Charity’s Exaggerated Revenue Could Affect Other Groups

World Help, a Christian relief charity that last fall ranked No. 77 on The Chronicle’s list of the country’s largest nonprofits, now says it overstated its revenue to the Internal Revenue Service by 1,400 percent.

The restatement is notable because nonprofits rarely amend their finances so significantly after finding a mistake, and it sheds new light on a controversy surrounding donated medicines and other goods, known as gifts-in-kind. The change might have implications for other nonprofits that say they have received goods from World Help.

“It could have far-reaching effects in the gift-in-kind valuation across the board,” said Elizabeth Korsmo, New Mexico’s chief charity regulator. “I’d be very interested to see to what extent groups that say they received goods from this charity decide to revalue them.”

World Help blamed a former consultant, Clifford Feldman, for its inflated revenue. The group said Mr. Feldman “falsified and engineered paperwork regarding gifts-in-kind.”

Unable to “verify the value of many of the shipments he arranged,” the charity said, World Help felt it was right to remove those from their financial statements.

Mr. Feldman could not be reached for comment.

In a previous interview with The Chronicle, in October, before he stopped responding to The Chronicle’s phone calls, Mr. Feldman told the newspaper that World Help was trying to record its goods correctly in the absence of clear accounting rules and that he’d done nothing wrong.

“Everyone is scrambling to do it the right way, but there’s really no right way to do it,” he said. “No one wants to end up looking like they’re doing it wrong.”

Fast Growth

World Help, in Forest, Va., grew rapidly in recent years thanks to donated medicines. In its 2011 tax return, the charity said its revenue totaled $239-million, 95 percent from gifts-in-kind.

But in its latest audited financial statement, the charity said the accurate figure was much smaller—just $17-million. In 2012, the group said, it raised $25-million.

The Chronicle first began to examine World Help last October, in part because of its skyrocketing revenue. The nonprofit said it grew 940 percent over five years.

In an interview with this newspaper last year, World Help’s president, Vernon Brewer, credited Mr. Feldman for that growth.

He said Mr. Feldman, whom the charity hired as a contractor in 2008, was responsible for procuring donations of medicines, food, clothes, and other goods.

But The Chronicle found that World Help’s big donors said they had either not given to World Help or provided medicines worth just a tiny fraction of the amount recorded by the charity.

Three charities—Catholic Medical Mission Board, Cross International, and Direct Relief International—told The Chronicle that they did not give roughly $350-million worth of medicines over three years to World Help, as listed in World Help’s tax filings. A spokeswoman for Catholic Medical Mission Board said World Help assisted the group with shipping items but did not receive them as donations.

After The Chronicle contacted Mr. Brewer about the discrepancy, he blamed Mr. Feldman, whose contract he ended in mid-October.

Other Groups

Mr. Feldman told The Chronicle that he worked with other nonprofits that recorded those goods as revenue in exchange for paying shipping costs.

Breast Cancer Society, in Mesa, Ariz., recorded $22.8-million in donated medicines from World Help in 2011. Children’s Cancer Recovery Foundation, in Harrisburg, Pa., says it received $4.1-million in drugs from World Help that year.

World Help now says it can only verify $5-million in goods that year.

Both cancer charities work with a company, Charity Services International, that helps nonprofits send goods abroad, according to its president, Roy Tidwell.

He said that Mr. Feldman approached his company saying that World Help had items to donate. Mr. Tidwell said he connected World Help with the charities that were “looking for mission-appropriate donations.”

The groups helped pay for shipping and other costs—according to Mr. Feldman and paperwork Mr. Brewer provided to The Chronicle—and recorded the value of the goods.

As a result of gifts-in-kind, which charities are allowed to count toward their program costs, the cancer groups appear more efficient than they would otherwise.

Breast Cancer Society, for example, reports that it spent 76 percent of its budget on charitable work in 2011. Without revenue from gifts-in-kind, the charity devotes just 9.4 percent.

In an e-mail to The Chronicle, Breast Cancer Society’s president, James Reynolds Jr., said his charity had recorded World Help’s donations accurately.

“This matter has been reviewed extensively by ourselves, third parties, and by independent auditors and verified to be correctly reported by our organization,” he said. He also emphasized the value of his charity’s role in sending gifts-in-kind abroad: “I believe everyone would agree that sending a few thousand dollars of cash to these recipients would not provide the fraction of relief millions of dollars in supplies and equipment do.”

Changed Services

In an e-mail, Greg Anderson, of the children’s cancer group, said his charity was awaiting further information from World Help. He said his group was a victim and questioned how World Help could have allowed the situation to transpire.

Mr. Tidwell said the nonprofits recorded the goods from World Help correctly and “in good faith,” believing the group had the authority to donate them. He said the cancer charities covered many costs that were key to distributing the medicines. Only World Help’s financial statements were mistaken, Mr. Tidwell said.

Charity Services International has in the past marketed the role of gifts-in-kind revenue in helping nonprofits reduce the share of their budget that supports overhead costs.

In a 2008 letter provided to The Chronicle, the company told a nonprofit that for a flat “service fee” of $36,000 to cover shipping, logistics, and other matters, it could send items to Missionaries of the Poor Sisters, in the Philippines.

The charity could also claim the goods’ fair-market value, estimated to be $10-million, in its books.

“This does more than just cosmetically help the percentage of fundraising costs,” the letter says. “The real relief given to the poor and hurting is substantial.”

But Mr. Tidwell told The Chronicle that his company no longer works that way.

In 2010, he said, he moved to South Carolina, bought a warehouse, and changed the company’s services. He said he no longer approaches charities with such offers or provides “turnkey” services of that type.

The company’s Web site says it helps nonprofits “navigate the complex world of overseas shipping,” based on “years developing fail-safe processes and connections across the logistics and charity communities.”

Mr. Tidwell said the work of his company and the charities connected with it is invaluable in getting goods to people in need.

More Scrutiny

Controversy has flared over gifts-in-kind because they are difficult to value, causing federal and state regulators to worry that some nonprofits are overstating the revenue they receive from the goods.

Multiple groups also sometimes claim the value of the same goods, even when they play little role in the items’ procurement or delivery.

Regulators are taking a closer look at gifts-in-kind.

The Internal Revenue Service has said in its work plans that it is making donated items a priority. In 2011, the agency audited at least two big international nonprofits that receive most of their revenue in donated items.

Lower Revenue

World Help initially restated its 2011 revenue by $135-million. At the time, last November, Mr. Brewer said he had documents verifying the gifts from the Catholic Medical Mission Board.

But in its most recent financial statements, World Help lowered its 2011 revenue even more sharply, by $222-million.

Unlike the cancer groups, World Help spends only a small share of cash on fundraising.

Even without the revenue from its donated goods for 2011, World Help “still sends 87 percent of all of its donations to the field to directly assist our partners, a percentage much higher than the national average for nonprofits,” the group said.

Doug Donovan and Suzanne Perry contributed to this article.