The implosion of PipeVine, a San Francisco non-profit that collects money for United Way and other charities, is another blow to a sector struggling in an economic downturn.
PipeVine, which shut down Monday, said Wednesday that it recently discovered a ``serious shortfall in revenue.'' It did not disclose the size of the shortfall, but suggested that poor management caused the problem.
The California Attorney General's Office is reviewing PipeVine's operations.
Millions of dollars in donations appear to be unaccounted for. PipeVine said it has not detected any theft or embezzlement.
Yet, whenever non-profits are touched by a hint of scandal, it erodes the delicate trust with donors, and can harm the entire philanthropy sector.
``The issue is people feel their gifts have fallen into a black hole. They don't know where they went,'' said Joe Valentine, who has headed several United Ways in the past, including the United Way of the Bay Area.
PipeVine, which said it has distributed more than $700 million in charitable gifts to 50,000 non-profits, contracted with an array of Fortune 500 companies and non-profits, including United Way of the Bay Area in San Francisco and Network For Good, an online giving portal. PipeVine earned a fee for handling the time-consuming process of tracking employee donations to various charities.
The agency was the invisible hand in the donation business: It handled intricate employee payroll deductions and individual gifts, then delivered that money to the selected non-profits.
In its statement Wednesday, PipeVine said it charged 7 percent of the amount of donations it processed. However, it recently discovered that it cost about 8 percent to 9 percent to process those donations. So, the agency was using money for charities to cover its own expenses.
The sudden shortfall already is hurting non-profits, large and small, coast to coast.
Network For Good, which used PipeVine to direct nearly $17 million in donations to non-profits nationwide last year, said its members may not have received some of the $1.3 million in charitable gifts that were expected in the month of May.
United Way of the Bay Area, which expects to raise $42 million in its campaign ending June 30, does not know how much of that is still outstanding.
``The vast majority has been distributed, we think,'' said Anne Wilson, chief executive of United Way of the Bay Area, which supports 6,000 non-profits. ``But we don't know.''
United Way Silicon Valley, which primarily serves Santa Clara County, might be short as much as $50,000 in donations processed by PipeVine.
``We are going to be able to manage this situation, unless the numbers get a lot bigger,'' said Steve Heath, United Way Silicon Valley's director of community impact and marketing.
Both local United Ways say they will dip into reserves to ensure the non-profits they support are reimbursed for any lost donations.
Sacred Heart Community Service in San Jose estimates it has $2,000 in outstanding donations from PipeVine.
Meanwhile, charities hurt by the agency's demise are hoping to retrieve donations and preserve their most priceless commodity: credibility.
The fact that PipeVine was a non-profit spinoff of United Way of the Bay Area may be yet another black eye for the United Way -- which has struggled through several national scandals in the past. PipeVine shared the same San Francisco office building as United Way of the Bay Area.
When a problem like PipeVine arises, non-profits must work hard to distance themselves from any potential wrongdoing, Valentine said.
Still, ``that isn't going to satisfy the little guy,'' said Valentine, who worked as a consultant to United Way Silicon Valley in 1999 after financial mismanagement nearly led to the organization's financial collapse.
Some charities said the PipeVine failure could cause long-term pain.
``It will destroy our credibility,'' said Ted Barker, bookkeeper with the Korean War Project, an informational clearinghouse in Dallas.
The small non-profit, which receives donations via Network For Good, has about $1,100 in outstanding donations.
``It's only $1,100,'' he said. ``But that's like death for us.''
Network For Good says donations that are not accounted for made through its site -- and PipeVine -- will be reimbursed.
But Barker said his organization's donors, 65- to 85-year-old veterans who often give $10, $15 gifts, ``will not understand why the money didn't get to us.''
Mark Walker, chief executive of United Way Silicon Valley, on the other hand, believes his community will make the distinction between PipeVine's woes and his operation.
``This is no fault of ours,'' he said. ``We are as much a recipient in this situation as any of the smaller charities.''
The underlying issue may rest in the Internet boom.
During the boom, about 100 companies emerged to serve the non-profit fundraising sector.
Now, there are perhaps three or four left, said Joe Haggerty, president of the United Way of Greater Los Angeles. His organization processes its own donations.
One of the biggest collapses came in the spring of 2001 when San Carlos-based Charitableway.com, backed with $43 million in venture funding and run by smart executives, folded.
``It's a business in which you need a lot of money and a lot of technology,'' he said. ``Unless you get every company in the country, you can't get volume enough to make money.''
A $100 donation made through payroll deduction requires 24 payments spread out over a year, explained Haggerty, whose organization handles the accounts of 500,000 individuals.
``We are making millions of transactions a month,'' he said. ``It's complex. It's not like you can do this on your home PC.''