Some charities even lose money when they hire outside companies to drum up donors.
By: Jill Riepenhoff & Lee Zurik
BOSTON, MA (InvestigateTV) – Pearl Cohen became a professional fundraiser to make a difference in the world.
She wanted to raise money for abused animals, terminally ill children, the environment and many other worthy causes.
But she left the industry nearly two decades later disillusioned, disheartened and disgusted.
“The industry is deceptive,” said Cohen, who has been advocating since 2011 for stronger laws to govern professional fundraisers in Massachusetts.
She is outraged by the amount of money that charities receive – or don’t receive – when they hire third-party fundraisers.
Professional fundraisers are for-profit companies that contract with charities to solicit donations by telephone or through the mail.
The industry is loosely regulated and can keep as much as 100% of donated dollars because of a 2003 Supreme Court ruling protecting charities’ fundraising expenses as free speech.
Fundraisers are not required to tell donors how much of their contribution will go to the charitable cause unless they are asked. Even then, their answers can be evasive or misleading.
The industry is exempt from do-not-call laws in most states, allowing telemarketers to phone potential donors at will.
A donation through a single professional fundraiser can unleash an avalanche of telephone calls and mail from other charities that also have ties to that company.
Most states lack laws that prohibit these companies from hiring employees with bad financial histories or criminal records.
Using the subscription-based, public records aggregator Nexis, InvestigateTV reviewed the financial and criminal backgrounds of 182 employees who work at three of the largest professional fundraising companies.
The records show that about 70% of them had either felony convictions or recent financial problems such as judgments, tax liens or bankruptcies. Some professional fundraisers collect the money for the charities, meaning they handle donors’ credit card and checking-account contributions.
The vast majority of the 1.5 million nonprofit organizations in the U.S. don’t use third-party fundraisers.
But nearly 1,400 charities do, according to an InvestigateTV analysis of annual financial reports filed with regulators in 18 states. Some of them are among the most recognizable charities which also have employees devoted to fundraising.
Between 2016 and 2018, professional fundraising companies raised more than $7 billion in the name of charity. But professional fundraisers’ fees and expenses wiped away more than a third of the donated dollars meant for charity, annual financial disclosures show.
“Americans . . . should be suspicious and very careful of the outside fundraiser that calls or contacts them,” said Iowa Attorney General Tom Miller, whose office has penalized dozens of bad actors in the industry. “Legitimate charities should not enter into these deals with outside fundraising groups, in my opinion.”
For some charities, using a for-profit fundraiser may be the only way they can raise money.
“Some nonprofits don’t have the capacity to have a fundraiser on staff,” said Rick Cohen, spokesman for the National Council of Nonprofits, based in Washington, D.C. “They need to make sure that a not-too-high percentage is going back to the fundraiser.”
Pearl Cohen, who is not related to Rick Cohen, discovered that her employer, Share Group, was lying to state regulators about the number of employees it had.
Some states require professional fundraisers to pay an annual registration fee for each staff member who solicits for donations.
Internal documents show that the Share Group was underreporting its staff size. Pearl Cohen alerted state regulators who she said fined the company for the violations.
Nonetheless, she believes there is a lack of policing in the industry.
“It was almost like anything goes,” she said. “There didn’t seem to be much oversight.”
Follow the money
When Share Group suddenly went out of business in 2010, Pearl Cohen set out to learn more about the industry.
She began digging into companies’ annual financial reports filed with the Massachusetts Attorney General’s Office.
These records detail how much money professional fundraisers collected in donations and how much of those contributions benefited the for-profit companies and the charities.
Similar disclosures are required in more than three dozen states.
InvestigateTV’s analysis of more than 9,100 fundraising campaign reports filed between 2016 and 2018 showed that donors’ dollars aren’t fully spent on charitable causes: In many cases, far from it.
Take the American Diabetes Association, for example. Its professional fundraiser InfoCision secured more than $1.2 million in donations, according to the Arlington, Virginia nonprofit’s 2017 IRS tax filing.
