Calling Solicitors to Account

Chronicle ranking of companies assesses value to charities

Americans donate at least $1-billion annually to charitable fund-raising

campaigns run by commercial solicitors, but only about a third of that money ends up in the charities’ hands, a Chronicle study has found.

The Chronicle analyzed computerized financial reports filed by commercial fund raisers and nonprofit groups in nine states: California, Connecticut, Minnesota, New Hampshire, New York, North Carolina, Ohio, Pennsylvania, and Virginia. The records cover both local and nationwide campaigns run from 1995 through 1999 by commercial solicitors, including telemarketers, companies that stage fund-raising events, and those that produce newsletters and other fund-raising publications.

On average, nonprofit groups that hire solicitation companies receive only about 35 percent of the donations collected in their names, the study found. The remainder goes to the solicitors for expenses and profit.

The share of money that nonprofit groups receive from commercial fund-raising campaigns varies, depending in part on a charity’s size and mission. The Chronicle found:

• The smallest charities — those with annual revenue of less than $1-million — received a median of only 29 cents for every dollar raised. That means that in half the campaigns for charities of that size, the nonprofit organization received more than 29 cents, and in half it received less. The largest charities — those with annual revenue of $10-million or more — received a median of 42 cents for each dollar raised. Mid-size charities received a median of 34 cents per dollar raised.
• Groups that provide human services, including those that aid veterans and people with disabilities, had the lowest median returns from commercial solicitors. Veterans groups received less than 17 cents on the dollar, and human-service organizations took in slightly more than 18 percent of the money raised by solicitors. The highest returns went to colleges and universities (62 percent), public-broadcasting stations (60 percent), and arts groups (49 percent).

A solicitation company that returns little money to charity has not necessarily acted improperly. But two-thirds of the solicitors that routinely distribute to their charity clients less than 15 percent of donations have been sued by state and federal agencies on charges of engaging in deceptive practices.

About two-thirds of the money raised by commercial solicitors came from campaigns run locally or statewide; the remainder was donated to drives run across the United States. The Chronicle figured out how much was raised per person in the nine states and used that number to estimate that $1-billion is raised from the total U.S. population.

Approach to Ranking

While the study supports a longstanding contention of the fund-raising industry that the size and type of a commercial fund raiser’s charity clients affect the percentage of donations returned to the nonprofit group, The Chronicle sought to ensure that commercial fund raisers did not receive a high ranking simply because they served large charity clients, or a low ranking just because their clients were small. Therefore, The Chronicle developed its ranking by calculating how much each solicitation company returned to charities of a certain size and type, then comparing that figure with the average percentage return for charities of that same size and type.

Industry officials also complain that the reports many states publish based on the fund-raising data include campaigns that were designed for purposes other than raising money, such as informing the public or testing new donor lists. Campaigns that did not appear to be geared primarily toward fund raising were filtered out of The Chronicle‘s analysis.

Fund raisers that placed at or near the top of the performance ranking include big companies like Levy Pazanti, in Los Angeles, whose clients have included such celebrity-supported charities as the Pediatric AIDS Foundation and the Tiger Woods Foundation, and MZA Events, also in Los Angeles, which organizes the AIDS Walk fund-raising drives around the nation.

But several smaller companies that raise money primarily for local nonprofit groups also had high rankings. Among them are two Virginia companies that raise money for scores of volunteer fire departments and ambulance companies around that state: Mutual Funding, of Fredericksburg, and Volunteer Fund Raising Dimensions, of Dale City.

Expensive Technique

Both large and small fund raisers must deal with the fact that raising money for charity is often an expensive proposition. Commercial solicitors say that fund raising — especially telemarketing — requires hundreds of thousands of dollars to buy telephone equipment, hire people to make the calls, pay the phone bills, send out follow-up mail to donors, and handle donation checks.

If a charity is well-known, a telemarketer has to make fewer and shorter phone calls to raise money, reducing expenses and leaving more for clients, says Errol Copilevitz, a lawyer in Kansas City, Mo., who has defended solicitors in numerous major lawsuits. But with a new or small nonprofit organization, “there’s no proven track record of support,” he says. “If a telemarketer can go out and get a $50-million charity that everybody’s heard of and that has a couple hundred thousand or a million names on their file, that’s much easier work.”

Smaller or lesser-known charities, he says, will be left to hire solicitation companies that are willing to take the risk that donors can be found. “When they take the risk, the cost to the charity is going to be higher.”

Indeed, The Chronicle‘s study supports the idea that many charities with broadly popular, high-profile missions, such as colleges and big arts groups, tend to have contracts under which they collect a significant portion of the money raised by commercial solicitors. One reason is that such organizations tend to have large lists of reliable repeat donors, such as college alumni.

At the opposite end of the spectrum are groups, such as veterans, fraternal, and service organizations like the Shriners and Jaycees, whose missions are narrower or less well-known than those of major arts and education organizations, the study found.

