Telemarketers often take
a big bite out of funds they
raise for charities
On its tax returns, the National Federation of the Blind Hawaii states that its primary tax-exempt purpose is "self-help for the blind."
But NFB Hawaii's 2001 telemarketing campaign looks more like self-help for its telemarketer.
>> Charities say telemarketers have much to offer despite of costs.
The charity hired telemarketer David Modansky, who raised $104,702. Of that, $104,156 went to Modansky and his company Ultimate Contact Management, according to the charity's 2001 tax return.
That left $546 for NFB Hawaii.
Modansky, who once did business on Oahu and incorporated his company in New York, could not be reached for comment. NFB Hawaii's board of directors and its lawyers refused to comment.
NFB Hawaii's 2001 campaign illustrates the state's lack of oversight of telemarketers who solicit donations, says a spokesman for the state attorney general, which oversees charities. A telemarketer seeking to raise money in Hawaii on behalf of a local or national charity merely needs to register with the state Department of Commerce and Consumer Affairs and file a copy of the fund-raising contract it holds with the charity.
"In Hawaii, there is no enforcement and there are no penalties for not registering," said Deputy Attorney general Hugh Jones. "Unlike many other states, there is no governmental information for donors to turn to find out what percentage of their donations reaches the charity they want to benefit."
Jones confirmed that the attorney general is investigating Modansky and his fund-raising practices. It is also looking at how NFB classified fund-raising costs on its tax returns. But the attorney general only became aware of the case because of complaints from former NFB Hawaii board members. No state regulatory red flag went up.
"The charity was the victim of abusive fund-raising practices that at present receive insufficient oversight by Hawaii's state regulatory authorities," said Jones.
The Star-Bulletin found that Ultimate Contact was not registered with DCCA and it did not have a bond -- money that could be paid to NFB if the telemarketer did not honor its contract.
Jones said Hawaii needs regulations like those in states such as New York or California, where the results of specific telemarketing campaigns and the split of the proceeds between charity and telemarketer are published on the attorney general's Web sites.
"There are fund-raisers who are active in Hawaii who have enforcement actions against them in other states. But that information isn't out there for Hawaii consumers," said Jones.
He said the Lingle administration has looked at possible legislation to strengthen the state's role over professional fund-raisers.
While telemarketers face little regulation, they are also protected by the First Amendment right to freedom of speech. The U.S. Supreme Court has repeatedly upheld these First Amendment protections, in part because telemarketing on behalf of charities can involve expressing views for a cause. As a result, telemarketers raising money on behalf of charities are exempt from the National Do Not Call Registry that 55 million Americans have joined.
In a landmark case in May, the Supreme Court reaffirmed First Amendment protections for telemarketers, ruling that a telemarketer could not be prosecuted for fraud based simply on taking a high fund-raising fee. In addition, the high court said states could not regulate or set a cap on what percentage a fund-raiser can take.
In that ruling, the high court also made clear the First Amendment does not protect fund-raisers if they commit fraud such as misrepresenting to donors how much of their donation will go to the charity or taking more from the fund-raising campaign than their contract allows.
New York is one of the most vigilant watchdogs with its site "Pennies for Charities" (www.oag.state.ny.us/charities/pennies02/penintro.html).
Other states make annual holiday events of exposing charities and their telemarketers. South Carolina has its annual "Scrooges and Angels" list, and Georgia has "Uncharitable Charities."
Brad Maione, a spokesman for the New York attorney general's office, said: "There's nothing illegal about a fund-raiser taking a big percentage. All we can do is put information out there for consumers and it's up to the consumer to make choices."
Daniel Borochoff, president of the American Institute of Philanthropy, a Chicago-based charity watchdog, said, "Donors need to educate themselves so that they aren't giving to an organization that is set up more as a business opportunity to enrich the fund-raiser than a charity."
"We are having a nationwide plague of charities in this country that are doing very little for real charity," he added.
To get a sense of what telemarketers could be collecting from Hawaii donors, the Star-Bulletin reviewed contracts telemarketers filed with the DCCA in 2002 and 2003 and compared how the pairing of the same telemarketer and same charity fared in New York and California, two states where the results of telemarketing campaigns are published on the Web sites of the attorneys general.
In New York during 2002:
>> Civic Development Group LLC raised more than $2 million for the Cancer Fund of America Inc. The charity received $258,574, or 12 percent of the proceeds. The fund-raiser got the remainder.
