August 13, 1998 | Read Time: 3 minutes
A Tennessee charity and its fund-raising company have agreed to change their solicitation practices and pay a total of $125,000 to settle a lawsuit filed by the State of Minnesota. Neither the charity nor the company acknowledged any wrongdoing.
The United Children’s Fund, in Knoxville, which was accused by the state of sending out deceptive and misleading appeals, accepted a two-year ban on fund raising in Minnesota. The charity agreed to pay $15,000, of which $5,000 will go to the University of Minnesota Medical Foundation for children’s cancer research. The remainder of the money will pay for penalties and the state’s costs in pursuing the lawsuit.
Direct Response Consulting Services, in McLean, Va., which handles fund raising for the charity and had also been accused of wrongdoing, will pay $110,000, $85,000 of which will go for cancer research at the university. The firm was formerly known as the Watson and Hughey Company.
In his 1996 lawsuit, Minnesota Attorney General Hubert H. Humphrey III said that letters sent out by United Children’s Fund stated that the charity was collecting money for a local “children’s cancer drive” and was “committed to fighting cancer in children through prevention, detection, and education.”
But he said the charity’s financial statements showed that contributions had been used primarily to pay for the costs of sending mail appeals that had no educational message related to cancer prevention or detection.
Mr. Humphrey said the charity had raised more than $2.5-million nationally in recent years but had not spent any of the money on programs to prevent or detect cancer in children or to educate the public about preventing or detecting cancer in children.
The United Children’s Fund, said Mr. Humphrey, had filed false and misleading financial reports because it incorrectly calculated the educational component of its fund-raising letters. Using widely accepted accounting standards and policies, charities may count the educational parts of their fund-raising appeals as expenses for running charitable programs.
At the time the suit was filed, the charity and fund-raising company disputed Mr. Humphrey’s charges but vowed to cooperate with the state. In the settlement, they agreed to purge all names and addresses of Minnesota residents who contributed to United Children’s Fund from 1993 through 1996 and to not release the information to others. They are also forbidden from misrepresenting a fund-raising campaign as local when it is not.
After the end of its two-year ban on fund raising in Minnesota, United Children’s Fund agreed to clearly disclose its expenses in future appeals whenever it counts more than half the cost of a solicitation campaign as educational.
Direct Response Consulting Services pledged to obtain from its clients that solicit in Minnesota an annual statement that they have independent and functioning boards; an annual written plan describing the groups’ educational programs; and a statement from charity boards that they approve of each solicitation planned.
A copy of the settlement is available on the Minnesota Attorney General’s World-Wide Web site at http://www.ag.state.mn.us.
