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What are the State Divisions Hiding?In Crusade: The official History of the American Cancer Society, Walter Ross Says that the ACS is "the largest, most influential and most effective private voluntary health organization in history," and that it is "one of the most efficient of philanthropies."1 Furthermore, the ACS has often proclaimed its financial accountability to any interested party. Its bi-weekly Newsletter notes that "As always, our annual reports and audits are a matter of public record and available to anyone who requests them."2 The assertion that "our books are open" is often emphasized by ACS officials during radio and television interviews.3 This article raises serious questions about these claims. Any charity that extols its efficiency, effectiveness, and openness should be delighted to have interested parties, including donors and the media, validate those assertions by examining the charity's financial records. But in four recent cases involving ACS divisions in Nebraska, Ohio, Iowa, and Arizona, ACS officials have refused to provide such information. These cases raise serious concerns about the mindsets of ACS executives. The Beef in NebraskaIn 1991, individuals affiliated with Nebraska's beef industry held the first annual "Cattle Baron's Ball" to promote the cattle industry and aid Nebraska's charities. Drawing an estimated 2,000 participants in sparsely populated western Nebraska, the Ball generated net proceeds of $83,000 through admission fees, donations, auctions, concessions, casino gambling, and craft sales. 4 In 1992, 1993, and 1994, the Ball netted $74,000, $160,300, and about $165,000, respectively.5 Thus, nearly half a million dollars was raised in four years for charity---a testimony to the generosity of individual donors, the beef industry, 6 and careful cost control. Some 500 volunteers paid all their expenses, including hotel costs, and were even required to buy admission tickets. Although ACS volunteers have helped organize the Ball since its inception, ACS-Nebraska had no official involvement until June 1991, one month after the first Ball, when organizers were informed that "the event's name was registered to the American Cancer Society, effectively reserving all the proceeds for the Society." Since the original plan was to distribute the funds to several charities, the ACS's demand was not well received: "Volunteers for the '91 Nebraska event threatened to pull out because of concerns that the cancer society had too much control over the event ..." 7 The Nebraska beef industry, however, was anxious to cooperate with the ACS. Recent criticism of dietary fat---voiced primarily by the ACS and the American Heart Association---has led Americans to consume less red meat. Beef industry officials believed that raising money for the ACS might prompt it to adopt a more favorable view of beef. 8 Funds raised during the first three balls (1991-1993) were deposited in a local bank by the event's treasurer. After expenses were paid, remaining funds were donated to ACS-Nebraska. 9 But that arrangement ended with the fourth Ball in 1994. All donations were then sent directly to ACS-Nebraska, which was to pay all bills and provide the Ball's chairman and treasurers with monthly accounting reports. 10 According to volunteers, ACS-Nebraska sent none of the reports. On August 6, months after the ball, ACS-Nebraska provided a summary of spending that included several "unauthorized" items. Volunteers were surprised to find that three members of ACS-Nebraska's staff and a long-time board member had been paid travel, lodging, and other expenses to attend the Ball. A $1,000 banquet for 86 people had also been charged to the Ball. In addition, the ACS hosted a reception for major contributors, billed to the Ball. 11 Since volunteers were required to pay their own expenses, they believed it unfair for ACS staff, who had no formal role at the event, to receive reimbursement. Moreover, volunteers were concerned that despite hundreds of thousands of dollars raised by the Ball, ACS-Nebraska did not seem to be providing more services to cancer victims. Unfortunately, the questionable expenditures were only the beginning. Volunteers estimated 1994 proceeds at $165,00, but ACS-Nebraska executive director Don McClure put the figure at $133,000. 12 Furthermore, expenses were $41,000 more than budgeted, and there were no receipts for bills totaling $68,000. 13 In response to volunteers' concerns, McClure claimed that ACS-Nebraska had provided over 20 periodic financial reports and other relevant information about expenses fro the 1994 Ball. But according to the Omaha World-Herald, "We [the board] could not get [ACS] management to give us certain information regarding financial status and some personnel issues..." 14 After months of seeking income and expense statements without success, volunteers requested an independent audit of the Ball's books. They even agreed to pay for auditors. ACS-Nebraska's Income Development Committee, however, voted against an audit, claiming that the routine annual audit of the division's finances by Arthur Andersen & Co. was sufficient. 