Monday, August 1, 2005

The fundraising arm of Children’s National Medical Center has scrapped its vehicle-donation program amid a dispute with a company that it says diverted hundreds of thousands of dollars, used money for personal expenses and caused the nonprofit to file incorrect information on financial reports.

Last week, the Children’s Hospital Foundation asked a federal judge to issue a default judgment against Charity Vehicle Services Inc. and several of its executives in a civil lawsuit that the nonprofit foundation filed earlier this year.

The suit seeks nearly $700,000 in recompense for losses.

The foundation, which raises money for pediatric health care, says that Charity Vehicle Services misled hospital officials about the proceeds that it collected in 2002 and 2003, tried to cover up a massive accounting shortfall and used some funds to expand unrelated business.

The foundation also stated that funds were “diverted from, or not deposited into, escrow accounts established for Children’s.”

In response, Charity Vehicle Services’ chief executive, Gregory C. Babcock of Vienna, Va., stated in legal documents he filed last week that he served as president and chief executive but “did not have any proactive role in the day-to-day operations of this entity.”

However, Mr. Babcock stated that two other company officials who are named as defendants — chief operating officer Richard Murray of Texas and chief marketing officer Daniel T. Corrigan of California — charged more than $750,000 on company charge cards and might have used corporate funds “for their own personal benefit.”

Mr. Babcock also stated in legal filings that any fraud or embezzlement in connection with the vehicle-donation program occurred without his “knowledge or consent.”

Telephone messages left at Babcock Advertising Inc., which also is a defendant, were not returned last week. Yesterday, a person who answered the telephone at Mr. Babcock’s residence hung up on a Washington Times reporter.

Mr. Corrigan declined to comment when reached by telephone at his home in California last week.

“I’m not affiliated with them anymore,” he said.

Reached at his home in Texas yesterday, Mr. Murray said that Charity Vehicle Services did not have its own credit cards, but that the company reimbursed him and Mr. Corrigan for business expenses that they incurred on their own credit cards.

“People are finger-pointing in order not to be left with their own issues,” he said. “Mr. Corrigan and I were out of the company when a lot of this came down.”

Mr. Murray said he cannot afford to hire a lawyer. He said he has filed a response to the foundation’s lawsuit, but sent the document to a judge by mistake. He declined to provide a copy of his response to The Times yesterday.

The foundation filed a lawsuit against Charity Vehicle Services in U.S. District Court in January, accusing the company of fraud, unjust enrichment and breach of contract.

The foundation contracted out its charitable vehicle-donation program to the Fairfax-based Charity Vehicle Services on a trial basis in December 2001 before signing two one-year agreements with the company, court records show.

Vehicle-donation programs are common among charities, which solicit the cars and trucks, usually by touting the tax benefits of doing so. Most nonprofits then outsource the towing and selling process to private firms in exchange for a percentage of the final sale price.

Under the first one-year deal struck in 2002, the foundation said it provided the company with a budget of $750,000 — $625,000 in advertising and $125,000 for management fees — to be rolled over from year to year. The foundation stated that it received a check in the amount of $329,000 in June 2003 from the company for 2002 vehicle donations.

Charity Vehicle Services officials in July 2003 told the foundation that an escrow account holding its funds had about $608,000, according to the lawsuit.

But things began to unravel shortly after the foundation and Charity Vehicle Services signed a second one-year deal in 2003.

The foundation stated that the company did not respond to a request for an end-of-year audit. The foundation then demanded bank statements. In March 2004, the foundation said it learned that the escrow account actually had a balance of $150,830.53.

If that’s true, the lack of accurate financial information caused the foundation to file incorrect figures with the Internal Revenue Service, The Times found.

According to a copy of the foundation’s 2002 federal income-tax-return statement reviewed by The Times, accountants for the foundation listed “escrow car program” as an asset holding a book value of $608,082.

Hospital spokeswoman Lynn Cantwell said last week that a number of factors led to the decision to discontinue the hospital’s car-donation program, including the financial questions about Charity Vehicle Services.

She said the hospital has no immediate plans to resume the program, “but we’re not closing the door.”

Harvard E. “Pete” Palmer, co-founder of the California-based Vehicle Donation Processing Center Inc., which operates donation programs nationwide, said, “Malfeasance is very, very rare” in the industry.

The Government Accountability Office last year reported that there were about 4,300 charities with annual revenue of $100,000 or more operating vehicle-donation programs nationwide.

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