CHARITY THRIFTS : Donated Goods Form Heart of a Billion-Dollar Family Empire

What some charities are doing “is selling their name for 10 cents on the dollar. They don’t control the store, they don’t hire the solicitors, they just let (operators) use their name.”

In the beginning, the Ellisons salvaged troubled souls. Now they make fortunes in salvage.

A mostly reclusive family of Salvation Army officers turned entrepreneurs, the Ellisons dominate a flourishing multibillion-dollar trade in used clothing and households items solicited in the name of charity and sold in thrift stores heralding the names of those charities.

The family, their associates and former employees who have struck out on their own quietly run hundreds of such stores coast-to-coast and in Canada, unseen by the public or even most government officials charged with regulating charities.

Amvets, Disabled American Veterans, Vietnam Veterans of America Foundation, many Assns. for Retarded Children, the California Council of the Blind and many other charities simply sell the Ellisons and their associates the right to solicit tax-deductible donations of clothes and household goods in the charity’s name.

In return, the charities get a share of the proceeds. But not the lion’s share.

That goes to the thrift store operators, The Times found after examining several thousand charity tax returns and other documents and interviewing more than 100 thrift store operators, charity executives and government officials across the nation.

Public records show that thrift store operators typically make about $1.50 for each $1 the charity gets.

But in one instance, The Times found, two operators from Florida made $2.55 for each dollar that they turned over to charity. The two men, William R. Stinnett and Sandy Satullo, consistently earn a phenomenal 100%-plus annual return on their equity, giving each of their families a million-dollar-plus income from 10 Illinois Amvets thrift stores.

Public records also show that one family member, Matthew Orlo Ellison of Ventura, built a $1.3-million fortune from charity thrift stores in less than six years.

Most charity-connected thrift stores are not run by entrepreneurs. Goodwill Industries, the Salvation Army, Volunteers of America and others run their own nonprofit stores, usually to provide employment or job training for the troubled, and often at a loss. Still other charities, including the American Cancer Society, operate their stores, for profit, with volunteers supplemented by a paid manager and truck drivers.

Charities can own businesses, but federal tax law makes any profits taxable unless the business relates directly to the organization’s charitable purpose. Thus, a health care charity can run a hospital and any surplus or profit is tax-free, but if it owns a pasta factory it must pay taxes on its profits.

However, federal tax law specifies that thrift stores are presumed to relate directly to any charity’s purpose. Critics say that Congress never gave a moment’s thought to how entrepreneurs could profit from this provision. The Ellisons say Congress also never realized that the thrift stores they run could be a bonanza for the charities.

One former Ellison employee, William J. Ashe, owns thrift stores in Burbank and Sunland that sells goods solicited in the name of the California Council of the Blind. When the arrangement began in 1984, the blind council got 4% of the store’s gross revenues, a share since raised to 10%.

George Delianedis, chief investigator for the Los Angeles city Social Services Department, said even that arrangement is more generous than the law requires.

“The law is so weak that Ashe could give them 1% and so long as that is disclosed, there’s nothing we can do about it,” Delianedis said.

“What the California Council of the Blind is doing,” said Robert D. Burns, general manager of the city Social Services Department, “is selling their name for 10 cents on the dollar. They don’t control the store, they don’t hire the solicitors, they just let Ashe use their name.”

Robert J. Acosta, the blind charity’s unpaid president, defends the practice. He said the charity expects to receive more than $100,000 from Ashe this year and called Ashe’s two stores vital to producing a recorded magazine and other services for the sightless.

Ashe agrees. “This is a great deal for the blind council because they don’t have to do anything,” he said, during a tour of his Burbank store at 3226 W. Magnolia Blvd. “I send them a check every month and at the same time we’re creating value out of throwaways.

“To me, this is what the free enterprise system is all about,” he added. “That’s why I named my place the American Way Thrift Store.”

