EDISON, N.J. — When the California Organization of Police and Sheriffs wanted to raise money two years ago, it hired Civic Development Group, one of the nation's largest police and fire telemarketers. The company raised $1.3 million for the police group -- but kept more than $1 million as fees and expenses.
Across the country, professional fund-raisers bring in an estimated $1 billion per year from similar relationships with nonprofit organizations, most of it from telemarketing, with some returning as little as 10% of the take to the charities.
State attorneys general and charity regulators say that fund-raising campaigns with high expenses are fraudulent and misleading, because consumers believe most of the money they donate will go to the nonprofits.
Courts have not always agreed. But this month, the Supreme Court said it will decide an Illinois case where high-fee fund-raising was prosecuted as common fraud.
State regulators, who have questioned high-expense fund-raising for years, say an opinion in their favor could mean a reduction in fraud and an increase in the amount of money going to charities. Some states -- among them California, Ohio, Massachusetts, New York, Vermont, North Carolina and South Carolina -- issue annual reports for consumers that track how much money professional fund-raisers in their states keep, and how much goes to the charities.
"If the majority of the money is not going to the charity, that is fraud," Utah Atty. Gen. Mark Shurtleff said.
But professional fund-raisers and their clients say that expensive campaigns are the only way for many nonprofits to raise money, particularly if the cause is less well-known or perceived as less popular. They say that 10% or 20% of $1 million is better than nothing.
In a series of decisions in the 1980s, the U.S. Supreme Court found that restricting fees would not reduce fraud and agreed that some charities, by necessity, have higher fund-raising expenses. The court also said that limiting or defining allowable expense ratios restricted the freedom of speech of the nonprofit groups, and ordering the disclosure of fund-raising expenses was unconstitutional.
The case before the Supreme Court pits the attorneys general of Illinois and other states against Telemarketing Associates Inc., an Illinois company whose client, a Vietnam veterans group, received only 15% of the money raised in its name.
