June 21, 2013

The Great American Charity Scam

By Gordon Schnell

You may think you are donating to the worthiest of causes.  What you may not realize, however, is that the bulk of your largesse may never actually reach the intended beneficiaries of your selected charity.  Instead, for thousands of seemingly upstanding charities across the country, most of your contribution is apparently lining the pockets of those maddening telemarketers who have turned charitable giving into a multi-billion dollar industry.  That was the finding of an in-depth study recently conducted by the Center for Investigative Reporting (CIR) and the Tampa Bay Times (TBT).

They spent a year rummaging through mountains of government records on the spending patterns of the nation’s cornucopia of charities.  What they found should give pause to anyone thinking of donating over the phone again.  Nearly six-thousand charities pay for profit telemarketing companies to do their fundraising.  And they pay them a lot.  For the fifty worse charities, which is what the study zeroed in on, the numbers are downright shocking.  According to the CIR/TBT investigation, these scalawags collectively raised more than $1.3 billion dollars over the past decade, only to divert roughly $1 billion of the proceeds to their corporate fund raisers.

When combined with the sizeable outlays they made to their ownership and staff, all that remained to support the good work these charities were supposed to perform was a mere 4 percent of the money collected.  For twenty of the charities in this shady collective, this figure dropped below 1 percent.  Some of the more notable offenders among the featured group include Kids Wish Network, which over the past decade channeled nearly $110 million to its corporate fundraisers and another $4.8 million to the charity’s founder; American Breast Cancer Foundation, which over an eight year period paid $18 million to the telemarketing company owned by the son of the charity’s founder; and the Cancer Fund of America group, which paid $75 million to their fundraisers over the past three years and $8 million to their staff in 2011 alone (which was 13 times more than the charity actually provided patients).

How can these so-called charities be allowed to persist, particularly with their tax-exempt status intact?  Based on the CIR/TBT findings, it is the absence of proper regulation and oversight that is the principal problem.  But not for lack of trying.  Several years ago, many states tried to pass rules that would limit how much money charities could pay their corporate fundraisers.  This would have provided a powerful tool to go after the worst of the lot.  However, the Supreme Court — with the support of some of the country’s most reputable charities — struck down these rules as a violation of the First Amendment right to free speech.

So, regulators are left to go after these charities on a more ad hoc basis.  And it is a task left largely to the states, most of which lack the resources to monitor the thousands of charities operating within their borders.  Florida, for example, apparently has only three investigators responsible for overseeing 16,500 charities.  New Jersey is equally understaffed with only 11 employees overseeing 25,000 charities.  As one former senior charity investigator from Pennsylvania put it, “people out there are overwhelmed and dejected.  They’re trying to keep up.”  Even when a state does come down hard on one of these wayward organizations, they simply close up shop and reopen in another state.  Indeed, among the CIR/TBT’s 50 worst charities, at least 8 of them have been banned in at least one state but continue collecting donations elsewhere.

The big take-away from all of this is to be extra vigilant when donating over the phone.  The CIR/TBT team offers a number of suggestions to minimize the risk of throwing good money after bad charities:

  • Find out who is calling.  Make sure you know whether the caller is a paid telemarketer and whether the charity they represent is legitimate or merely a sound-alike to a well-established group. 
  • Find out where the money will go.  Make sure you know how much goes to the charity and how much goes to the fundraiser and the specific good deeds the charity will finance.  Be wary of vague claims like “promoting awareness” or “educating the public.”
  • Do not get pressured.  Do not tolerate high-pressured sales tactics or unprofessional behavior and never provide personal financial information.  Also, be sensitive to claims that you’ve donated before and to charities that spring up too suddenly in response to current events and natural disasters.

 Of course, the safest option is to avoid donating over the phone to any charity with which you are not familiar.  This will allow you to consult the numerous charity watchdogs that grade charities and post reviews from contributors — Charity Navigator, Charity Watch, GuideStar and Better Business Bureau Wise Giving Alliance.  So the next time those pesky telemarketers call — inevitably during dinner — politely decline and ask them to send you something in the mail so you can do your homework.  If they will not take “No” for an answer, then you can be confident that it is not likely to be a charity worth giving to in the first place.

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If you would like more information or would like to speak to a member of Constantine Cannon’s whistleblower lawyer team, please click here.

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