Читать книгу The Law of Fundraising - Bruce R. Hopkins - Страница 18

“‘Helping’ Children” was the first line of a front-page Washington Post headline in 1980, which continued: “Va. Charity Raised Nearly $1 Million, but 93 Percent Went for Expenses.”³² That headline, despite its age, encapsulates one of the prime issues facing America's philanthropic community today: the reasonableness of fundraising costs, as perceived by federal and state legislators and regulators and by the public—as well as those who manage or are generally responsible for the charities involved. Government regulation of fundraising for charity, while encompassing other matters, is fixed on the single issue of fundraising expenses: their measurement, reporting, and “proper” amount.³³ In fact, the origin of government regulation of fundraising is traceable to the fundraising cost issue; the history of this field of regulation reflects reaction to a pageant of alleged abuses by charities soliciting gifts, each of which featured an ostensibly “high” percentage of fundraising costs.

This article detailed the direct-mail fundraising activities of Children's Aid International (CAI), an organization headquartered in Alexandria, Virginia. According to the account, the organization raised nearly $1 million over a two-year period—“money it promised to spend on packages of high-protein food for malnourished children around the world”—yet expended on “food for children” less than seven cents out of each dollar raised. The breakdown on CAI's expenditures: 25 percent for management fees, 17 percent for other administrative costs, 51 percent for fundraising, and the balance—7 percent—for “starving children.”

The clear implication gained from the article is that a 93 percent fundraising cost experienced by a charity is “improper,” may be close to “fraudulent,” and is certainly “wrong.” The closest the article came to expressing criticism was its observations that CAI's fundraising costs are “high in comparison with … many established charities,” and that the fundraising costs of the local United Way agency are less than 7 percent. The organization's defense—unavoidably high startup costs—went unanalyzed and was buried deep in the story. It may be safely assumed that the article helped fuel public suspicion about charitable institutions generally.

Some months before, another Washington Post headline had announced: “Pallottines Say Nearly 75% Spent for Fund-Raising.”³⁴ This story featured the celebrated case of the Pallottine Fathers, a Catholic order based in Baltimore, Maryland, that conducted a massive direct-mail fundraising effort and allegedly devoted, in one 18-month period, 2½ cents out of every dollar received for missionary work. Apparently, in 1976, the order raised $7.6 million and spent $5.6 million to do so. This undertaking eventuated in a grand jury investigation, which developed evidence of extensive real estate dealings by the order and a loan to the then governor of the state to help finance his divorce. Little of the proceeds of the order's solicitations went to support Pallottine missions in underdeveloped countries as claimed. The publicity became so intense that the Vatican rector general of the order commanded that Pallottine fundraising activities cease and formed a special investigating commission; the priest who headed the order's fundraising operations was banished from Maryland by the archbishop of Baltimore.

Another well-publicized instance of this nature concerned the Freedom Forum International, Inc., formerly the Gannett Foundation. Although this matter did not involve fundraising costs, it focused on ostensibly high administrative expenses; the organization was under investigation by the office of the state attorney general in New York to determine whether these expenses were “imprudent or excessive.” A front-page Washington Post headline stated: “Neuharth Foundation Spares No Expense,” with an inside-page headline trumpeting that “Freedom Forum's Expenses Far Outstrip Its Contributions, Grants.”³⁵ According to this account, in 1991, the foundation incurred expenses of $34.4 million and made grants in the amount of $20.2 million. Office expenses were $17 million and a rooftop conference center accounted for $5.4 million; trustees' fees were higher than the norm, and the chairman's compensation was said to be “more than 10 times greater than is typical in large private foundations.”³⁶ The article related trips of the board of trustees to resort areas for meetings, air travel on first class, and payment of travel expenses of board members and some of their spouses. The newspaper concluded that the organization's “spending is unusual compared with similar-sized foundations—or even those twice or more its size—which … receive their funding from endowments, not from public donations.”³⁷

