The use of professional fundraisers, or "telemarketers", by charities has expanded notably in recent years. This can be attributed to both supply and demand of such services. On the supply side, the imposition of the national do-not-call registry has left many telemarketing organizations with limited clientele; charities, however, are exempt from the registry, so are a natural place for these organizations to work. On the demand side, the telemarketers can offer a compelling case to resource-strapped charities. They can offer to raise funds on behalf of the charity, without the charity having to do anything. Basically, a sales pitch that states "I will send you money each month, is that ok?" is somewhat hard to resist. These forces have led to telemarketing being an integral part of charity fundraising. Below, I will summarize the problems with this development. Next week, I will discuss a few possible solutions.
The primary problem: Telemarketers keep a lot of the funds they raise.
- A recent report by the New York State Attorney General's office summarizes this problem well -- among fundraising campaigns that included appeals within the state of New York in 2011, $240.6 million was raised, but only $92.7 million (or 38.5%) was remitted to the charities for which the campaigns were intended. (Clearly, this is not complete since many local campaigns did not reach to New York, but it is revealing nonetheless).
- Often, these campaigns even enlist neighbors to solicit funds on their behalf. Neighbors recruit other neighbors to make donations, not knowing much of the funds will go to a telemarketing firm. As an example, according to a report by Bloomberg, only 22% of funds raised in a nationwide neighbor-to-neighbor fundraising effort for the American Diabetes Association ever made it to the organization.
Compounding the problem: Charities are rarely transparent about funds retained by telemarketers.
- Lest one conclude that telemarketers are exploiting innocent charities, it is important to stress that charities approve the scripts used by telemarketers, some of which clearly state that a large percentage of the funds are kept by the charities. Unfortunately, however, the numbers often do not add up, a point stressed by the Bloomberg report.
- Further, in their annual financial reports, upon which all charity watchdog groups rely to gauge efficiency, charities often fail to report funds kept by telemarketers. Though the accounting rules require the gross funds raised to be reported as revenues and the amounts kept by telemarketers to be listed as fundraising costs so as to best reflect fundraising efficiency, charities' annual filings are quite poor at following the accounting rules. A recent study by Keating, Parsons, and Roberts found that 74% of nonprofit regulatory filings failed to properly account for telemarketing expenses. (Elizabeth K. Keating, Linda M. Parsons, and Andrea Alston Roberts. Misreporting Fundraising: How Do Nonprofit Organizations Account for Telemarketing Campaigns? The Accounting Review: March 2008, Vol. 83, No. 2, pp. 417-446.)
Clearly, something needs to be done to either improve the efficiency of these campaigns or to better inform donors of their effects. Next week I will offer some suggestions...