“The business,” as family members call it, began with Ben and Orlo Ellison, sons of Montana farmers who became Salvation Army officers after World War I, quickly gaining note as industrious innovators in church salvage operations, which began in 1897 as a way to put idle hands to work.

The Salvation Army, Volunteers of America (a Salvation Army offshoot), Goodwill Industries and a few other groups known as the “industrials,” sold most of their salvage at the time to wholesale rag and scrap dealers.

Orlo’s son, Ray Ellison of Ventura, recalled that as a boy in the Depression he watched his parents directing teams of men sorting goods at long table. In fact, his father developed the low-cost technique of using color-coded tags to keep track of salvage inventory. “One day, my mother suggested that jewelry, clothing, bric-a-brac, curtains, draperies and other household items might be salable to a needy public as opposed to being disposed of in bulk. That was the beginning.”

Family legend credits Orlo Ellison’s wife, Stella, with coining the term thrift store .

George Duplain, a retired Salvation Army major who wrote the religious group’s manual on how to run thrift stores, recalls Ben and Orlo Ellison as “nice guys, Orlo especially. Orlo was a very astute, very clever businessman. . . . He would have become one of the top leaders in the Salvation Army.”

Eventually, according to descendants and religious officials, the two Ellison majors suggested the Salvation Army replace their meager ministerial pay with performance contracts, paid on the basis of how much money their salvage operations made. The Salvation Army said no. Ben Ellison and the Salvation Army parted ways in 1949. Orlo Ellison left in 1951.

The brothers’ split with the religious group was so deep that they became virtual non-persons to the Salvation Army. Prof. Edward McKinley’s book, “Somebody’s Brother,” an official history of the Salvation Army’s thrift stores, makes no mention of the Ellisons. Salvation Army archives contain only the barest records.

Duplain recalls that “Orlo did his best to talk me into not becoming a Salvation Army officer. ‘George, there’s millions to be made with the public’s concern for the veterans now that the war is over,’ Orlo would tell me.”

Ben opened his first thrift store, in San Francisco, and Orlo started one outside Los Angeles. Together they did well enough that younger brothers, Robert Orville, Walter (Bud) and John soon joined them, expanding the family’s clientele to include Associations of Retarded Citizens. Later generations added Big Brothers and charities serving orphans, the blind and the disabled.

All five brothers are now dead, but today nearly 100 Ellisons, their in-laws, associates and former employees run hundreds of thrift stores in Los Angeles, Ventura, Seattle, Atlanta, Tampa, Denver, Chicago and other cities in almost every state.

Each branch of the family operates independently, with widely varying business styles, according to 10 Ellisons who either spoke to The Times or, declining to be interviewed, responded in writing. Most Ellisons are so anxious to stay out of the public eye that their business telephone numbers often are unlisted.

Tom Ellison, Ben’s grandson and vice president of TVI Inc. in suburban Seattle, said he had hoped to learn more about the business at a 1984 family reunion held at his great-uncle John Ellison’s home in Squim, Wash. About 70 adults, most of whom are in the business, and 80 children attended, he said.

“I wanted to ask my cousins about the business, but everyone is so secretive about just how they operate that no one discussed it,” said Ellison, whose firm is expanding into shopping malls and other enterprises from its thrift stores in Washington, Oregon, California, Texas and the Canadian provinces of British Columbia and Alberta.

From their correspondence and interviews, it is clear all the Ellisons are united in the belief that they are benefactors of society--risking their money to earn millions for charities, creating wealth from discards and providing jobs for unskilled people who would otherwise be on welfare. Most are active churchgoers; all appear to follow the conservative economic principles that the Salvation Army teaches its members, though none is a member of that church anymore. Some pay cash for their houses. Most invest in real estate.

Most “live by the same basic principles; get your buns out of bed, get your work done before the traffic gets too heavy, then go home and enjoy your family. We have few playboys or playgirls; only one that I know of,” wrote Orlo’s son, Ray Ellison of M & M Management Co. in Ventura, who owns or operates about 30 stores.