Another of these reports focused on the use of candy, gum, and other vending devices by charitable organizations as a fundraising technique. Apparently, the charities often receive small amounts of money in the form of licensing fees, while the vast bulk of the funds flows to those who sell and operate the devices. The arrangement spawned this front-page Washington Post headline: “For Charity, Just Drops in the Bucket,” followed by “Most of Public's Donations Go to Marketers, Vendors.”³⁸ Although one national charitable organization was said to have received 10 percent of the amount received from dispensers in 1992 ($1.4 million), many receive little or nothing in this fashion. When the charities own the devices directly or in partnership with a vending company, it seems that they regularly receive as much as 15 percent of the gross receipts.³⁹

Still another of these episodes, this one involving the Marine Toys for Tots Foundation, was splashed across the front page of the Washington Post: “Marines' Toys for Tots Spent Millions on Itself,” with the subheadline stating: “Donations Used to Run Charity, Not Buy Gifts.”⁴⁰ This organization was said to have “collected nearly $10 million in the last two years through a direct-mail campaign, but foundation officials acknowledge that none of the money has gone to buy toys for needy children.”⁴¹ When contributions from other sources are taken into account, however, the report added, the three-year-old foundation expended 10 percent of the money raised in its most recent fiscal year for toys for children; the balance was spent on management, fundraising expenses, and promotional materials. The new head of the foundation was quoted as saying that “[m]y goal, and it is an optimistic one, is to have 75 percent of the money raised in the next mailing go toward program expenses, with most of that going to buy toys.”⁴² Other program activities of the foundation included education of the public on the needs of poor children.

In 2010, the CFO of Charity Navigator said, “[o]f the 5,500 largest charities in America that depend on support from the public, our research shows that the typical charity spends 75% of its budget on programs, 10% on fundraising and 15% on administrative costs.… Donors should look for groups that hit or come close to this benchmark and remember that charities must pay for mundane things like the electric bill and they do have to spend some money to bring in donations.”⁴³ However, the American Institute of Philanthropy also noted that newer organizations and charities dedicated to less popular issues may need to spend more on fundraising and administrative costs.⁴⁴

In 2010, the Senate Finance Committee opened an investigation into the Washington-based Disabled Veterans National Foundation (DVNF). The DVNF collected nearly $56 million in donations from 2010 to 2012 yet paid its direct mail provider $60 million in fees.⁴⁵ This investigation received national attention over how much a charity should spend in order to make money, and at what point is this number so high as to invoke criticism.⁴⁶ Of the $14 million that animal charity Society for the Protection of Children and Animals International raised in 2010, it spent less than 0.5 percent—about $60,000—in small cash grants to animal shelters across the United States.⁴⁷ (SPCA International also spent about $450,000 of this amount to bring back animals from Iraq and Afghanistan as part of its “Baghdad Pups” program.) In 2012, both the Disabled Veterans National Foundation and SPCA International received “F” rankings from CharityWatch, a charity-ratings group. Both organizations blamed their cost allocations on a prominent university philanthropy professor's expert opinion.

InfoCision is a telemarketer that has raised money by large charities, such as the American Diabetes Association. InfoCision keeps anywhere from 70 to 80 percent of the total donations raised through its deceptive charity marketing. According to an investigation by North Carolina regulators, only 22 percent of the funds raised by InfoCision in 2011 went to the charity.⁴⁸ The American Cancer Society, the largest health charity in the United States, enlisted InfoCision from 1999 to 2011. In fiscal year 2010, InfoCision gathered $5.3 million for the American Cancer Society. Hundreds of thousands of volunteers took part, but none of the money went to the charity, according to InfoCision's Form 990 and State of Maine annual filings. Government filings show that InfoCision kept 100 percent of the funds it raised, plus $113,006 in fees from the society.⁴⁹