15 In frustration, seven key organizers resigned on November 10, 1994. Concern about negative publicity and the prospect of losing its major fund-raising event apparently prompted ACS-Nebraska to recant and allow an independent audit. A press release said, "In an effort to dispense with the recent unwarranted negative publicity surrounding the 1994 Cattle Baron's Ball..., the Executive Committee of the Board of Directors voted [November 18, 1994] to authorize an independent review of the 1994 Cattle Baron's Ball records." 16 But there were strings attached to this offer. Daniel Wherry, legal counsel to ACS-Nebraska, wrote to Lawrence Yates, executive director of the Nebraska Beef Council (who was mediating the dispute between volunteers and the ACS), that "the volunteer[s] who will be donating funds to cover the expense of [the audit] should also factor in ... the cost of American Cancer Society professional staff time necessary for the undertaking." Unless the organizers accepted this ultimatum, ACS-Nebraska would "consider the entire issue settled." 17 Since an open-ended liability for ACS staff salaries could have added thousands of dollars to the audit, organizers offered to find qualified volunteers to replace ACS staff. But ACS-Nebraska rejected the offer. To date, the dispute has not been resolved. If ACS-Nebraska believes, as stated in its press release, that "of paramount importance is maintaining the trust and confidence of our donors" and that "a review of the records will reveal the truth of this unpleasant matter," 18 and editorial in the Scottsbluff Star-Herald is relevant: "It remains a mystery why the Cancer Society is so closely guarding its final report on expenses from last May's Cattle Baron's Ball... Why not just produce the report when the volunteers asked, explain the society's position on what qualifies as a justifiable expense and be done with it...? The best way to get over it quickly and completely is simply to release the report as should have been done to begin with. Until that is done, there will be an odor connected with the Cattle Baron's Ball. You might call it the smell of money. Unfortunately, the brouhaha in Nebraska is not unique. Only the details and issues differ among other ACS state divisions. ACS-Ohio's "Travelin' Man"During a 1992 debate between John Henderson, long-time executive vice president of ACS-Ohio, and myself, Henderson was asked if ACS-Ohio's "books are open." 19 Without hesitation, he replied, "You'd better believe it." 20 Seeking further information, I sent a letter to Henderson that read in part: 'I would like to visit with you in Dublin [Ohio, the location of the division office] to obtain in-depth information about real estate holdings and various expense items, particularly travel." 21 Henderson's response was dramatically at odds with his public statement: "Please be advised that, as a matter of practice, we have not allowed outside access to our financial records... We will therefore, not be providing you with the in-depth financial information you have requested." 22 In early 1995, several disgruntled former employees of ACS-Ohio contacted Target 4 TV News in Columbus. Thirteen of 45 staff members had recently resigned or been fired and documents provided to Target 4 indicated that seven board members were considering resigning. Of particular concern was Henderson's expenditures for travel. As a news investigation related, "Over the last four years Henderson made twenty trips to twenty-nine countries all over the world... In that time, he's flown to Switzerland eight times, Germany five, England and Canada three times each, two times to Barbados, Japan, China and New Delhi and once to South Africa and Italy...And in the three years between 1990 and 1002, Henderson went on an average of twenty-five trips a year, spending an enormous amount of time out of the office...Henderson confirmed that his wife accompanied him on four to five trips in the United States each year since he became the executive vice president ten years ago, paid for with your contributions." The news team was unable to determine how much had been spent on trips for either Mr. Or Mrs. Henderson because ACS-Ohio refused to provide information. When asked how Ohioans benefited for Henderson's travel, John Seffrin, executive vice president of ACS-national, responded, "I think Ohio gets reflected pride out of it." As a result of these revelations, Henderson recently went into early retirement at age 57. ACS-Ohio will not say if he is receiving severance pay or other benefits. One might reasonably ask, Where were the board members when this was going on? The answer, unfortunately, is that at least some of them were Henderson's fellow travelers. According to the news team, "we also have information that the contributor-funded international travel [included] some of the board members and their wives." Iowa: The Stink over StandardsKaren Packer, a resident of Marshalltown, Iowa, is a longtime volunteer for cancer victims. So successful have her efforts been that Coping magazine named her 1995 "National Volunteer of the Year." 23 Initially, Packer volunteered through the local county unit of ACS-Iowa and was on its board of directors. Over time, however, she became convinced that ACS-Iowa spent very little on direct services for cancer victims. Furthermore, she saw a chasm between the division's fund-raising appeals and its spending priorities: repeatedly, press announcements said that donations would be used to directly help cancer patients. ACS-Iowa refused to provide Packer--or anyone else--with its audited financial statements, and in January 1993, the board of directors voted to "sequester" the statements--an action that outraged Arthur F. Stocks, who served for 25 years as executive vice president. Stocks wrote to Dean H. Gesme, the-president of ACS-Iowa, that "I am totally outraged by such an irresponsible, irrational and anti-consumer action by a group representing a 501(c)(3) organization..." 