One key to the business is holding down costs. Ray Ellison wrote that he has about 1,400 people working under him, but “I have never had, and do not permit, any employee to have a secretary. That’s only a necessity for a few people; damn few. For most, secretaries are nothing more than a status symbol with legs.”

Some Ellisons hire most of their workers at minimum wage or slightly above and telephone solicitors often work on contract with no benefits, pay records obtained by The Times show. Ray Ellison of Ventura explained that this provides jobs to people who otherwise would be on the welfare rolls.

“We generate millions of dollars in actual cash for a variety of charities which would otherwise be dependent on the charity rolls,” Ray Ellison wrote. “I happen to think it is a worthwhile project conducted in keeping with a great American tradition.”

In addition, he added, the merchandising techniques are so efficient that “we can generate one million dollars out of the same discards” the traditionals would sell for $300,000.

Taxpayers benefit from this efficiency, Ray Ellison further maintained, because firms like his “contribute to our primary dependent, Uncle Sam,” through income taxes on their share of the profits.

Ben Ellison of suburban Seattle, grandson of John Ellison and part-owner of a chain of thrift stores in Chicago, summed it up best. “The reason we are successful is that we know how to take junk and merchandise it.”

The most successful thrift store operators in America, William R. Stinnett of Coral Gables and Sanford Satullo of Hillsboro Beach, were brought into the business by John Ellison.

The 10 thrift stores they run under contract for Illinois Amvets had sales of $12.6 million in the year ending June 30, 1984, the last year for which public records were available.

Operating costs for the stores that year were $9.8 million, leaving a surplus of $2.8 million. From that, Amvets got $827,000. The Stinnetts and Satullos got the rest, $1.9 million in profits plus another $224,000 in salaries.

This means that for each dollar Illinois Amvets received, the Stinnetts and Satullos got $2.55 in profits and salaries.

On top of that, they got various fringe benefits. John Ellison, who has since died, received a $12,600 consulting fee from their company, Veterans Foundation Inc.

And, according to audits in Illinois public records files, of the $827,711 that Illinois Amvets got, it only spent 29.3%, or $242,665, on its charitable programs that year.

The 10 stores did so well that, without investing any additional capital, the Stinnetts and Satullos earned more than 100% return on their equity each year between 1979 and 1984.

In 1984, Christine Hehmeyer Rosso, the deputy Illinois attorney general who acts as the guardian of charitable trusts in that state, and her chief assistant, Floyd Perkins, began investigating complaints that Illinois Amvets was not getting all it should from its arrangement with the two men. Their inquiry established that Stinnett and Satullo had bought an $83,000 airplane and charged it as a business expense.

Satullo said the single-engine Cessna, which was sold as a result of Russo’s and Perkins’ inquiries, was purchased so Stinnett could conduct aerial surveillance of their trucks to stop thievery by employees.

“We had three drivers who were unloading at one of their houses,” Satullo said. One driver’s wife “had opened a little store and was selling our stuff, so we painted big numbers on our truck roofs. Then we got the airplane and Bill (Stinnett) followed these trucks.”

Perkins said Stinnett and Satullo gave him a similar account. “I don’t see any way you can make an airplane a legitimate expense of a thrift store,” Perkins said. He said they could have rented a plane or even used a car for surveillance.

Following their investigation, Rosso and Perkins negotiated, as the settlement, that a professional fund-raising firm act as a buffer between Illinois Amvets and the two Florida men.

Stinnett defends his profits as only fair.

“It’s our money,” he said. “It was our investment, our buildings, our trucks, our money. What does the charity have in it? Nothing. They just sign on the dotted line and they get paid.”

“What’s the incentive of working all these hours if you are not going to wind up with something in the end?” Satullo asked during a telephone interview from one of his two $850,000 beachfront homes in Hillsboro, Fla. “If you work for a big company you get a pension and stock options. That’s what we worked so hard for all these years, to have something. I gave up a job that paid $200 a week and full expenses in the ‘50s for this and when we started I got, maybe, 50 bucks a week. The charity always got the first dollar.”

