Here’s your disturbing wake-up call for Monday, September 17th — and for the rest of this year no doubt.
An almost tsumani-like wave of major media stories on questionable nonprofit practices has hit the shores of our sector and shows no sign of quietly fading away. Great damage is in store for our sector. And the time to take thoughtful action is – NOW!
Some of the stories involve, at best, unseemly and possibly illegal activity like board self-dealing, fraud and misrepresentation, and questionable accounting. Others go to the complex and little understood issues of the cost of fundraising, the veracity of fundraising messages, and the amount of money that actually ends up fulfilling organizations’ charitable purposes.
We’ll get into a lot of this in future posts. For now, the purpose of today’s post is to alert you to the fact that despite the reality that your organization, your fundraisers, your consultants, accountants, lawyers and board have done everything by the book, you need to be ready to explain – with full transparency — how your fundraising business is conducted.
I’ve listed some of the most recent media stories below. I urge you to read or watch the links because each is instructive for one reason or another. Some for the absolute need for transparency in your business affairs. Others for the requirement that every organization make clear how donors’ funds are being used, when and for what purpose.
In these stories you’ll find a lot of ‘insider’ explanation of why this or that practice is justified … why this technique is used and why it works … why, why, why. The rationalizations and justifications by the insiders inside our sector.
ITEM: “IRS forms show charity’s money isn’t going to disabled vets”
On May 3rd, CNN aired the first of what would be a series of investigative reports into the fundraising practices of the Disabled Veterans National Foundation (DVNF), reporting that although nearly $56 million had been raised for the charity, little or none of the money was ever used to help disabled vets, and that the direct mail fundraising firm Quadriga Art was paid nearly $60 million. That report triggered an investigation by the U.S. Senate Finance Committee that is ongoing.
ITEM: “Little of charity’s money going to help animals”
In June CNN Investigative Reporter Drew Griffin and Producer David Fitzpatrick continued to pursue the DVNF story, but widened the scope of their investigation to report on a similar financing pattern between Quadriga and an animal charity, SPCA International. In that case CNN reported that most of the $25 million raised went to pay Quadriga.
The CNN investigative team didn’t stop there. They also publicly exposed the potential trickery and fuzzy accountability too often found where Gifts-In-Kind are involved. See that CNN report here.
NOTE: The Agitator commented on all this in our Post of June 15th titled: 11,500 Bags of Coconut M&Ms & $57 Million, as did a spokesperson for Quadriga Art.
See also the August 16th piece by the Chronicle of Philanthropy on all this.
ITEM: “Vets Charity Accused of Illegal Accounting Practices”
On August 8th the California Attorney General filed a civil complaint against Help Hospitalized Veterans, a number of its directors, its accounting firm Frank & Company, and its fundraising consultant Creative Direct Response (CDR), claiming “misrepresentations in solicitations”, “aiding and abetting a breach of fiduciary duty”, “engaging in self-dealing transactions” and “excessive executive compensation” … among other allegations.
In her lawsuit, covered also by the CNN Investigative Team, Attorney General Kamala Harris seeks both exemplary and punitive damages, restitution and the removal of the officers and directors named in the lawsuit. You can find the Attorney General’s announcement and a copy of the Complaint here.
ITEM: “Charities Deceive Donors Unaware Money Goes to a Telemarketer”
Then, no sooner was Labor Day behind us than the drum beat began again. This time it was Bloomberg News weighing in with a story on what it reported as high-cost telemarketing practices by some of the nation’s largest charities – American Diabetes Association, American Cancer Society are named along with American Heart Association, American Lung Association, American Society for the Prevention of Cruelty to Animals, March of Dimes Foundation and the National Multiple Sclerosis Society — that leave donors feeling betrayed.
The telemarketer in question in this particular story is Infocision, but when you listen to the comments of Ken Berger of Charity Navigator you’ll see how the concern is not limited to just that one company.
Take time to read the Bloomberg story carefully and you’ll see the range of opinion lining up to take on the Battle for Transparency.
And, tragically, in the rest of the stories you’ll find almost no mention of the most important factor in the strength and success of the independent nonprofit sector — the donor. Each of these stories is a sad commentary on how some – in the name of ‘money’, ‘technique’, ‘that’s the way it works’ rationalizations — have turned their backs on the donor.
And now, we’ll all pay the price. As well we should.
Whether it’s the trade organizations like the DMA, the AFP or others who have been less than vigilant or outspoken … or consultants who turn their backs or even play into the practices … and yes, even ‘clean’ and ‘transparent’ charities who stand by in silence, not demanding better, more transparent practices from their peers … there is a complicity that will drown us all unless we put the interest of the donors front and center where they belong.