Thanks to the Internet and other online advances, fundraising scandals are more prevalent. A New York woman was arrested just days after the Sandy Hook Elementary School shooting in 2012, in Newtown, Connecticut, for collecting fraudulent “funeral fund” donations for one of the victims.⁵⁰ According to the FBI, the woman used her Facebook account, telephone, and text messages to solicit donations through her PayPal account. A U.S. attorney said that, in the aftermath of the shooting, federal and state authorities were “actively monitoring the Internet and investigating multiple fundraising scams” stemming from the killings.⁵¹ Unfortunately, stories like these are not uncommon in today's world. Earlier that year, a south-central Idaho couple was charged with fundraising to pay for what they claimed was their daughter's leukemia treatment.⁵² Police arrested the couple at the site of a planned car wash and raffle fundraiser and charged them with grand theft by deception.⁵³ Also that year, a man was arrested on accusations that he ran a scam that collected $100 million in donations from people from 41 states who believed they were helping U.S. Navy veterans.⁵⁴

In 2015, the Federal Trade Commission (FTC) and 58 agencies from all 50 states and the District of Columbia filed a complaint charging four cancer charities and the individuals controlling them with allegedly swindling more than $187 million from consumers. The federal court complaint charged Cancer Fund of America, Inc. (CFA) and Cancer Support Services, Inc. (CSS), their president, James Reynolds Sr., and their chief financial officer, Kyle Effler; Children's Cancer Fund of America, Inc. (CCFA), and its president and executive director, Rose Perkins; and the Breast Cancer Society, Inc. (BCS), and its executive director and former president, James Reynolds II.

In the complaint, the FTC and state agencies labeled the cancer groups “sham charities” and charged the organizations with deceiving donors and misusing around $187 million in donations from 2008 to 2012. According to the complaint, the defendants represented themselves as legitimate charities that spent 100 percent of their proceeds on services for cancer patients, such as hospice care and buying pain medication for children. The complaint alleged that these claims were false and that the charities operated as “personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted.” Investigators found that, in reality, the charities spent less than 3 percent of donations on cancer patients.

According to the complaint, the defendants used the organizations to pay lucrative salaries to family members and friends and spent contributions on personal items such as cars, trips, luxury Caribbean cruises, college tuition, gym memberships, concert and sporting event tickets, and dating site memberships. The defendants also hired professional fundraisers who received up to 85 percent or more of every donation. The complaint asserted that in order to hide their high administrative and fundraising costs from donors and government regulators, the defendants falsely inflated their revenues by reporting more than $223 million in donated gifts-in-kind that were allegedly distributed to international recipients. The complaint states that by reporting the inflated gift-in-kind donations, the defendants created the impression that they were more efficient with donors' dollars than was actually the case. Thirty-five states also alleged that the defendants filed fraudulent and misleading financial statements with state charities regulators.

Two of the charities, the CCFA and BCS, agreed to settle the charges before the complaint was filed. Under the proposed settlement orders, Effler, Perkins, and Reynolds II were banned from fundraising and charity management, and CCFA and BCS was dissolved. Subsequently, the FTC announced the total disbandment of the CFA and CSS. Further, James Reynolds Sr. was barred from operating or engaging in fundraising for nonprofit organizations.

Soon thereafter, the New York attorney general announced that the office had filed a court action to close the National Children's Leukemia Foundation (NCLF) and to hold its president and others accountable. The lawsuit came after an investigation by the Attorney General's Charities Bureau revealed that the NCLF, which held itself out as a leading organization in the fight against leukemia, did not conduct most of the programs it advertised, including claims that it operated a bone marrow registry and fulfilled the last wishes of dying children. The court papers charged that, despite claims it had a board of directors and other financial and scientific controls, the 20-year-old organization was in fact operated by a single founder out of the basement of his home.

In February 2016, a federal class action was filed against Gospel for Asia, one of the largest mission organizations in the United States. The lawsuit alleged that the founder of the entity took offerings from tens of thousands of individuals, claiming it was feeding and housing impoverished people. In reality, according to the allegations, the founder used the contributions to build an empire, including a $20 million headquarters, homes, and sports facilities.