Stinnett said in a separate interview that from 1958 to 1961 “the charities got 90% of the income and we couldn’t even get $10,000 a year for ourselves. Sure we have assets today, but it took us years to accumulate those assets.

“After the length of time we have been in the business,” he added, “we don’t feel a bit guilty about the way it works out.”

Amvets Department of California owns two thrift stores in San Diego and one each in Azusa, El Cajon, Fresno and Oceanside. The stores are all managed by Ray Ellison of Ventura, through his M & M Management Co., under an arrangement that pleases both parties.

According to its tax returns, California Amvets paid Ellison’s firm $377,674 in 1982, $420,925 in 1983 and $450,167 in 1984, or about 10% of the gross revenues of the stores.

In 1985, M & M Management’s fee came to $470,582 and the stores generated $593,000 for California Amvets, its tax returns also show. After paying its own internal expenses, California Amvets spent nearly $425,000 on its program of charitable services. Therefore, M & M Management’s fee was $46,000 more than California Amvets spent on its total program of charitable services that year.

Ray Ellison said California Amvets gets a good deal because it lost money on its stores until it retained him. Joseph T. Kolano of La Palma, the volunteer president of California Amvets, agreed.

“We had our own store when we started up and, just like Ray said, we were losing money so we got Ray into the act,” Kolano said.

Ellison’s management company puts up the capital for starting a new thrift store, Ellison explained, thus shielding the charity from any risk of loss. If the store is consistently profitable, he added, he often sells it to the charity, usually in a deal that includes a long-term management contract to make sure the store remains profitable and that he gets paid. His usual management fee, public records show, is 10% of sales; the salaries of his on-site managers are an additional cost to the charity.

Kolano said California Amvets has “considered putting this out to bid” but regards that prospect as unlikely because “this is the best deal we can find.”

Another Ray Ellison client, Disabled American Veterans Charities of Greater Los Angeles, paid M & M Management $116,706 in 1986 and an average of $152,000 in each of the previous eight years.

Jack Kramer, who founded DAV Charities of Greater Los Angeles, said the Los Angeles County Business License Commission, which regulates charities in unincorporated areas, repeatedly “criticized us for paying too much and we were.

“So last March we bought out Ray’s contract and we’re running the store on our own. We’re making (a profit of) about 32%, 36% on our sales, except in Baldwin Park, and we think we’ll do just fine,” Kramer said.

Ray Ellison defends his fees as well justified because, he said, without proper management thrift stores can quickly go broke.

He cited the case of the Disabled American Veterans thrift stores in Denver that his father started in 1951 under contracts that paid the veterans charity 5% of gross sales.

Orlo Ellison “developed a stable and profitable program and in 1956 or 57 he sold it to the organization itself. It was paid for out of subsequent profits without any down payment,” Ray Ellison wrote.

In June 1965, the year after his father died, Ray Ellison said the Disabled Americans Veterans Department of Colorado telephoned him to say its thrift stores were bankrupt, there was $74,000 owed in past-due bills and that the IRS was about to padlock the stores.

Ellison flew to Denver the next day. “I closed all their stores (they had three at the time), threw everything in the dump, canceled two leases and started from scratch. I loaned them $30,000” and wrote vendors promising that they would eventually be paid in full, which he said they were.

John Wiedeman, the Colorado Disabled American Veterans adjutant, said at the time Ray Ellison took over, conditions were even worse than Ellison painted them.

“You really have to be a professional at running these stores,” Wiedeman said. “You can go broke so fast from thievery (by employees) and mismanagement.”

Since then, Wiedeman said, Ellison has run the stores, paying the Colorado DAV 10% of the stores’ $5 million annual gross, providing virtually all of the veterans charity’s income. He must cover his costs and take any profits from the other 90% of store revenues.

