English: Bernard Madoff’s mugshot (Photo credit: Wikipedia)

Before you give another dime to a charity, take a close look at how the organization oversees and invests the money it receives from donors.  You may be shocked at how irresponsible, or even reckless, charities can be when it comes to managing their investment portfolios.  Don’t be surprised to learn the charity you’re considering is rolling the dice, or squandering its investment assets as a result of back-scratching arrangements involving board members, donors and investment firms. It’s your money and you can do with it as you wish but why give it to an organization that is deviating from its charitable mission?  

Critiques of charities generally focus upon how they spend the money they raise. Charity Navigator, an online rating service (which is itself a charity), reviews charities based upon factors such as a charity’s financial efficiency, program expenses, administrative expenses, fundraising expenses, and fundraising efficiency, as well the charity’s accountability and transparency. All of this information is important to consider.

However, if charities are losing millions annually as a result of mismanaging their investments they should focus more upon management of existing donations, as opposed to soliciting new donor funds. In my experience, not enough attention is paid to whether charities fulfill their fiduciary obligations with respect to portfolio investments under their stewardship.  

Charities worldwide were hit with massive losses and some were forced to shutter as a result of the Madoff Ponzi scheme. You might think that post-Madoff charities have reflected on the organizational weaknesses that led to that disaster and embraced remedial measures with respect to their investment programs that will prevent similar occurrences. If so, you would be wrong.

“The lessons of Madoff have not been learned,” says Ken Berger, President and CEO of Charity Navigator. “The overwhelming majority of boards do not take their responsibilities seriously and many operate like social clubs. Investments are not managed as thoughtfully as they should be—very conservatively and with great care. If the board is asleep at the switch with respect to investments, trust me, they are not minding the store in other areas. Especially in the current economic environment with less government support for charitable causes, squandering precious charitable dollars is unforgivable and is, unfortunately, leading to donor fatigue.”   

Charities continue to pile into high risk, high cost, opaque investments, such as structured notes, hedge funds and private equity and are prone to be victimized by other investment scams because they have failed to acknowledge and address the unique vulnerabilities related to managing the investment portfolios of these types of organizations. Charities are subject to unique pressures, especiallly with respect to their investments.

Any examination of the management of a charity’s investment program must begin with and include a review of the board members and the members of the investment committee of the charity, as well as the investment service providers and investments held.

At the outset, a review of the civil and criminal backgrounds of board members and senior staff may yield surprising results. Charitable fraudsters tend to be recidivists that, apparently due to a lack of scrutiny characteristic of these organizations, escape detection. These scammers don’t seem to be afraid to continue to focus upon the same type of victims, i.e., charities, and find new ways to personally profit. Charities, I guess, are too polite to ask many questions about generous donors – a fact which scammers rely upon. Charities should have background files related to their key officers and board members and update them periodically. Ask for the files, or, given the limited cost, conduct background reviews on your own.   

Members of boards, or investment committees, of charities are often selected based upon, in part, amounts they have contributed to the charities. Social stature may be helpful but, chances are, even if you’re an unknown — give enough money and you’ll soon be asked to join the board.

Understandably, charities need big donors. Less obvious, however, is the fact that donors often need charities to accomplish improper personal business objectives. Such motivations may be less apparent but are not as difficult to ferret-out as you might imagine. In my experience charities often suspect, or even know, when they’re being used by big donors with ulterior motives. However, they may be reluctant to sever the questionable symbiotic relationship until it’s too late.

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WEYMOUTH — Forget the idea that gently worn clothes are the only donations worth giving to organizations like the Salvation Army or Goodwill. Officials are putting out the word that torn pants, sweat-stained shirts, even singleton shoes, are welcome in the recycling world.

The only used textiles that can’t be reused, they say, are those that are wet, mildewed, or loaded with hazardous waste. And the useful items include not only clothing, but also one-eared stuffed animals, faded curtains, and ratty towels and sheets.

“There’s a perception that you don’t give away stuff that’s lousy; that it’s not charity, it’s dumping. And that perception is false,” said Joseph Ferson, spokesman for the state Department of Environmental Protection.

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Recyclers “will take the good, the bad, and the ugly,” said Brooke Nash, branch chief for the agency’s municipal recycling program. “They’ll take everything.”

The new message is part of a state campaign to encourage people to recycle their old textiles the same way they now recycle their paper, cans, bottles, and glass, Nash said.

Weymouth is one of the communities that has taken the new approach to heart; it set up textile recycling bins at all of the town’s public schools this spring and collected 33,825 pounds in April alone, according to Betsy Harris, the community relations liaison for the Weymouth school district.

