News and analysis
December 12, 2014

Report Slamming Savers LLC Prompts Pivot in Handling of Donated Goods

Several nonprofits that use for-profit companies to collect donated goods say that they will look more closely at such arrangements, following a Minnesota decision that called for Savers LLC to change its business practices.

Minnesota’s Attorney General’s Office filed a compliance report in November stating that "Savers mixes its identity with that of the charities and fails to disclose the amount of a donor’s donation that is received by the charity versus the amount that is retained by Savers, a for-profit corporation."

The Seattle-based company earns more than $1-billion annually from sales of donated goods at its 330 thrift stores in the United States, Canada, and Australia.

Savers and its subsidiaries solicit donations of clothing and household items on their own and through several charities across the nation, including several in Minnesota. The company pays charities a fee up front for the items it collects, and then sells the goods to the public for a profit.

Lori Swanson, Minnesota’s attorney general, and her staff found that the company had failed to pay for at least $1-million worth of donations earmarked for charities last year. The investigation followed complaints from citizens who said they were confused about who was calling them for donations — the charities themselves or Savers, a for-profit entity.

"We don’t know the entire scope, to be honest," says Ben Wogsland, a spokesman for Ms. Swanson, adding that the dollar figure related to the donated goods could be higher.

Watchdogs on Alert

The compliance report gives Savers 45 days to develop a plan to change the way it accounts for donations. If it fails to comply, the state can take legal action.

A spokeswoman for Savers says company officials will not comment until they have delivered a response to the Attorney General’s Office, which is due January 1.

The Epilepsy Foundation of Minnesota, for which Savers collects donations, had no comment on the company’s practices, according to a spokeswoman for the group. Representatives from two other charities for which Savers collects donations — the Lupus Foundation of Minnesota and Vietnam Veterans of America — did not respond to a request for comment when contacted by The Chronicle.

But another charity with a business relationship with Savers, Disabled American Veterans–Minnesota, says it worries that its reputation has been unnecessarily tarnished by news accounts of the attorney general’s action.

"The media took the AG’s report and spun it into a 30-second news blip," says Joshua Vrtacnik, the group’s deputy adjutant.

Disabled American Veterans–Minnesota does not use Savers to pick up donated goods, as the other charities do, though it does contract with the company to collect goods at on-site donation centers throughout the state. The charity tells donors up front that it is paid a fixed rate per pound of donated goods, and that the total amount of those donations goes to its programs to help veterans.

"We thoroughly evaluate detailed reports of all deliveries of donated goods made to Savers," adds Mr. Vrtacnik. He adds that the charity will not make immediate changes in its relationship with Savers while it awaits confirmation that Savers has met the requests from the Attorney General’s Office.

National Problem

Several companies around the nation mirror, if not mimic, Savers’ business model, but Mr. Wogsland says that none of them were subject to investigations in Minnesota. "We never received calls about other companies," he says.

Still, charity watchdogs say the Savers case illustrates a problem nationwide. Donations collected by private companies often aren’t properly tracked, there is little accountability or oversight of their operations, and inventory can be uneven. Even though the federal government cracked down on abuse surrounding the sale of donated cars several years ago, it has done little to rein in a growing for-profit thrift-store industry that relies on items that are donated to charities, says Daniel Borochoff, president of Charity Watch, which monitors the workings of nonprofits.

"Because charities may not be getting what they’re entitled to from donations, we’re basically subsidizing these companies with our tax dollars," he adds. "There really ought to be a law to cover higher-value donated items so that the charity receives close to their full benefit for them."

Thrift stores grew in popularity following the economic downturn, and private companies have looked for ways to fill their shelves, including by courting charities, Mr. Borochoff adds. Often, they make deals with organizations that favor the company — to the detriment of the organizations.

"We see deals where the charity receives no benefit for donations that aren’t clothes," he says. "Why would charities want to participate in that?"

Charities would do well to review their agreements with companies to make sure their donors’ wishes are being honored, Mr. Borochoff says.

‘Questions From Donors’

One East Coast company, GreenDrop, picks up goods earmarked to benefit a handful of charities and also collects items donated at drop boxes. People who make donations receive a tax-deduction receipt, while GreenDrop resells the items through a chain of thrift stores in Maryland, New Jersey, and Pennsylvania.

The company says it paid more than $2.25-million in 2013 to charities that hired GreenDrop to pick up donated clothes, furniture, and other used household goods. It has avoided the scrutiny of regulators by regularly auditing its accounting practices, says Greg Matusky, a spokesman for GreenDrop.

"We are fully confident in the way we account for and allocate the donations we make to our partner charities, and we have worked long and hard with legal counsel and our partner charities to fully comply with state and federal regulations," Mr. Matusky says.

Still, charity leaders who deal with companies like GreenDrop have raised concerns, especially after the Savers report.

"When a nonprofit does not have total control of its fundraising efforts, this naturally raises some questions from donors," says Steve Ruckman, executive director of the Military Order of the Purple Heart Service Foundation, which uses GreenDrop to pick up donated goods.

Though he wouldn’t specifically discuss the charity’s relationship with GreenDrop, Mr. Ruckman says his organization is moving more of its overall fundraising operations in-house, "so we can reassure our donors that donations are being used the way they were intended."

More Vigilance

The Society of St. Vincent de Paul of Philadelphia, a social-services charity, began outsourcing its goods collections to GreenDrop in September. Since then it has received an average of $850 a week from the company for goods collected in the charity’s name. (The company pays charities a flat rate per each skid of donated items.)

Although the group is happy with the arrangement so far, the Savers matter has given it pause.

"Obviously, we should be cautious — it makes us more vigilant," says Larry Huber, president of St. Vincent de Paul’s Philadelphia chapter. "It’s a good example of how we need to keep an eye on how things are accounted for. We’ll make a point of reviewing the relationship every year."

But the organization has no immediate plans to alter its arrangements with GreenDrop. It believes the company is working in good faith and effectively converts used goods into charitable cash.

"We ran our own thrift stores in the area here, but we weren’t very good at it," Mr. Huber says, adding that years of mismanagement and an employee who stole cash from the stores resulted in the squandering of many donations. "Having someone else do this for us seemed attractive, and we were aware that GreenDrop had had success collecting items for other charities in the Northeast."

For-profit companies can benefit organizations that aren’t equipped to handle crates full of donated items, adds Chris Danielsen, spokesman for the National Federation of the Blind, another GreenDrop client.

"The operation of retail stores is not a business we have an interest or expertise in," says Mr. Danielsen. "We use outside agents when we feel it is most efficient."