But the bulk of those contributions – more than 75% – weren’t spent on programs to battle the disease. It went to pay the Akron, Ohio-based InfoCision’s $930,000 tab.
InfoCision did not respond to multiple requests for an interview. The diabetes association declined to comment about its use of professional fundraisers. It said in an email that it only will talk about the disease.
The Committee for Missing Children is a small charity in Lawrenceville, Georgia that says it helps reunite parents with children who have been taken abroad without permission.
It operates with a $972,000 annual budget, with more than 80% of that money spent on its professional fundraisers.
The executive director of the missing children’s group David C. Thelan declined to talk publicly because of what he called unfair reporting by other news organizations.
California-based Donor Services Group is among the largest professional fundraising companies and conducted the most campaigns, according to the data analyzed by InvestigateTV.
The relationship is not always profitable for the charities.
Of more than 700 campaigns run by Donor Services since 2016 that InvestigateTV analyzed, nearly half ended in losses to the charities.
For example, a filing with Maryland’s secretary of state shows that the company in 2017 raised more than $58,000 for Smile Train, a charity that provides cleft-palate surgeries. But the nonprofit had to pay Donor Service’s expenses and fees, totaling more than $115,000.
As a result, the nonprofit had to write Donor Services a check for more than $57,000. Smile Train did not respond to requests for comment.
Charity watchdogs – including attorneys general – said that charities should not spend more than 20-30% of their budgets on fundraising and administrative costs.
Donor Service’s chief executive officer Thomas Siegel says fundraising and administration should not exceed 15-25%.
But when examining individual campaigns over a 3-year span, his company’s fundraising expenses exceeded that threshold in nearly 90% of the cases, InvestigateTV’s analysis shows.
“You can’t look at it that way,” Siegel said. “The way you have to look at it is: What does the organization spend of (all of) their donations on fundraising and administration across all channels? That should be less than 25%.”
One of Siegel’s clients, the Veterans of Foreign Wars of the U.S., or VFW, spends nearly $70 of every $100 on fundraising, according to Charity Watch’s analysis of the Kansas City nonprofit’s financial records.
In 2017, the organization paid Donor Services nearly $48,000 for “telemarketing and planned giving lead generation,” tax records show. The company’s efforts, however, raised no money for the VFW.
“I’m not looking at their financials every year. That’s their problem,” Siegel said.
Charity Watch has given the VFW an “F” rating. The VFW, which serves veterans across the country, declined to comment.
100% doesn’t mean 100%
Siegel defends the fees paid to professional fundraisers because he said they provide a beneficial service for the charities – a potential new donor pool.
He admits that when his employees call a prospective donor, they don’t tell them how much his company is being paid or what percentage of a contribution will go to the charity unless asked.
“We don’t make that part of the initial presentation precisely for the reason you suspect: Most people wouldn’t contribute,” Siegel said. “We don’t tell them because we’re not asked to tell them.”
State and federal laws are supposed to prevent professional fundraisers from making deceptive claims.
But the issue is murky when fundraisers tell donors that 100% of the donations go to the charity and that they are paid a flat fee for their service. Siegel said his company is paid about $4.50 for every call made.
Donated money makes up the bulk of any nonprofit’s budget. So, fundraisers’ fees and expenses are generally paid though donor contributions.
But regulators require professional fundraisers to report how much money they raised and how much they were paid.
A written script that InfoCision employees used during a solicitation campaign for the American Heart Association in 2017 gave explicit instructions of what to say if a caller asked about how the donation would be used.
“You’ll be happy to know that the contract between InfoCision and the American Heart Association is not percentage based. It’s based on a fixed fee,” the script states.
But the caller also was instructed to say that at a minimum, the charity will receive 40% of the gross revenue.
Even that claim proved off.
The charity’s federal tax return shows that in 2017, the American Heart Association paid InfoCision nearly 90% of the $4.2 million the fundraiser collected in donations.
“Campaigns to acquire and cultivate new donors, such as the campaign conducted by InfoCision, are costlier than those seeking renewal gifts from previously established supporters,” Susan Grant, spokeswoman for the American Heart Association, wrote in an email. “This strategy is used by leading nonprofits and is the fastest and least expensive way to personally contact potential new supports across the country.”