The schools are paid $100 per ton by a recycling company, Bay State Textiles of Pembroke, which picks up the materials three times a week, Harris said. And the town saves money by not having to pay for disposing of material that otherwise probably would have been thrown away, she said.

“We want to stress that the program is ongoing,’’ she said, and that anyone can drop off textiles in the bin at any of the schools.

Pat Greenhouse/Globe Staff

Steven Hansen, who works for Bay State Textiles, looked over donations left at Weymouth’s Academy Avenue School.

Weymouth began its textile recycling with a contest among the schools, as did Quincy. Abington plans a similar approach when schools reopen in the fall, said the town’s health agent,
Sharon White.

In addition, Bay State Textiles has collection trailers at municipal recycling areas in Abington, Carver, Cohasset, Duxbury, Hanson, Hingham, Marshfield, Plymouth, Quincy, Scituate, Weymouth, and Whitman, according to company founder Paul A. Curry.

The state became interested in textile recycling after a
study of municipal waste last year found that textiles made up close to 5 percent of what was sent to landfills and incinerators in Massachusetts, Nash said, or about 230,000 tons a year.

After meeting with Curry and others involved with textile recycling last fall, and learning that only 15 percent of used textiles were being recycled, Nash said, it became obvious that more could be done.

“That’s a lot of material, it’s easy to handle, and there’s a very mature collection infrastructure in the state,” she said. “You’ve got charities, drop boxes, private businesses, all engaged in collecting the material and they want more of it.

“We just need to close the gap of awareness as to what is a recyclable textile, and that’s what our efforts are all about,” she added.

The Secondary Materials and Recycled Textiles Association, or SMART, also is working on educating the public, especially children in elementary school, according to former president Larry Groipen.

“We believe all this is going to begin with children,” he said. “When a child sees a parent throwing away old clothes, we want [the child] to say, ‘Stop! Somebody can use that!’ ”

Groipen said that 95 percent of used textiles can be reused or repurposed.

The material in the best condition — about 45 percent of the total — is used as apparel either in this country or abroad, he said. Developing countries have thriving second-hand clothing markets with thousands of people employed in cottage industries such as cutting down clothes for smaller sizes, or redesigning them to meet local tastes, he said.

The less pristine material — about 30 percent of recovered textiles — is cut into wiping and polishing cloths such as those produced by Groipen’s company, ERC Wiping Products in Lynn. The cloths are sold to factories, contractors, power plants, schools, repair businesses, or “everybody who doesn’t have a closet and makes a mess,” he said.

The even less appealing material, about 20 percent of the total, is shredded into fibers and used to make such things as insulation, sound proofing, carpet padding, and furniture stuffing, Groipen said. He said even zippers and buttons are reused, sometimes ground up for roofing material. And a company in Arizona specializes in grinding up blue jeans for insulation, he said.

“An average car contains about 50 pounds of recycled textiles. It’s in the door panels, the carpet linings, hood linings, all over the place,” he said.

Pat Greenhouse/Globe Staff

Parent Bonnie Pineiro added shoes, stuffed animals, and clothes to the collection.

About 5 percent of used textiles end up in the trash, he said.

“This is an industry that has been around forever that nobody ever pays any attention to,” Groipen said. “SMART was green before green was smart. We’re the original recyclers.”

He said even he is surprised sometimes by the versatility of the system, noting that there’s a market for single socks, which are ground up and mixed with new cotton fiber to make yarn. And single shoes are wanted, both for people in war-torn countries who have lost limbs, and “as a fashion statement in some areas where you wear a different shoe on each foot,” he said.

“The key is people shouldn’t judge. If your great-grandmother dies and has an attic full of polyester clothes, donate it. It will be put to use,” he said.

Groipen said charities in Massachusetts especially are making it clear that they’ll take far more than “gently worn” goods and will sell what they can’t use.

“That’s not negative because what the charities really need is money to do their good work,” he said. “They’re coming out and saying we’re not only a charity but the gateway to the recycling industry.”

Bill LaBelle, director of operations for Morgan Memorial Goodwill Industries, said he’s noticed that people are realizing that they can donate less-than-lovely apparel. He said about 80 percent of the donations his organization receives — a total of 10,861 tons last year
in Eastern Massachusetts — go to Goodwill stores, including one in Quincy, with the
rest sold to textile brokers.

LaBelle said he could take advantage of the new approach himself.

“When I got out of the Marine Corps, I had camouflage pants cut into shorts and used them around the yard,” LaBelle said. “Once I got done with them, I could still donate those shorts that I made to Goodwill, and also the bottom cuff I’d cut off. And we would then distribute them to a fiber recycler and give them a reuse life.”

Try BostonGlobe.com today and get two weeks FREE.Johanna Seltz can be reached at seltz­johanna@gmail.com.

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