In May 2016, Minnesota's attorney general filed a lawsuit against Associated Community Services, Inc. for sending false pledge reminders to donors and making other misleading statements in a campaign to solicit contributions for the Foundation for American Veterans. According to the complaint, the company had an extensive history of misconducting solicitations for charities.

The attorney general of New York announced in November 2016 that the office had settled its case against the National Vietnam Veterans Foundation. According to a statement, nearly all of the funds raised through the Foundation's direct-mail efforts were used to pay its fundraisers. It is said that in 2014, for example, the Foundation devoted $7.7 million of the $8.6 million raised to fundraising. It is further stated that the “fraction” of the money that went to the Foundation “was further reduced by a pattern of abuse, mismanagement, and misspending” by its former president. That individual and the Foundation's vice president are now subject to a “permanent nationwide ban” on access to and decision-making with respect to charitable assets.

In September 2017, the Michigan attorney general announced a settlement with Breast Cancer Outreach Foundation, Inc., a Florida nonprofit corporation, resolving the attorney general's claims that the organization deceptively raised $1.4 million nationwide in 2015. The organization's solicitations stated that funds would be used for breast cancer research grants. In reality, all of the money raised, other than one grant, was paid to professional fundraisers and for other expenses unrelated to breast cancer research. As part of the settlement, the Foundation was required to pay $150,000, with $125,000 paid for breast cancer research and the remaining $25,000 to recover the state of Michigan's investigative costs. The organization was also banned from soliciting in Michigan for 10 years.

In November 2017, New York's attorney general announced a settlement with Yisroel Schulman, the former president of the New York Legal Assistance Group, Inc. (NYLAG), for breaching his fiduciary duties of care, loyalty, and obedience to NYLAG, a charity providing free legal services to low-income New York residents, and other charities with which Schulman was affiliated. The settlement was reached after an extensive investigation by the Charities Bureau of the attorney general's office, which led to the filing of a complaint in the New York Supreme Court. The attorney general's investigation found that from around 1998 through 2013, Schulman diverted millions of dollars from NYLAG to other charities that he controlled. These funds were diverted to various donor-advised funds and similar accounts. In choosing donor-advised funds to hold NYLAG's funds instead of an investment account, Schulman breached his duty to prudently invest and safeguard the assets of NYLAG. Schulman settled with the attorney general. Pursuant to the settlement agreement, Schulman agreed to pay $150,000 to NYLAG. The settlement also banned Schulman from serving as an officer or director of any New York nonprofit organization for five years.

In October 2018, the Minnesota attorney general filed a lawsuit against the American Federation of Police and Concerned Citizens, Inc. (AFPCC) for deceptively representing that contributions it received would be used to help families of officers killed in the line of duty. The attorney general found that only 17 percent of AFPCC's spending in 2017 and just 9 percent of the $4 million it received in total donations were used for charitable purposes. In July of that year, the Virginia attorney general announced that the office was taking legal action against two charities, Hearts for Heroes, Inc., and Operation Troop Aid, Inc., alleging they both had used donations to benefit their organizations instead of helping veterans and troops. This suit and settlement were part of a 16-state action. According to a release from the Virginia attorney general's office, the Operation Troop Aid, Inc. settlement required it to dissolve and prohibits its CEO from assuming any fiduciary role with a nonprofit corporation or soliciting on a nonprofit corporation's behalf.

In July 2019, the New York attorney general announced an investigation into the website www.NYCharities.org, alleging that the online fundraising platform failed to distribute hundreds of thousands of dollars to New York charities in 2018 and 2019. This investigation was based on more than 100 complaints from individuals and organizations, including those with unpaid contributions ranging from $200 to more than $100,000.

