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September 14, 2011

The Big Business of Breast Cancer

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Photo Credit: Stephen Lewis

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In 2001, Hillary Rutter received a call at her Plainview, Long Island, home from an outfit called the Plainview Chapter of the Coalition Against Breast Cancer, asking for a contribution to help subsidize the medical expenses of local breast cancer survivors. Rutter, the director of the Adelphi New York Statewide Breast Cancer Hotline & Support Program, had never heard of the group and didn't know any of its board members. When she asked pointed questions about where donations were going, the caller hung up on her. Three weeks later, she received an invoice from the CABC stating that she'd pledged $25.

Galled that a fly-by-night operation would exploit the issue of breast cancer in Long Island, where women have long suspected they are at an epicenter of the disease, Rutter secured a copy of the group's financial records. (Tax returns of nonprofits are available to the public.) What she saw shocked her: Breast cancer patients saw virtually nothing from the $1 million the group had raised. Instead, those dollars went to telemarketers and salaries. Rutter began keeping a file on the group, which over the years grew thick with complaints about harassing calls and questionable fundraising tactics. "As far as I know, the CABC has done nothing but line their own pockets," says Rutter. "They're just horrible."

Last June, New York Attorney General Eric Schneiderman filed suit against the Coalition Against Breast Cancer, calling it a "sham charity" that for 15 years "served as a personal piggy bank" for the group's insiders. According to the complaint, founder Andrew Smith; his girlfriend, Debra Koppelman; and their associates pilfered almost all of the $9.1 million raised in the past five years alone. Other eye-opening claims: The telemarketing firm hired to solicit donations was owned by CABC cofounder Garrett Morgan, who billed the charity $3.5 million for his services. In total, Smith and Koppelman paid themselves more than $550,000 in salaries between 2005 and 2009, plus another $150,000 in retirement accounts, this though both held down full-time jobs as recruiters. The CABC issued Smith a $105,000 personal loan, which he squandered on bad investments; Koppelman authorized a $50,000 loan to herself toward the purchase of a home. (CABC is contesting these claims.)

"There is a lot of deception that goes on with breast cancer groups," says Daniel Borochoff, president of the American Institute of Philanthropy, a Chicago-based nonprofit watchdog group. One problem, he says, is that breast cancer charities are often run by well-meaning but inexperienced survivors or relatives who duplicate the efforts of established organizations. They use donor dollars to print their own educational brochures, though they certainly exist elsewhere; they organize events to promote awareness — "Skydive to End Breast Cancer!" — then blow too much of their funds getting these events off the ground. There's no requirement of a college degree or business experience to run a charity. You don't even need a clean legal record. (The treasurer for the Coalition Against Breast Cancer was a Long Island housepainter with several warrants for unpaid child support.) Even the names of many charities are designed to fool donors into believing they are bigger and more impressive than they are. Case in point: Though its moniker suggests it presides over a vast network, The Breast Cancer Charities of America is a tiny, three-woman outfit operating just outside Houston that banked $2 million in 2009, mostly through telemarketers. (Founder Erica Harvey says she came up with the name "with a team of marketing consultants.") "Any bozo can set up [a charity] and start soliciting," adds Borochoff.

All charities must file detailed financial reports with the Internal Revenue Service, but they don't have to be audited, or certified by a licensed accountant. In effect, anyone can write them up and turn them in. Some states require that a CPA review the books, but the rules vary widely. In California, only groups grossing $2 million or more per year need a CPA's certification; there's no auditing requirement at all in Texas. Even still, it's alarmingly easy to boost a charity's numbers to make it appear as if it's spending more on its mission — education and support groups, for example — than it actually is, especially for the many nonprofit outfits that rely on telemarketing. Here's how it's done: If a telemarketer charges, say, 70 cents for every dollar it collects — telemarketers are as expensive as they are annoying — a charity can write off some of that expense as part of its educational mandate by stamping "Don't forget to get a mammogram!" at the bottom of its invoices to donors. Another common accounting trick allows charities to accept gifts — say, a used car worth $500 — but then report these contributions at a much higher value. Neither tactic is illegal, by the way. What's the point of all this financial monkey business? Size matters when it comes to charities. The bigger the organization, the more reputable it seems, and the more likely it is to receive your cash.

The Breast Cancer Society, based in Mesa, Arizona, has made an art form of this kind of creative accounting. Founded in 2007 by James T. Reynolds II, now 37, the organization provides critically ill breast cancer patients across the country with cash grants to pay for everything from groceries to medical bills, Reynolds says. In 2009 (the most recent year for which tax records are available), the BCS claims it raised $50 million in contributions, the bulk of which went to supplying medicines to hospitals in Third World countries like Guatemala and Ethiopia, ostensibly for the treatment of breast cancer. (Reynolds says he has visited only three of the eight hospitals that purportedly received these medicines.) Press him on his group's finances and he admits that, in fact, BCS raised just $15 million in cash donations in 2009. The other $35 million represented his estimate of medications that the BCS accepted as gifts or bought at a major discount but then listed on its books as having much higher values. For example, BCS reported that it sent $8.8 million worth of goods to hospitals in East Asia. "I'd have to look it up, but it probably cost us maybe $40,000 to procure and distribute that," Reynolds concedes in a phone interview. Where do these medicines come from? Reynolds says he gets them from other organizations, including the Ontario-based Universal Aide Society, which saw its Canadian charitable status revoked two years ago for malfeasance. (Its employees used funds to finance vacations and other personal expenses.) This so-called "gifts in kind" scheme makes BCS seem a whole lot bigger than it actually is and obscures the fact that the group spent 90 cents of every dollar that it raised on telemarketers, not patients.

Nonprofits don't seem a likely place to make a fortune. But in 2009, Reynolds collected a $223,276 paycheck, nearly double what he made the year before. (Perhaps that's only fair given that over the same period, he doubled his telemarketing efforts, which, in turn, nearly doubled what BCS brought in from solicitations.) He says his salary is comparable to that of executives running similar organizations and commensurate with his 18 years of nonprofit experience. He neglects to mention that his experience has been limited largely to his work with the Cancer Fund of America, a controversial group founded by his father, which has been blasted by both the Better Business Bureau and the nonprofit rating agency Charity Navigator for giving less than a penny of every dollar raised to cancer patients. Charity Navigator once listed the Cancer Fund of America Support Services, an affiliate Reynolds ran between 2003 and 2007, as one of "10 Non-Profits That Make Ebenezer Proud." Reynolds was also one of the Cancer Fund of America's highest-paid employees for several years, serving as its vice president between 2006 and 2008. In 2007, the Georgia Governor's Office of Consumer Affairs accused that group of making false and misleading claims in its mail solicitations, allegations that the Cancer Fund of America ultimately settled for $50,000. Reynolds is nonplussed by critics who say he's taken a page from his father's "one for you, three for me" playbook and applied it to his Breast Cancer Society. "I've offered to have people come and visit our facilities and sit down with them and open our books up," he says calmly. "I don't ever want to run an organization that hides things."

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