Spitzer Calls For Reforms In Charitable Fundraising

State Attorney General Spitzer today released a report documenting glaring problems in the use of "telemarketers" to raise funds for charity, and he announced a major initiative to reform this process. Among other findings, Spitzer's "Pennies for Charity" report revealed the following:

  • More than $188 million was raised in professional telemarketing campaigns for charities in 2000, with the for-profit fundraisers receiving more than $129 million (68.5%) of those funds, and the not-for-profit charities getting less than $60 million (31.5%);
  • There were 586 charitable telemarketing campaigns last year, and in only 16 of those campaigns (2.7%) did the charities get at least 75 percent of the money raised;
  • In over 80% of the campaigns, the charities got less than half of the funds;

Citing lessons from the Setember 11th tragedy, Spitzer said more must be done to ensure that charitable donations go to intended beneficiaries.

"Donors today expect and deserve a level of accountability that simply has not been provided in the past," Spitzer said. "This is a critical moment for the nation's charities. These organizations will not be able to maintain the trust of the American people if they continue to use telemarketers that keep the lion's share of the donations."

The Attorney General was joined at the press conference by representatives of the New York City Police Foundation, the American Institute of Philanthropy and the Better Business Bureau.

The "Pennies for Charity" report uncovered numerous cases in which the telemarketing firms kept over 90% of the money raised; in the most egregious cases, the charities received none of the donations, and even had to pay a fee for the "services" of the fundraisers.

The Attorney General announced a four-part initiative designed to address the problems revealed in the "Pennies for Charity" report:

  • the issuance of subpoenas to several charities and professional telemarketers, which may be followed by legal actions -- possibly including lawsuits for fraud -- against these companies;

  • the preparation of new regulations requiring charities to do "comparison shopping" before contracting with telemarketing firms, and providing that any fundraising contract in which a charity receives only a small percentage of the donations must be approved by a super-majority of the charity's board;

  • proposed state legislation requiring telemarketers to disclose, before accepting any donation, that the potential donor is entitled to know the percentage of funds that the charity has received in prior telemarketing campaigns; and

  • proposed federal legislation providing that, for any charitable solicitation in which the charity will receive less than 50 percent of the funds, only the amount actually remitted to the charity will be tax deductible.

Spitzer noted that even the names of some charitable entities were deceptive -- such as the "New York Police Scholarship Foundation", which is based in Florida and has no connection to the New York State Police, the New York City Police Department or the long-established New York City Police Foundation.

"The New York City Police Foundation is the only organization authorized to solicit funds on behalf of the NYPD, over 75% of our income is used for programs and services, and we never make telephone solicitations for funds," said Pamela Delaney, who is the President of the foundation. "It is extremely frustrating to have a Florida-based entity with a similar name raising funds in New York. The donors think their contributions will benefit NYPD officers, but instead the money is going to the for-profit fundraiser. I fully support the actions that the Attorney General is taking to address these abuses."

Attorney General Spitzer noted that the "Pennies for Charity" report only covers the year 2000, and that information relating to 2001 charitable telemarketing campaigns -- including any campaigns on behalf of the victims of the September 11th terrorist attacks -- will not be available until next year.

"From what we know so far about charitable donations in response to the September 11th attacks, the good news is that most of the money appears to have been raised directly by charities rather than by professional telemarketers," said Spitzer, who is helping to coordinate relief efforts for victims of the terrorist attacks. "However, what has been made clear during the past three months is that the American people demand that their contributions be used for the people served by the charities. My report shows that only 32 cents of every dollar raised in the average telemarketing campaign goes to the charity, and that is totally unacceptable"

"I think New Yorkers would be shocked to learn that when charities hire companies to make cold-call telephone solicitations, most of the money ends up lining the pockets of the for-profit telemarketers, rather than being used for the intended beneficiaries," said Daniel Borochoff, President of the American Institute of Philanthropy, which is a non-profit watchdog group. "Donors can greatly increase the good of their contributions by supporting charities that utilize more efficient fundraising methods than cold-call telemarketing."

Spitzer said boards of directors of charities must start paying attention to these abusive practices of telemarketers.

"The good name of a charity is a valuable asset, and in some cases the boards seem to be 'renting out' the charity's name to greedy telemarketers, in return for a mere pittance of the funds collected," Spitzer said. "These boards owe a higher duty of care to their donors and to the people they serve. At the very least, they should be soliciting bids from telemarketers, and using only the companies that offer the best return."

"Donors deserve a full and accurate accounting of what portion of their donation is going to pay for fundraising expenses." said Ronna D. Brown, President of the Metro NY BBB. "We encourage donors to always ask for this information before they give. Accountability starts with good governance and we support all measures that help Boards understand their responsibilities."

A summary of the major findings in the "Pennies for Charity" report is attached. The report was prepared by the Assistant Attorneys General Karin Kunstler Goldman and Principal Accountant Mark Mahigian in the AG's Charities Bureau, which is under the supervision of Bureau Chief William Josephson.

The "Pennies for Charity" report is available on the Attorney General's website: http://www.charitiesnys.com.

SUMMARY OF THE 2000 "PENNIES FOR CHARITY" REPORT

The "Pennies for Charity" report - which is issued annually by the Attorney General's Office - contains a detailed compilation of every charitable telemarketing campaign conducted in New York State last year by registered professional fundraisers. The report includes: (1) alphabetical listings of charities showing how much each received from telemarketing campaigns conducted on its behalf; (2) alphabetical listings of fundraisers showing the amounts they retained from the campaigns they conducted; and (3) geographical breakdowns showing fundraising campaigns by region.

Some of the most significant findings of the 2000 report include:

  • More than $188 million was raised in professional telemarketing campaigns in 2000, with the for-profit fundraisers receiving more than $129 million (68.5%) of those funds, and the not-for-profit charities getting less than $60 million (31.5%);

  • There were 586 charitable telemarketing campaigns last year, and in only 16 of those campaigns (2.7%) did the charities get at least 75 percent of the money raised;

  • In over 80% of the campaigns, the charities got less than half of the funds;

  • In 17 cases, charities actually lost money under their fundraising contracts, paying a total over $250,000 in fees to telemarketers, who kept those funds plus the more than $850,000 raised from donors in the campaigns;

Examples of specific fundraising campaigns include:

  • The Children's Charity Fund hired a professional telemarketer who raised $1.4 million on behalf of the charity and was paid $1.2 million (86%);

  • The Cancer Fund of America hired three different telemarketers that raised a total of $3,806,761 and kept $3,339,889 (88%), and giving just $466,872 (12%) to the charity;

  • The "New York Firefighters Foundation," which is located in Florida and has no connection to the New York City Fire Department or the New York Firefighters 9-11 Disaster Relief Fund, hired five different telemarketers who raised more than $725,000. The telemarketers kept 90 percent of the funds while only 10 percent went to the charity; and

  • In the campaigns of several well-known charities -- such as the Humane Society of the United States, the National Easter Seal Society, Common Cause, NARAL and the ASPCA -- the telemarketers kept all or virtually all of the funds raised.
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