In September 2020, the FTC filed a complaint in the Southern District of New York against Outreach Calling, a fundraiser, its owner, two related organizations, and three other individuals. The attorneys general of Virginia, New York, New Jersey, and Minnesota joined the FTC as plaintiffs. The plaintiffs alleged that the defendants engaged in deceptive telemarketing schemes on behalf of several sham charitable organizations. The complaint states that Outreach Calling induced tens of millions of dollars in charitable donations by telling donors that the recipient charities provided assistance to the most vulnerable populations such as homeless veterans and cancer patients. The plaintiffs stated that, in reality, the recipient charities spent very little on charitable programs—in same cases, as little as 1 or 2 percent of gross donations. Instead, around 90 percent of the funds raised was paid to Outreach Calling, and most of the rest was paid to fund personal expenses of the charities' principals. The FTC also brought a separate action in January 2021 against a predatory fundraising practice. These two actions ultimately resulted in consent judgments against for-profit fundraisers amounting to $111.7 million and $58.5 million, respectively.

These episodes are, unfortunately, only a few in a series of similar exposés that have haunted legitimate charities for years and helped taint the term fundraising.⁵⁵ These events also fueled development of the machinery that has been built by and for government to regulate fundraising by charitable organizations. Many an aspiring or practicing politician has parlayed a probe of a charity “scandal” into high office. Thus, Time magazine, for example, was moved to characterize the Pallottine order scandal as indicative of widespread wrongdoing: “The Pallottine mess provides Americans with one more excuse not to give money to church agencies, even those that make full public accountings”⁵⁶ and the “Pallottines were not the only agency that used 80 percent or more of their [sic] gifts to cover the exorbitant costs of direct mail.”⁵⁷

Other episodes—isolated instances having major impact on public and regulatory attitudes—include the solicitation activities of Father Flanagan's Boys Town, the Sister Kenny Foundation, the Police Hall of Fame,⁵⁸ the Freedom for All Forever Foundation, the Korean Cultural and Freedom Foundation,⁵⁹ and the Children's Relief Fund.⁶⁰ Thus, the media remain alive with one report after another of the alleged misdeeds of charities. Invariably, the scandals involve solicitations of charitable contributions from the public, by or for organizations that derive their principal support from public giving,⁶¹ with an ostensibly excessive amount of funds devoted to direct-mail campaigns, questionable investments, or administration.⁶² At the same time, these developments should be kept in perspective, in that the organizations involved represent only a very small segment of the charitable community.

A few decades ago, federal regulation of fundraising for charity did not exist (other than by means of the charitable contribution deduction), and state regulation in the field was just beginning to flower. Before that time, fundraising regulation (such as it was) was a combination of occasional IRS audits and state attorneys general inquiries, the latter predicated on their historical role of enforcing the requirements imposed on the administration of charitable trusts.⁶³ These efforts were based on one premise, and today's vast and growing governmental apparatuses overseeing charitable fundraising continue to be guided by that premise: “The greatest possible portion of the wealth donated to private charity must be conserved and used to further the charitable, public purpose; waste must be minimized and diversion of funds for private gain is intolerable.”⁶⁴ Out of the inadequacies of common law principles and tax enforcement efforts has grown—and is still growing—a comprehensive supervisory and regulatory program governing the fundraising efforts by charitable organizations at the federal, state, and local levels.

Statutory regulation of fundraising for charity began with codification of the supervisory and investigatory authority of state attorneys general. Thereafter, there came into being provisions seeking to prevent fraud in charitable solicitations or to promote disclosure of information about these solicitations, or both. Municipal ordinances earlier introduced the concepts of licensing and periodic reporting of charities' fund collection activities, and this approach was adopted by the states as their charitable solicitation acts were written. As the years passed, the statutes became more extensive and stringent; the staffs of the regulatory agencies increased; and regulations, rules, and forms unfolded. In general, the call of one observer, who declaimed that the “evils of inefficient or unscrupulous charitable organizations must be attacked head on by strong government regulation,”⁶⁵ was heard.

The process is by no means wholly an instance of government regulation increasing merely for the sake of increase. The nature of organized philanthropy and the perception of it by the public, lawmakers, and regulators have altered dramatically over the past decades.