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Cancer charities scam: 5 reasons why it took the feds so long to catch on

In this December, 2009 photo, James T. Reynolds Sr., president of the Cancer Fund of America, looks at photos in Knoxville, Tenn. Reynolds and his family used much of the $187 million they collected for cancer patients through charities such as the Cancer Fund of America to buy themselves cars, gym memberships and take luxury cruise vacations, federal officials alleged Tuesday. (Adam Brimer/Knoxville News Sentinel, via AP)

The Federal Trade Commission's civil complaint against a group of four cancer philanthropies alleging that they bilked donors out of $187 million sent a chill through the nonprofit community. The government alleged that the scheme was run by a single family through charities known as the Cancer Fund of America, the Children’s Cancer Fund of America, Cancer Support Services, the Breast Cancer Research Society. For many industry insiders, the fact that the scheme was able to go on for so long -- for four years from 2008 to 2012 -- was more alarming than the misdeeds themselves.

Here are five reasons why the perpetrators were able to evade notice by the federal government for so long:

1. The government is overwhelmed. The number of public charities has soared in recent years thanks to easy access to technology. In 2000, there were 643,000 charities registered in the United States. As of April 2015, there were 1,050,318. The Internal Revenue Service made it even easier to set one up last year by introducing a three-page electronic version, 1023-EZ, of the registration form. It approved 94,365 applications in 2014 -- more than double the previous two years. "It’s easier to get set up and get going than ever before. Everybody seems to have a pet project these days and a charity to go with it," said Sandra Miniutti, chief financial officer for Charity Navigator, an independent group that rates nonprofits.

2. The names of cancer charities, even legitimate ones, are confusingly similar to one another. One of the sham charities was known as the Breast Cancer Society. One of the most respected breast cancer charities in the country is the New York-based Breast Cancer Research Foundation. Others nonprofits raising money for the cause include the National Breast Cancer Foundation,, the Breast Cancer Alliance and the National Breast Cancer Coalition Fund. The Breast Cancer Research Foundation on Tuesday sought to disassociate itself from others in the space, pointing out that it is “the only breast cancer organization in the U.S. rated A+ by CharityWatch and holding Charity Navigator’s highest rating of 4-stars 13 times since 2002.” BCRF president Myra Biblowit said in a statement that “it is vitally important that donors utilize established charity watchdog organizations to vet non-profits for transparency and efficiency.”

It’s prudent to check out any charity before donating money. Here are five tips to remember before you decide to give. (Video: The Washington Post)

3. The IRS is disincentivized from pursuing cases against charities. When the government puts its resources into investigating corporations or individuals, the potential payoff is often significant: revenue from unpaid taxes or interest and penalties from guilty parties that can be worth millions, said Patrick Rooney, a professor at the Indiana University Lilly Family School of Philanthrophy. But if they find fraud in nonprofits, it’s often unclear where they money will go. Ethically, experts say, those funds should be given back to donors or another charity with a similar cause.

4. They used aggressive telemarketers. The four charities targeted by the FTC used contractors that made multiple calls to the same households. The use of professional fundraising companies by charities has been controversial in the nonprofit world for many years. In many cases, they pocket 85 cents to every dollar they raise. In a case before the Supreme Court in 1988, these telemarketing companies challenged a state law that required them to tell people they were calling how much of the money they were raising actually went to the charities. The companies argued that this was a free speech issue and that the requirement was tantamount to censorship. The high court sided with the companies  — opening the doors for a lucrative industry that has become a key part of how charities, especially start-ups, operate these days.

5. A cause that tugs at the heart strings. Approximately 40 percent of Americans will get some type of cancer in their lifetime, so it's likely that a person who received a call was either suffering from cancer him or herself, or has a family member or friend with the disease. “Let’s face it. If you’re giving a small gift you’re not going do a lot of due diligence. They were milking the goodwill of donors," Rooney said.

Full story here: Cancer charities bilked donors out of $187 million, government says