In California, the Star-Bulletin found:
>> Civic Development raised $1.8 million for the Disabled Veterans Associations. The Veterans received $180,393, or 9.8 percent of what was raised.
>> Heritage Co. raised $3.4 million for Children's Wish Foundation International. The charity that grants wishes to terminally ill children received $870,875, or 25.6 cents of every donor dollar.
>> Heritage raised $2 million for the Vanished Children's Alliance; the charity received 26 cents of every donor dollar.
>> MDS Communications raised almost $3.6 million for the National Right to Life Committee, which got $1.1 million, or 31 percent.
>> Facter Direct Ltd. raised almost $1.4 million on behalf of the Multiple Sclerosis Association for America, which got $131,556, or 9.4 percent.
>> Facter raised $1.5 million for the Planned Parenthood Federation of America and gave 26 percent, or $382,552, to the charity.
Some charities and fund-raisers say that such Web sites present an inaccurate picture.
>> Heritage raised $130,873 for Children's Wish and gave the charity $34,870, or 26 percent, nearly the same percentage it got in its New York campaign.
>> Facter raised $16,977 for the American Foundation for AIDS Research. The charity received $1,392, or 8.2 percent.
>> Share Group Inc. raised $223,835 for the National Audubon Society, and the charity got $23,826, or 10.64 percent.
>> Facter raised $129,329 for Common Cause, and the charity received 11.35 percent of the proceeds, or $14,673.
Common Cause, a watchdog group that advocates openness in government, said the telemarketing results published on the California and New York Web sites are not an accurate measure of their fund-raising activities.
Spokeswoman Mary Boyle said "these charts are misleading because they only look at part of a campaign, a snapshot of a campaign at one point in time. It's not the full campaign and we wouldn't undertake a campaign that didn't give us a good return."
Errol Copilevitz, an attorney based in Kansas City, Mo., who represents many of the big telemarketers and has argued on telemarketers' behalf in at least two Supreme Court cases said the Web sites "are silly reports based on financial measures" that do not take into account other benefits.
"A telemarketer could call on behalf of a cancer group and deliver a message about not smoking or another group could deliver a message about not drinking and driving. There is a value in that message beyond net dollars (donated). It might be realized as public awareness or in a subsequent donation or volunteer."
Copilevitz criticized state attorneys general "for focusing too much on financial percentages."
He said state attorneys general have "a mother-knows-best attitude that if you are raising money in my state, you are deceiving people in my state who have a right to think that 100 percent of their donation goes to the case. It's easy for them to get a press release out and a big story in the newspaper."
Most charity experts say that, in the end, donors need to educate themselves before they give.
"It's just buyer beware," said Suzanne Coffman, a spokesperson for GuideStar, a Web site that publishes the financials of about 1 million nonprofits.
Coffman said one telemarketing practice GuideStar particularly frowns on is "netting out," in which a telemarketer guarantees a charity a certain amount of money and takes the rest it raises. The telemarketer also assumes all the costs and risk so the charity does not put any money up front.
"The $50,000 the charity gets under that arrangement is like a godsend for them. It's free money," said Coffman "But the telemarketer can raise three times that or more and keep it. How do the donors feel about that? And what does that say about the reputation of the charity?"
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Charity info on the Web
There are many online sources offering information about charities. Here are a few:
>> GuideStar (www.guidestar.com) tracks more than 1 million nonprofit organizations recognized by the Internal Revenue Service. Its searchable database offers financials, including IRS 990 tax forms.
>> Charity Navigator (www.charitynavigator.org) offers an online database of financial information on 2,707 nonprofits. The site has its own rating system of the financial efficiencies of charities and compares similar charities to one another.
>> Charity Watch (www.charitywatch.org) is the Web site for the American Institute of Philanthropy, which offers tips and ratings of charities as well as articles.
>> BBB Wise Giving Alliance (www.give.org) is a site maintained by a group that resulted from the 2001 merger of the National Charities Information Bureau and the Council of Better Business Bureaus' Foundation and its Philanthropic Advisory Service. It has a searchable database with financial information on charities. The site also rates charities on how it performs against accountability standards the organization has set.
>> "Pennies for Charities 2002 Report" (www.oag.state.ny.us/charities/pennies02/penintro.html) is the New York attorney general's Web site reporting results of telemarketing campaigns conducted for charities.