Ellison has clients in at least seven states, but he declined to say just how many. Other family members estimate that Ray Ellison, who has gone into semi-retirement, runs 30 stores. Public records show that in 1985 Ray Ellison and his family valued M & M Management Co. at $5 million.

Matthew Orlo Ellison of Ventura, one of Ray Ellison’s four children, got into the business in 1979 at age 24, following college and playing professional golf in the Far East.

By the time he turned 30 in November, 1985, Matthew Ellison was worth more than $1.6 million, he told Los Angeles city officials in a written request for a solicitors’ permit. His listing of personal assets shows that all but $350,000 of his fortune is attributable to charity-affiliated thrift stores.

In addition, he wrote that his younger sisters--Debra Sue Ellison Hill and Sandra Denise Ellison Sponseller of Ventura--owned investments worth $300,000 each in D & D, a partnership that runs an unknown number of charity-affiliated thrift stores. Neither sister is active in the business.

“My brother Mark, I and my sisters are each married, they each own their own homes in Ventura, California. Each of their homes is free and clear of debt,” Matthew Ellison wrote.

In addition, public records show, Ray Ellison bought his Carpinteria home in 1978 for $658,000 cash. In 1984, the Raymond W. Ellison Trust bought, without mortgages, more than $721,000 worth of undeveloped Ventura land. Other records show that this branch of the family also owns hundreds of acres of land, some developed into shopping centers, in California, Florida and Texas.

Matthew Ellison, who declined to be interviewed, was granted the permit he sought to solicit donated goods for D & D’s Valley Thrift Store at 19007 Lankershim Blvd. in the San Fernando Valley. The soliciting is done in the name of the Vietnam Veterans of America Foundation, which gets 5% of the gross with a guaranteed $2,000 monthly minimum.

Ray Ellison noted that he and other operators generally are obligated to pay such minimums even if a thrift store operates in the red.

The Disabled American Veterans thrift store in Pomona has paid exceptionally high salaries to not one but two part-time managers, one of whom is Ray Ellison’s brother.

In 1985, when gross sales were $1.5 million, Robert O. Ellison of Tiburon received $81,938 and an associate, Kingston Horstman, was paid $98,055, both for part-time work, tax records show.

By comparison, the store’s fulltime manager, Carl Anderson, was paid $30,000 that year.

Robert O. Ellison did not respond to repeated requests for an interview. But Horstman contends that his and Robert O. Ellison’s salaries were well justified because the money bought superior management and that translates into more money for charity. He said 25% of the expected $2 million in sales this year will go to the DAV.

“A thrift store is like any other business, you pay for good management and you pay for expertise,” Horstman said. “Superior management makes a difference and the difference here is the charity gets paid one half million dollars instead of $50,000.”

Dennis Joiner, DAV state adjustant, said terms and conditions of thrift store contracts are set by DAV’s national office. “We only give the authority to use our name and get a check each month,” Joiner said.

John Charlton, inspector general of the national DAV, said contracts should provide for no worse than a 50/50 split of profits between DAV and the store operator. How the operator takes out his share--through salaries, fees or in other ways--is not the issue, he said.

Charlton added that he doubts DAV will put operation of its 150 contract thrift stores out to bid “mainly because the people who run the thrift stores are Ellisons or former employees (of the Ellisons) and they are pretty tightknit,” making a bidding process pointless.

Acosta, a schoolteacher who heads the California Council of the Blind, said Bill Ashe’s American Way Thrift Store in Burbank is run with minimum costs so that the maximum possible revenue benefits the blind.

But Ashe’s financial statements show a number of transactions that tend to reduce profitability and thus lessen how much of the gross he can afford to pay the blind charity.

Among them is an interest-free loan of $24,992 from the store to pay Ashe’s personal income taxes. (All but $1,000 has since been repaid.)

The store also owns a 1985 Jaguar sedan and a recreational vehicle. Ashe said he could drive a less expensive vehicle but asked, “what’s the point in working this hard to drive a Chevrolet?”

