In the US, over 1.6 million tax exempt organizations vie for public contribution to their charitable cause. Thanks to a year-long investigation by The Tampa Bay Times and the Center for Investigate Journalism, we’ve learned donations may not always be going where donors think.
In a joint effort, the Times and the CIR have published a list of the 50 worst charities in the United States. The list ranges from cancer research and patient assistance, to veteran’s aid and children’s organizations. The study focused on groups that paid for-profit companies to handle their fundraising efforts, one of the most inefficient ways to secure donations: usually, these efforts are led by telemarketers who keep a large portion of the money raised.
Reporters used data collected by watchdog groups to identify 5,800 charities that make a habit of this practice, then honed in on those that consistently kept less than 33 cents of every dollar collected. They then took on the admirable task of going through a decade’s worth of state and federal records with a fine-toothed comb, including IRS statements and tax returns, to identify which of these were the worst of the worst.
Their findings are staggering: over the past ten years, these groups have collectively received $1.3 billion in donations, yet paid nearly $1 billion of this to the solicitors who raised it. Less than 4 percent of collections went to direct cash aid. Donors have been lied to and scammed. The report points out that by using names similar to well-known organizations, a donor’s confidence is easily earned; someone will then send a check to a telemarketer without doing research, as they think they’ve heard the name somewhere before.
While corruption itself is hardly news, the systemic way in which those investigated have fooled and manipulated the public is concerning. With nearly a billion dollars in donations, reputable organizations could have already accomplished major goals: the report states that Habitat for Humanity could have built 20,000 homes, or 10 million uninsured women could have been provided with mammograms. Most of these establishments succeeded in this rouse by manipulating tax law; for example, by using in-kind donations to seemingly deflect costs, or by funneling funds to private firms and companies owned by the organization’s chief executives and their family members.
All this begs the question: why has nothing been done? At the core of the issue lies a lack of regulation of charitable organizations: while not-for-profits apply for their status through the IRS, they are then regulated through a patchwork of state agencies not always equipped to do so. Moreover, the IRS does not aggressively target fraud in charities, as their tax-exempt status would cause such actions to yield little revenue. Citations issued to non-profits target the organization, and not the individual, allowing owners to shut-down and reopen under new names, or across state lines. Furthermore, punishment is little more than a slap on the wrist, and a few hundred dollars’ worth in fines. In the early 2000s, several state governments attempted to pass legislation limiting payments to professional solicitors; curiously, about 200 reputable organizations lobbied the US Supreme Court to prohibit states from doing so, citing their First Amendment right to free speech.
Although the Times and CIR have painted a bleak picture of charities, it is no reason to deter one from giving; the great majority of charitable organizations do provide vital services to communities. How can you make sure you are not being scammed?
Above all, it is important to recognize the red flags of fraudulent organizations. Most trustworthy charities, both large and small, will freely publish their operating budget, and have their annual report readily available. Look at how the organization spends its donations: how much goes to fundraising, salaries, and programs? Generally, no organizations should spend more than $0.35 to raise a dollar. Boards of Directors should be free of family members or close associates of executives to avoid conflicts of interest. Moreover, organizations effectively using donations tend to use their own staff and volunteers to raise funds.
If you receive a call from a telemarketer, more likely than not, this organization is paying a lion’s share of donations to the company doing the calling. The Times also provided an easy “cheat sheet” to verify the legitimacy of a call: ask for the full name of the organization, who the caller works for, and how much of the donation will actually go to aid. Better yet, ask for the website, and look it up before sending in your check. If you feel confident that this organization is worthy of your donation, send it directly to the non-profit rather than the fundraiser, in order to ensure that no external body is keeping a cut of your contribution.
Be sure to do your homework before opening your checkbook. Watchdog groups, such as Charity Navigator and GuideStar USA rank charities, making it easy to look up credibility of any organization. You can do the same at Better Business Bureau website. Lastly, most not-for-profits should be open to having you come in and see what they are doing with your funds. If you are able, go spend some time seeing exactly the impact you are making.
Finally, if you should come across a fraudulent organization, please be sure to report it to the CIR. The Times and CIR are compiling a list of questionable charities to warn the public before they contribute. Philanthropic giving is an invaluable aspect of our culture that cannot be tainted; this report will help educate the public to ensure that donations are actually making their way into the hands of those who need it most. ■