstated the value of at least some of those program expenditures, and that it made false statements about the expenditures in its financial documents.

At issue are the in-kind donations that Children’s Wish made last year to Ronald McDonald House Charities, a nonprofit group run by the fast-food chain that assists the families of ill kids. Children’s Wish reported that the donations, which included clothing and toys, were worth more than $1.6-million. But Pennsylvania officials allege that the fair market value of the items was no more than $136,500.

In its written response to the charges, Children’s Wish says that it receives donated items from corporations and other nonprofit organizations, sometimes paying a fee to the donating organization for transferring the items. Children’s Wish then unpacks and reassembles the items into gift cartons and baskets that are distributed to children.

Ms. Stein stated that to arrive at the value of a donated item, Children’s Wish used the value that was assigned to it by the donating organization and reduced that figure by 15 percent.

While 41 of the 95 counts included in the Pennsylvania complaint are about the value of the charity’s in-kind gifts, the rest of the counts cover allegations of improper spending, mostly in fiscal 1997.

The state alleges that Ms. Stein and her husband, Arthur, who is president of Children’s Wish, spent thousands of dollars on airline tickets to Europe and other destinations, stays at luxury hotels, and gifts. Such expenditures, the complaint says, were “not consistent with the charitable purpose” of the organization.

According to one charge detailed in the 39-page complaint, the Steins used the charity’s credit card to cover a bill of nearly $3,000 at a five-star Swiss hotel. Another charge claims they spent more than $1,100 at a shop in London to buy decanters and an ornamental horse.

Ms. Stein said that Children’s Wish Foundation could “clarify” all the expenses noted in the complaint.

Errol Copilevitz, a lawyer for Children’s Wish, disputed the Pennsylvania regulators’ charges. He said, for example, that Children’s Wish can prove that the Steins incurred the Swiss hotel bill while the couple was doing work for the charity.

Mr. Copilevitz also said that gift items purchased by the Steins in the United States and abroad were for volunteers and employees of the charity, not for the Steins themselves.

Previous Lawsuits

In 1994, Pennsylvania sued Children’s Wish for alleged violations of reporting practices for in-kind donations. The suit was settled the next year under an agreement that required the charity to reimburse the state $18,000 and pay $21,000 to other charities. The settlement, which did not constitute a finding of wrongdoing against Children’s Wish, also laid out how the charity would be required to report donated materials on its financial documents.

Connecticut brought a similar case against Children’s Wish in 1992. In a statement announcing its lawsuit, the Connecticut attorney general said that Children’s Wish and other nonprofit groups were “deliberately misleading donors by filing financial reports falsely claiming enormous contributions to other organizations.” Two years later, Children’s Wish and four other charities together paid more than $200,000 in civil penalties to settle lawsuits.

Children’s Wish has paid penalties in at least one other state. In 1989, Georgia authorities levied a $2,500 fine against the group for making misleading statements during a fund-raising campaign.