Roger
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Well said, Roger.
Roger, Thanks for today’s post and noting these recent article as I am passionate about this issue. It is important for nonprofit staff to read these and, as you suggest, take them to their CEO. But it is also imperative that all personnel at every consulting agency in our sector read these and examine their own practices, those of the vendors they partner with and the organizations they serve. All of us who care about the world we live in and devote our time, talent and energy to the organizations that make a difference must self regulate and scrutinize our own practices as well as that of the groups we serve and the vendors we choose. Every day we ask the average American to dig into her or his pocket and make a gift – many times a sacrificial gift – to a cause we believe in and care about. We owe every person who responds to letter, call, email, ad, post, and/or personal request for a donation or action to a nonprofit organization our very best and that is, first and foremost, the knowledge their gift was requested with integrity and will be used with outstanding stewardship. if not, then we have failed not just the donor, but ourselves.
Great post Roger.
This kind of thing is happening in Canada as well and it’s very worrying. Probably even more worrying though is the the media is eating it up! It’s become sensationalized… they twist the facts to paint a very grim picture of the entire nonprofit sector in Canada using a few shocking examples of overspending. Here’s an article I wrote about it: http://sumac.com/cbc-investigates-nonprofit-spending-on-private-fundraisers
It’s so important for nonprofits to be aware of what’s going on here. This “tsumani-like wave” is giving way to a population of donors who are more weary about giving to charity. The whole sector has been chastised. I see it everyday… people say, “I’m not giving to charity. I see how they really spend the money.” It’s very, very scary!!
There is something nonprofits can do, though. I think nonprofits need to aggressively work towards 1. Insuring money is managed properly and DOES in fact go to the right place, and 2. Being fully transparent so donors know that their donations are used as intended.
Jenny
The biggest thing I see here is again it is the big, millions of dollar charities that are being deceptive. It is because of ones like American Res Cross and United Way National that small nonprofit like ours can’t afford and audit anymore. The more transparency required, the harder it is for small grassroots nonprofits to stay in business. And the bad publicity there is out there, the more it affects donors and their desire to continue giving. Reality is, there are more nonprofits unable to afford marketing companies, telemarketers and fundraising professionals then the big ones causing all the bad press. But the effect on us is just the same but so much harder for us to recover from. Maybe the government needs to separate the huge top heavy ones from those of us REALLY trying to make a difference in the lives of the people we serve.
Let’s say the XYZ organization has a fundraising budget of $5 million dollars. They divide that up by various solicitation programs, some for new donor prospecting, some for donor renewals and upgrades, some for stewardship. And let’s say that they raise $25 million a year.
Much of the money goes to vendors, like printers or the post office. Some of it goes to outside firms like telemarketers or direct mail houses. But when it washes together, the fundraising overhead is 20% which isn’t really anything to get upset about.
Now, they may be running lots of different programs where the specific overhead percentage varies greatly. For example, maybe that special event uses 50% of the donors’ gift on expenses. Or maybe the net from the event is even less. But because the event isn’t run by an outside vendor that is required to register with the state attorney general, the charity doesn’t have to do a calculation for the donor to explain what portion of that event is spent on the costs of the event, like they have to do when they hire a telemarketer.
Virtually all of us in fundraising that have worked for very large, and even smaller organizations know that most mass media acquisition campaigns – print, television, direct mail, telemarketing — may not even break even. But hopefully, in the overall long-term picture, lost donors are being replaced, and enough new donors are renewing their gifts that the organization continues to grow the revenues for their cause. At most of this at a reasonable and acceptable rate of return when you aggregate all of the giving and expenses.
Perhaps the right answer to the above is:
“All of the money you give goes to our organization. We raise money from many sources throughout the year and we put aside a certain amount of money to pay the expenses that every organization incurs to raise money. We raise money in many different ways. Sometimes the return on a particular method isn’t great but it’s still worth doing because it’s hard finding new donors and enough stay of those donors stay with us to make it worth while. Plus, when you put all the expenses and all the funds raised together it only costs us XX%.
Unfortunately, the attorney general makes us pull out expenses for any one campaign and report them against the funds received which makes it looks as if we were doing something unethical to our donors.
But if we stopped raising money in some of the riskier ways to find new donors, over time our donor base would shrink and our cause would suffer greatly from our diminishing fundraising returns. We don’t think that’s what you’d like to have happen for a cause you love.