Ashe gets no salary, but he said he takes more than $1,000 per week for personal expenses.

Acosta said he was unaware of the Jaguar automobile, the recreational vehicle or the nearly $25,000 loan.

Unlike many thrift store contracts, the blind council’s contract does not give it access to Ashe’s books, nor does it require Ashe to have them audited. However, when Ashe asked to renegotiate his contract this year, the blind council asked to see his financial records and he turned them over.

Typically, accountants who prepare unaudited financial statements add a disclaimer. Ashe’s statements all state that they are only “compilations” that are “limited to presenting in the form of financial statements information that is the representation of management.”

But Pyne, Bratton, McMorrow & Blake, the Ventura accounting firm that prepares Ashe’s financial statements, went far beyond this in the cover letter to its Jan. 30, 1985, compilation on the American Way Thrift Store finances, and in an exhaustive statement said Ashe’s records were not kept in accord with generally accepted accounting principles.

Ashe said he gave the accountants his checkbook register and regarded that and daily tapes from his cash registers as adequate financial records for his stores, which now do a million-dollar annual volume.

Last summer, when Ashe wanted to open a second store, in Sunland, the blind council loaned $30,000 to a new limited partnership Ashe formed, the American Way Off-Price Thriftstore. The loan, secured by a second mortgage on Ashe’s Granada Hills home, was for 12 months at 10% interest.

Before the loan came due, Ashe said, he was required to post $20,000 for security on a bond. He got the money from the blind charity, which rolled the balance of his $30,000 loan into a new obligation, he said. Acosta declined to comment on this transaction.

The contract between the blind charity and Ashe makes Ashe an independent contractor and specifies that the stores’ solicitors are Ashe’s employees. However, Section 148 of the state Welfare and Institutions Code prohibits charities from hiring “independent contractors” to solicit donations. That law also requires that solicitors of used clothes and other household “salvage” be employees of a charity.

Acosta said he had no knowledge of the contract details and referred questions to the charity’s attorney, Randolph Skidmore of Napa. In a telephone interview, Skidmore said he believed the contract was lawful but added that “the burden of compliance is squarely on his (Ashe’s) shoulders.” Asked how the contract was negotiated, Skidmore said, “I guess I feel we shouldn’t have to answer any questions” and hung up.

Ashe said he learned recently that the terms of his contract may violate the law and that in renegotiating the agreement he would make sure it conformed to the law.

Because thrift stores sell goods rather than ask for donations of goods, customers need not be told how much of the money goes to charity.

One thrift store operator, promised anonymity, said his best stores would show a 35% profit on sales if the expenses that benefit him, such as his luxury company car, were held to a minimum. Another thrift-store operator said a profit margin of 50% on sales was readily attainable in a prosperous urban area such as the San Fernando Valley.

Thrift stores run on contract typically make a profit of 22% to 27% on sales, according to Ashe, two Ellisons and financial records obtained by The Times. This means that even when a charity gets 10% of the gross from a thrift store it may receive substantially less than half the profits.

Several charity regulators said that the best deal for charities that choose to contract with a for-profit company is a wholesale buy-sell agreement. All cited TVI, Inc., of Bellevue, Wash., firm as a model.

“We put up the cash, we assume all the liability,” said Tom Ellison, vice president of the firm, which public records indicate has annual sales of $25 million. In Southern California TVI operates one store, in Buena Park, which buys, wholesale, items donated to the Children’s Home Society in Los Angeles.

“Basically, there are two sides to this business--soliciting and selling. The way we do it, the drivers and callers work for the charity, which sends us a bill for their pay each month and we reimburse them,” Tom Ellison said.

“We then buy the goods wholesale and sell them in our stores, which have names like Thrift Village. We don’t use the name of the charity in the store. We want to be like Kinney Shoes. They buy goods from wholesalers and unless there is a brand name you don’t know who the wholesaler is,” Tom Ellison added.

