Cleveland Plain Dealer

CHARITIES IN FEEDING FRENZY; 2 AUTHORS SAY WE NEVER KNOW WHERE GIFTS GO

by JANICE HARAYDA BOOK EDITOR

One of the most remarkable financial scandals of the century came to light two years ago when the Foundation for New Era Philanthropy went bankrupt after bilking dozens of well-known donors out of millions of dollars. In an elaborate Ponzi scheme, the Philadelphia-based organization used contributions from one individual or group to pay off another - until the money ran out.

By the time Pennsylvania attorney general's office caught on, the foundation had persuaded an honor roll of donors to write huge checks in the belief that their cash would be matched by an anonymous patron, effectively doubling their tax deductions. As John Hawks tells it in "For a Good Cause?," New Era fraudulently obtained a reported $517,000 from stock picker Peter Lynch, $3.2 million from former Treasury secretary William Simon and at least $3.5 million from philanthropists Laurence and Mary Rockefeller.

All of which raises the question: If financial experts as savvy as Lynch and Simon were so easily taken in, how can the rest of us be sure we won't be gulled when we give money on a more modest level?

The authors of two books on the subject suggest that we can't. Both argue that charitable giving has become an underregulated, out-of-control growth industry that often preys on unwary donors. And because the crisis has tangled political roots, solutions are likely to be hard-won, although the authors agree that more vigilant watchdog groups might help to ease the crisis. Americans got a glimpse of the problem when they read about former United Way President William Aramony, who was convicted on 25 criminal counts after using his organization's money to pay for luxuries such as an $80,000 sunroom for his girlfriend's home in Florida. But other betrayals of trust are perhaps more disturbing, because they do not involve one executive's greed so much as a well-entrenched pattern of deception, negligence or corruption.

Hawks, a Kentucky writer and editor, traces the evolution of philanthropy from a cottage industry to a multinational business in "For a Good Cause?" The practice of granting tax exemptions to charities, begun early in the 20th century, has led to a cozy relationship between nonprofit organizations and the government that includes direct federal aid; Hawks says that CARE gets 78 percent of its money from the government and Save the Children, 60 percent.

Such federal handouts have all but eradicated the line between public and private giving. Groups that were intended to offer an alternative to the welfare state have come to depend so heavily on the government that they are now an arm of the welfare state. The charities have become major recipients of charity. The symbiosis might matter less if the government kept a closer eye on the nonprofits. But Hawks shows that they have a startlingly free reign: Nonprofit status is easy to get, rarely revoked and subject to so little oversight that charities routinely default on their legal responsibilities.

Federal law requires nonprofit groups to keep their last three years' tax returns on hand and to show them to anyone who asks to see them (documents that can also be obtained directly from the IRS). But the IRS has so few field examiners for charities that many groups file no or incompete returns: In the last year for which figures are available, only 133,157 of the country's 1.2 million nonprofits filed the proper tax forms.

All of this makes it easier to understand how the Aramony and New Era scandals could have arisen. But Hawks relies so heavily on second- or third-hand sources for his information that his "For a Good Cause?" - though a useful distillation and analysis of widely known facts - reveals little that has not appeared elsewhere.

Michael Maren offers a much more complex assessment of charities in The Road to Hell, a chilling expose of the effects of groups such as CARE and Save the Children in Africa, written by someone who observed them at close range. Maren, a New York writer, spent more than 15 years in Africa as a Peace Corps volunteer, aid worker and journalist; for part of that time, he was a "food monitor" for the United States Agency for International Development, a job that required him to ascertain whether or not donated food reached its intended recipients.

Those experiences have given Maren a rare insider's view of the effects of international-relief efforts, particularly in Somalia, the focus of his book. They have also left him angry about what he perceives as the waste, corruption and destruction of local economies fostered by the recent influx of aid to Africa.

At times, Maren's anger weakens his argument that ill-considered relief efforts have done as much harm as good. But his book is a nonetheless compelling indictment of good intentions gone awry, solidly documented by interviews with aid workers and quotes from confidential memos from files at the Geneva office of United Nations High Commissioner for Refugees.

While working in Somalia during the dictatorship of Siyaad Barre, Maren found that a huge portion of the food sent to the country, perhaps as much two-thirds, was stolen by the government or its foes and sold or traded for guns. The result, a Somali political leader told him, resembled "a mini arms race fueled with food."

Even so, enough free food arrived in Somalia to drive local merchants out of business and wipe out generations-old methods of coping with famine. Many representatives of CARE and Save the Children scarcely cared, Maren says, because the surfeit of food safeguarded their jobs even as it ruined indigenous economic systems.

Maren believes that we need "a truly independent agency" - without people from CARE or Save the Children on its board - to rein in the "relief circus." But he sounds pessimistic about the prospects for change, and he makes it hard not to share his view. If it took the American judicial system years to catch up with an $80,000 sunroom in Florida, how long will it take the prosecutors to overtake more extensive breaches of trust occurring an ocean away?

Copyright 1997 Plain Dealer Publishing Co.

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