Last year, InfoCision reported to the Illinois Attorney General that it had raised more than $38 million on behalf of 47 charities in 2018. But the company’s fundraising expenses consumed more than 50% of the contributions, state records show.
There’s nothing that regulators can do to force more donated dollars toward charities and away from professional fundraisers.
A 2003 Supreme Court ruling said that how much a charity pays a fundraiser is protected by the First Amendment.
“It’s one of the areas where they’ve gone too far on freedom of speech,” Attorney General Miller said.
Siegel said that 100% of donations collected by his company goes directly to the charities. The charities then later reimburse Donor Services for its fees and expenses.
“Charities should be more straightforward about how they raise money,” Siegel said. “That’s their responsibility, not the vendors that they hire.”
But it’s the vendors who are making those pitches to potential donors.
An avalanche of appeals
While the telephone is a popular way for fundraisers to reach donors, they also connect with them by mail.
They send heart-tugging letters, signed by charity executives.
Mary Ramey received such appeals from the American Diabetes Association weekly – for two years.
“I know you understand the scope of the crisis,” reads one such letter sent by a professional fundraiser but appeared to be signed by the nonprofit’s CEO. “I’m counting on friends like you to help us …more than 30 million Americans currently live with this invisible disease.”
It asks for an “urgently needed gift of $65, $75 or $90.”
In 2017, Ramey made one donation to the diabetes association in honor of a grandson who battles with the disease.
Little did she know, the kind gesture would turn on her.
“They were absolutely relentless asking for more and more donations,” said Ramey, who lives in Dayton, Ohio and donates to more than two dozen charities each year.
With caller ID, she was able to ignore the phone calls, but she couldn’t avoid the mail.
She said she wrote to the diabetes association, asking to be removed from mailing lists. It didn’t work.
Eventually, she filed a complaint against the charity with the Ohio Attorney General’s office which helped her stop the unwanted solicitations.
“Not at gunpoint would I donate to the American Diabetes Association,” she said.
Jennifer Bell faced similar problems when she tried to stop the junk mail arriving daily at an elderly relative’s Long Beach, California home.
“Her entire house was covered in junk mail,” Bell said. “She had been writing checks to everyone – charities real and fake.”
When she died, her life savings of about $150,000 had been depleted, Bell said.
Her relative, who Bell didn’t want to identify for the family’s sake, was a perfect target for professional fundraisers: She had a history of charitable giving.
Siegel said that people who donate to one charity likely will send at least eight more contributions to that charity over time.
It’s also true that a donation to one charity will trigger a request from a different one because professional fundraisers have donor lists from the multiple nonprofits that have hired them.
The donor list of one charity becomes a potential contributor for another.
“Why was a charity targeting an 87-year-old woman?” Bell said. “It’s immoral.”
Attorney General Miller said that senior citizens are especially vulnerable to charitable appeals because they are at home more often, have a strong sense of patriotism and, in some cases, are easily swayed because of confusion or memory loss.
“It’s extraordinarily unfair and abusive,” he said.
Even though Bell’s relative has been gone for five years, the charitable solicitations still arrive.
One recent appeal started, “Because it’s been awhile since we’ve heard from you.”
“That is the disconnect,” Bell said. “These people don’t know who she is. They don’t care who she is. All they want is her money.”
InvestigateTV news content specialist Tess Rowland contributed to this report.
InvestigateTV collected and analyzed annual financial disclosure reports submitted to 18 state government agencies by professional fundraisers over a 3-year period. Those states are Alaska, California, Colorado, Florida, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, New Hampshire, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Vermont. Georgia and Utah wanted high fees for the reports, making these public records unobtainable. Other states either did not require annual financial reports or failed to respond to public record requests.
InvestigateTV also analyzed dozens of IRS 990 tax returns filed by charities and used reports and data collected by Charity Navigator, Charity Watch and GuideStar to build its investigation.
Copyright 2019 InvestigateTV and Gray Media Group, Inc. All rights reserved.