Government Action

Still, commercial solicitors do not always pay low returns to charities simply because the groups are small or new or their missions have a low profile. In some cases, unscrupulous solicitation companies have taken advantage of the difficulties that small charities have in raising funds.

Some government agencies seek to curb such practices. The Federal Trade Commission, for example, is suing Mitchell D. Gold, a telemarketer based in Santa Ana, Calif., for allegedly engaging in a wide range of deceptive practices while representing dozens of small nonprofit groups, and he has been barred from soliciting donations in four states.

And, despite the financial risks inherent in raising money for smaller groups, some commercial solicitors pay low returns to charities even though the fund raisers are able to minimize their expenses and ensure a healthy profit for themselves.

Thomas Buchman, a former owner of a telemarketing firm who is now a consultant to the American Deputy Sheriffs Association, of Monroe, La., says that many commercial fund raisers drastically reduce their expenses by hiring other solicitors, called subcontractors, who do most of the work of calling prospective donors. Those subcontractors, he says, usually are small operators who work out of boiler rooms — places around the country with banks of telephones where high-pressure tactics often are used to persuade donors to give.

Solicitation companies further reduce their costs and financial risk by cutting deals with small charities that otherwise would not be able to afford the services of a commercial fund raiser, Mr. Buchman says.

In most cases, he says, fund raisers hired by small charities promise to pay either a percentage of the donations — often 10 percent of the amount raised from first-time contributors — or a guaranteed sum that usually runs between $1,000 and $3,000 per week. A solicitation company that promises a charity $3,000 a week, Mr. Buchman says, “will call telemarketers all over the country and say, ‘I’ll give you 90 percent if you can raise over $30,000 a week.’ It’s not hard to do $30,000 a week, and the contractor is going to jump at it.”

The solicitation company will subcontract the work in this way to as many as 50 smaller telemarketers, Mr. Buchman says. It can cover the $3,000 it owes the charity with what it makes from just one of the subcontractors, and anything it brings in from the others is pure profit, he adds.

Another way that unscrupulous solicitors take advantage of small charities is by obtaining access to the bank accounts in which donations are deposited.

“They’ll tell the charity, ‘I’ll run the checks through that bank account, and I’ll be a signer and you’ll be a signer, and that way you’ll get your records of everything that we deposit into that bank,’” Mr. Buchman says. “‘If I go over a figure of, let’s say, $30,000, I’ll give you an extra 5 percent or 10 percent.’”

“The charity president thinks that’s a great deal,” Mr. Buchman says. “Here’s what happens: Two weeks later, the telemarketer takes the same paperwork and goes to another bank and opens an account. Now he’s got another bank to run checks through, and you won’t even know about it. As far as the charity knows, he never went over that $30,000 figure, but he might be doing $150,000 and running it through the other bank.”

Meanwhile, Mr. Buchman adds, the telemarketer is telling the charity that he can’t increase the percentage paid to the nonprofit group because he is barely making enough to cover his expenses.

Allegations of Fraud

Many of the commercial fund raisers that ranked lowest in The Chronicle‘s study have been accused of wrongdoing by government regulators. Kerry D’Amato, president of Non-Profit Telemedia, of North Little Rock, Ark., was convicted last week of federal conspiracy and mail-fraud charges in a Dallas court.

Mr. Gold’s companies, North American Charitable Services and U.S. Marketing, also ranked near the bottom of the list compiled by The Chronicle.

Non-Profit Telemedia did not return numerous phone calls seeking comment, and Mr. Gold’s lawyer said his client denies any wrongdoing.

Government Investigation

Another fund raiser that ranked near the bottom in The Chronicle‘s analysis was North American Acquisitions, of Costa Mesa, Calif.

A joint federal, state, and local law-enforcement task force is investigating allegations that North American’s owner, Timothy J. Lyons, helped his former roommate set up a phony church, raised more than $10-million in the names of charitable organizations set up by the church, and then pocketed nearly 90 percent of the funds.

Mr. Lyons’s lawyer, David Conn, said his client is no longer in the fund-raising business, but Mr. Conn otherwise declined to comment. The phone number listed on North American’s state reports has been disconnected.

Network Management Press, of Encino, Calif., has been involved in several controversies surrounding its fund raising for the California Organization of Police and Sheriffs.

Two phone solicitors working as subcontractors for Network Management were convicted of using threats and intimidation to get contributions, telling people that their 911 service would be cut off if they didn’t donate.

Network Management did not respond to numerous phone messages and written requests for comment.

The activities of unscrupulous solicitors have an impact beyond the money that charities and donors lose, says Mr. Buchman, the former telemarketer. The publicity from news articles about such companies, he says, makes it harder for legitimate fund raisers and charities to solicit donations.

The average person ends up thinking that all commercial solicitors are engaged in scams, Mr. Buchman says, but that’s usually not true.

“They’re not scams,” he says. “They are doing good things.”