Abuses in fundraising

by Putnam Barber, Idealist.org

The fact that millions of people donate billions of dollars every year has, not surprisingly, attracted attention from scam artists as well as from legitimate causes seeking to expand their work by increasing the amount of support they receive from the public.

Examples of abuses in fundraising

• "Look-alike" charities — Sometimes people will register an organization with a name that is very similar to the familiar name of a marquee charity and produce literature or other fundraising appeals that are superficially similar to those of the copied organization. The newer organization may provide some similar services (though occasionally there is no program at all), but donors are legitimately angered if they discover that the money they thought they donated to a familiar organization has in fact gone to support a different, and perhaps less effective, group.
• "Sham" charities — Regulators sometimes find organizations that are actively raising money and simply doing nothing to serve the cause they claim to support. Often these organizations employ slick, well-trained staff to make phone calls or other appeals to people who are known to be generous because their names appear on lists of donors. Reviewing literature carefully and researching online advisory sites before making any gift to an unfamiliar organization — especially if the appeal is presented urgently and emotionally — is always a good idea.
• Disadvantageous contracts with commercial fundraisers — Organizations that need support from the public for their work will sometimes enter into contracts with shady firms who promise significant sums of money to the cause with no work or participation from the recipient organization. Not all such contracts are questionable, but some contain terms that limit the return to the organization and provide unlimited opportunity for gain to the commercial organization. The work of raising money is expensive, and donors should not be surprised to find that it costs money to raise money; but controlling the cost of fundraising is something all organizations need to do and, sadly, some fail to pursue diligently.
• Bogus solicitations — some appeals are made by people who have no connection at all to the cause or organization they claim to be representing and simply keep the money they collect from unwary donors. Sending any gift directly to the published address of the organization guards against this form of theft, but the people who specialize in this scam may be very skilled at suggesting that the donor do otherwise.

Controlling and preventing abuses in the United States

In the US, the governments of many states have registration and reporting rules that apply to many, if not all, charitable appeals directed toward their citizens. In general, these rules are designed to secure some information which donors may use to decide whether or not to respond to an appeal. They also provide a process by which dishonest commercial fundraisers can be barred from approaching donors in the state. There is a state-by-state list of the officials responsible for these programs available from the website of the National Association of State Charities Officials.

The BBB Wise Giving Alliance is a program of the Council of Better Business Bureaus that uses a published set of standards to review the policies and practices of organizations that appeal broadly for donations. The results of these reviews are available online and in print.

For evangelical churches and missions, the Evangelical Council for Financial Accountability offers certification to groups that apply and demonstrate that they meet the standards for financial policies and management contained in ECFA's standards.

Many individuals who work as development officers and fundraisers belong to the Association of Fundraising Professionals. AFP has adopted a Code of Ethical Practice for people who do this work and a Donor Bill of Rights that outlines what every donor should expect when asked to support an organization or cause.

One strongly contested issue about fundraising activities has to do with the way compensation is calculated for employees or consultants doing the work. The standards of both ECFA and AFP prohibit paying fundraisers a commission or a percentage of the amount raised. Those who condemn this practice say that donors would be offended if they knew that a portion of their gift was used in this way, and, further, that consequent efforts to conceal such arrangements break to bonds of trust that should connect donors with the causes they support. Supporters counter that it is an efficient and fair way to compensate workers for the often difficult tasks of fundraising.

Donors often ask about the proportion of their gifts that will go to "the cause" rather than to the expenses of fundraising and program administration. Many of the state programs mentioned above provide reports which summarize that information for prospective donors. Clearly, a fundraising campaign which does not deliver support to announced mission or goals is a cause for concern. But it is not clear that having the lowest administrative costs is some sort of guarantee of effectiveness. Ira Kaminow, the founder of Just Tzedakah, poses the thought experiment: "Would you feel comfortable about donating to an organization that honestly and completely reported that it had zero administrative expenses?"

There is no practical way to guarantee that every appeal will meet the highest standards. Donors will always need to be cautious about giving money or other support. The reports and standards described above can help sort through the appeals that arrive by mail, email and phone. But in the end, each donor will have to decide personally which appeals to honor with a gift. Fortunately, there are many hardworking and effective organizations to support and a reasonable amount of attention will lead to those, and reduce the chance of having one's charitable impulses exploited.

This page is specifically about abuses of fundraising. There is a more general discussion of how things can go wrong in nonprofit organizations, and what can be done when that seems to be happening, on this page.