In addition, TVI splits each store’s operating profit with the charity 50-50. Tom Ellison said that TVI’s 6% to 7% in management costs come out of its half of the profits.

“We could make a lot more than we do, do what some of my relatives do,” said Tom Ellison’s father, TVI President William O. Ellison. “But I long ago decided I would rather have a sound business that would prosper and grow and do a lot of good than make every buck I could.”

“I am in favor of sound, intelligent regulation of the business,” he added.

For charities hit hard by cuts in government grants and contracts, growing competition for donations and rising demands for services, a thrift store run by an entrepreneur may look like a truly free lunch.

To Goodwill, the Salvation Army and other traditionals it looks like unfair competition.

Nick Panza, president of Goodwill Industries of Southern California, said his charity is steadily losing market share to the aggressive solicitation techniques of contract thrift stores run by the Ellisons and their former associates. If such contract arrangements were outlawed, Panza said, Goodwill could double the number of disabled people it serves in metropolitan Los Angeles.

Dave Cooney, president of Goodwill Industries of America, said, “if the law were changed so a certain minimum percentage had to go to the sponsoring charity, Goodwill would be in favor and we feel, in the long run, it would result in more and better donations to charities that run important social service delivery programs.”

Panza has written to IRS Commissioner Lawrence Gibbs complaining that givers to thrift stores run on contract by the Ellisons and others are eligible to receive an income tax deduction. Panza wrote Gibbs that it is “improper moral judgment” for charities to sell the use of their name for 5% of a thrift store’s gross. He called on Gibbs to develop standards and guidelines for what share of proceeds must go to a charity in order for a donation to be eligible for an income tax deduction.

In reply, Panza got a letter from Claudette Lindauer, an IRS problem resolution technician. The IRS is “unable to render assistance in this area because the IRS does not have the authority to make or change the laws. Only Congress has the authority to change the laws,” Lindauer wrote.

The Ellisons call such complaints sour grapes.

“The traditionals don’t like competition,” according to Ray Ellison of Ventura. “They don’t realize competition has improved their business. We force them into doing a better job of servicing the housewife, processing the merchandise, upgrading their stores, giving the public better quality for fewer dollars.”

Duplain, the retired Salvation Army major, said it is true that the traditionals could operate more efficiently. But he said they could do this only if they focused on profits instead of charitable services to the sick, disabled and needy.

“We plow our surplus--what to the Ellisons is profit--into our ministry and service,” Duplain said. “But if you don’t put anything into a real rehabilitation program and only use 5% or 10% of your revenues for charitable use and if you invoke the name veterans organization , whose emotional appeal is very strong, to get donations then you can be very efficient and make a lot of money.”

FINANCIAL CONTROL OF CHARITY-THRIFT STORE OPERATIONS

Three basic methods of organizing charity-affiliated thrift stores are illustrated below. These methods encompass many styles of operation, providing huge variations in benefits and risks.

1 TRADITIONAL AND VOLUNTEER: Programs that include employing the handicapped, such as Goodwill, Salvation Army and Volunteers of America, and stores run by volunteers with limited paid help

Profits & Assets: All operating profits and accumulated assets belong to the charity. The charity also assumes all risk of losses.

2 WHOLESALE BUY-SELL: The best deal for nonprofit organizations that contract with businessmen, charity regulators say. Used by some Ellisons.

Profits & Assets: Charity guaranteed a monthly income from wholesale sales to privately run thrift store. Sometimes charity can share in thrift store profits. No risk to charity.

3 CONTRACT WITH FOR-PROFIT OWNER OR MANAGER: Typified by Ellisons, these arrangements can offer the greatest profit to businessmen.

Profits & Assets: Usually charity gets 4% -13% of sales, businessman gets all additional income, including assets, and assumes risk of loss. Sometimes charity assumes risk of loss, pays businessman 10% of sales and keeps all profits and assets.

Doug Conner, Susanna Shuster and Nona Yates of the Times editorial library staff contributed to the research for this article.