Locks of Love Tangled in $6 Million Dispute

May 16, 2013— -- Locks of Love, a charity that makes wigs for children with alopecia and cancer, has become entangled in a dispute with a self-appointed watchdog that claims the charity is wasting millions of dollars worth of donated hair.

Nonprofit Investor claims it has tried to comb through the records of Locks of Love but has found few documents.

It therefore estimated that the charity accepts 104,000 hair donations per year, enough for more than 2,000 hairpieces, but made only 317 custom wigs in 2011. Nonprofit Investor calculated that a hair raising $6 million worth of donations were wasted or not being used.

"I have no idea where that number came from," Locks founder Madonna Coffman said referring to the estimate that she receives 104,000 hair donations a year. "We never in 15 years have counted hair donations, and I explained that to him."

"When hair donations come in, they're opened and put in color bins, and we don't count them," said Coffman, who founded the group in 1997 after her daughter lost her hair to alopecia. "I don't have the staff for that. I don't know what the purpose would be to count hair donations."

"We made 317 that year because we had 317 requests," Coffman said. Some of the donated hair is sold to finance the making of its custom wigs. It sold $500,000 worth in 2011, Coffman said. The unused hair stays in inventory until a request comes in, she said.

Nonprofit Investor used a line from a 2004 USA Today article that said Locks of Love received "2,000-3,000 donations a week." Nonprofit Investor used the lower of the two numbers -- 2,000 -- and multiplied it by 52 weeks in a year to conclude that Locks of Love receives 104,000 hair donations a year.

Nonprofit Investor is a 2-year-old group attempting to find its niche among nonprofit evaluators like Guidestar and Charity Navigator. Nonprofit Investor has evaluated about 60 nonprofits under founder Kent Chao, who graduated from University of Texas in 2006. This is the organization's first negative evaluation.

Chao said he was comfortable relying on the 2004 USA Today article, and called the fact that Locks of Love doesn't count its hair donations "troubling."

Coffman also said that Nonprofit Investor disregarded her explanation.

Coffman said she didn't hear from Chao's organization until February when it emailed an early copy of the report to info@locksoflove.org, a mailbox Coffman said is so full that it's lucky anyone saw it. She offered to answer questions, but said Chao only asked her two: how much hair Locks of Love receives and how many wigs it made in each year from 2004 forward.

"The information I gave him was truthful and accurate, but it did not support the report he hoped to release so he elected to ignore it," she said.

Chao, however, said he reached out to Locks of Love many times but never heard from anyone from the organization until a lawyer threatened to sue if they published their report.

Fraud investigator Gerard Zach reviewed Locks of Love IRS 990 Form and told ABC News that the rules for gifts like hair "aren't as clear as they could be."

Zack said he doubts the organization has $6 million worth of unaccounted hair, but said its IRS Form 990 was "a bit messy."