24 Despite persistent criticism from Stocks and Packer, ACS-Iowa refused to provide the statements to interested parties, some of whom had been requesting them for over five years. After Packer contacted the Iowa attorney general's office, the Des Moines Register reported that "National staff members concluded that Packer was correct in asserting her right to the information under Iowa laws regulating charities..." The audit was finally released. The Register provided details on how ACS-Iowa allocated its 1992 budget. According to it analysis, one view was the "version given to the public," the other the "version closely guarded." For patient services, the "public version" showed expenditures of $396,846--about 10 percent of all spending. But the "closely guarded" version showed only $51,008 for cancer patients--about one-tenth of one percent of expenditures. Thus, ACS-Iowa's own financial audit vindicated Packer's concern that little was being spent on cancer victims. Packer has since resigned from the ACS-Iowa board to start her own cancer support group. Arizona: Crumbs for Cancer VictimsIn January 1995, the Phoenix New Times published an expose of ACS-Arizona by investigative reporter John Dougherty. 25 Using ACS-Arizona's audited financial statements form 1992 to 1994, Dougherty found that "Contrary to its popular image as a bootstrap operation scraping by only with the help of volunteers, the American Cancer Society's Arizona division is more than well-off. It has some $4.6 million in cash and securities on hand...It spends nearly 22 times as much on salaries and overhead as it does on delivering direct services to Arizonans. It is an enterprise that pays its top executive $119,000 per year, plus $15,000 more in insurance and retirement benefits...[It] is a charity that has seen its total assets increase by 42 percent since 1988, to $10.9 million..." Dougherty also found that ACS-Arizona allots "95 percent of its budget [to] salaries and overhead. Cancer victims get the leftover crumbs." While it spent "a paltry $47,183 on 'specific assistance' for Arizona cancer patients and their families," it somehow found the resources to move to a "spacious $1 million headquarters" building. Although these findings are starting, Dougherty suspected they were only the tip of the iceberg. When he sought more detailed financial records, however, ACS-Arizona "refused to open its books for inspection by New Times. The society also declined to provide detailed salary information on its ten highest-paid employees. Division officials also refused to explain other specific spending listed in the charity's financial statements, including $83,000 labeled 'other travel' and a long-standing, fully collateralized $1.5 million bank loan." Apparently, ACS-Arizona officials believed that providing additional information would reflect badly on their stewardship of donors' contributions. Prescription: SunshineDespite claims of "openness," the record shows that ACS officials have been less than forthcoming with financial information about their operations. Many ACS divisions are wealthy and engage in fund-raising that purportedly helps cancer victims. However, the primary beneficiaries of ACS largess seem to be ACS executives and staff. Equally disturbing is the apparent mindset of many ACS executives. Despite rhetoric about "open books," ACS executives seem to believe that they do not have to answer basic questions about their use of donations. Until insiders become so disillusioned that information is leaked to the media or other sources,, the misuse of funds can continue indefinitely with cancer victims, as New Times says, getting only the "leftover crumbs." Audited financial statements are indispensable fro any investigation of charity spending. But audits can conceal as much as they reveal, for audits only report aggregate totals. More detailed information is needed to determine if funds are well spent. A concerned donor should be told whether travelers fly first class or coach, whether meals are eaten at five-star restaurants, whether lodging is at luxury or moderately priced hotels, whether spouses also travel, and so on. Charities must operate in the sunshine by opening all financial records to any interested party. This should pose no major burden to most charities--after all, most claim to have an "open books" policy already. Charities must practice what they preach. Notes
Capital Research Center is a non partisan education and
research organization classified by the IRS as a 501 (c)(3)
public charity.
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