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American Morning

One of America's Most Prominent Charities Dealing With Crisis of Confidence

Aired July 23, 2002 - 09:31   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA ZAHN, CNN ANCHOR; To Washington now, where one of America's most prominent charities is dealing with a crisis of confidence. If accounting scandals at corporate giants like Enron and WorldCom weren't enough, now the D.C. chapter of the United Way is now mired in a financial scandal.

CNN national correspondent Bob Franken has more.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: They were no longer little girls. They were little women.

BOB FRANKEN, CNN NATIONAL CORRESPONDENT: What could be better for the National Football League to demonstrate it has a heart than by showing its players promoting the United Way.

What could be controversial about a charity?

DONNA KLOCH, FMR. UNITED WAY NCA BOARD MEMBER: We haven't told the donor exactly what we take out of their pledge.

FRANKEN: Until recently, Donna Kloch was a board member of the national capital area United Way, one of the largest in the country, claiming over $90 million in annual donations. But, the local organization is mired in controversy over charges that it exaggerated the amount of money collected. And Donna Kloch became persona non grata after she quietly blew the whistle over her suspicions. But now, a federal grand jury has subpoenaed the local organization's financial records and is investigating charges that the charity overstated millions of dollars in contributions for child care, food programs and other United Way recipients.

It's the same allegation of questionable accounting practices that have recently become all too familiar.

KLOCH: I can explain it a little bit by what you see in corporate America right now, where you might inflate your profits in order to impress your investors and stockholders.

FRANKEN: Under mounting pressure, the D.C. area United way hired an accounting firm to conduct an independent audit of its books, and then acknowledged inflating donations by double-counting some, and taking credit for millions actually collected elsewhere. This practice permitted the agency to claim it was spending less of a percentage on administrative costs than it really was. And that percentage is a hugely important gauge when assessing the quality of a charity.

Hiding the costs is equivalent to a corporation hiding its expenses.

RICK COHEN, NATL. CMTE. FOR RESPONSIVE PHILANTHROPY: The donor and the charity that receive money from a fund-raising entity have a right to know what the administrative cost is.

FRANKEN: The audit also revealed sloppy bookkeeping. But the local United Way CEO insists any problems that may have existed are being addressed.

NORMAN TAYLOR, CEO, UNITED WAY, NCA: We are going to be transparent; we are going to be open. We are going to be put all of these things on the table. We are going to let people see what is there.

FRANKEN: Like football, running the Untied Way here has become a contact sports, but there are charges that the local chapter's player are not following the most basic rules.

(on camera): The grand jury is investigating the D.C. Area United Way, not the national organization. But national officials worry that the controversy here could put a crimp on collections everywhere, and could undermine what is after all the purpose: helping those in need.

Bob Franken. CNN, Washington.

(END VIDEOTAPE)

ZAHN: And now the United Way has issued a statement saying: "The organization is fully cooperating with this official investigation and, therefore, unable to discuss information related to this inquiry. Late last month, United Way established an independent committee for review of our practices and procedures, chaired by former U.S. Secretary of Transportation Rodney Slater, and 18 other community leaders."

To talk more about United Way's current money mess, from Washington, Rick Cohen, president of the National Committee for Responsive Philanthropy.

You just met him in the piece that preceded the interview.

Welcome, good morning.

COHEN: Thank you for having me on.

ZAHN: Our pleasure.

So, Rick, how is it that individual donors should look at this controversy?

COHEN: Well, I mean, there are probably a couple of issues that individual donors should be concerned about. One is just simply the ability to the United Way of the national capital area to be straightforward, and fully transparent and accountable. That's what concerns many people. We certainly hope that donors won't withdraw from charitable giving. That's the wrong response. But the response should be to make sure the national capital United Way cleans up its act, becomes more transparent and more accountable and explains what it is doing with the money that's being donated for charities in this region.

ZAHN: What is overarching reaction to this whether someone cut a $100 check or $1,000 check?

COHEN: Well, I think there are a number of things that people ought to be doing. Donors have to get much smarter about asking questions about what any charity is doing, and certainly about what the national capital United Way is doing.

I think, certainly, the corporations that are involved should be more inquisitive about it as well, and certainly the charities that are involved.

But I think the issue go beyond simply trying to cleanup the national capital United Way's own behavior. There are issues that extend to what kind of signals and cues are they getting from the United Way of America, the national parent body, that may unwittingly encourage some kinds of overstatement of fund-raising totals, and the lack of competition this the workplace for charitable giving. The fact that the United Way operates largely in this reason as a monopoly means that there's little pressure on it to clean up its act, to be more forthright in the way it accounts for administrative costs and the way it distribute funds.

ZAHN: That is a critical point you just raised, because in Bob Franken's piece, he is saying that the Washington-based chapter is making a point of saying, this is isolated, this is our chapter, but are there concerns that there's a larger problem here throughout the national workings of the United Way?

COHEN: Certainly there's some policies that the United Way of America really ought to take a very hard look at to figure out whether or not they've actually induced some of this. There's a United Way policy that encourages United Ways to take credit for all funds that are raised in workplaces, even if the United Ways only acting as a fiscal agent. So that in many cases, the United Way will be just acting as a pass-through, but the United Way of America policies take it as a total fund-raising claim in terms of what their accomplishments are. I think that starts you off on a bad note, because it gives you an inflated sense of what the United Way may be achieving, and you can't say, well that number isn't reliable, but the rest of the numbers are.

So that there may be policies that within the United Way system itself need to be reviewed and encouraged. ZAHN: Rick, sorry to cut you off. We just have 15 seconds left. How much of a concern should this be to donors who give money to other non-profits across the country?

COHEN: Well, think the general nonprofit behavior is really quite good. This is, I think, relatively isolated. I bet it's even isolated within the United Way system. I think most nonprofits really do a very good job on trying to be accountable and responsibility, particularly in this era of greater attention to corporate accountability.

But I think, fundamentally, the question becomes what do donors ask of their charities, what do corporations that are contributing ask of their charities, and what kind of competition is there from other kinds of funds, like community shares and other entities in the workplace that create a different model of standards of accountability?

ZAHN: Some very important questions to have answered, particularly if you're cutting checks, like so many of those organizations are.

Rick Cohen, thanks again for your time this morning. Appreciate it.

Thank you very much.

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