GRAND RAPIDS, Mich. (WOOD) — Only pennies on each dollar donated to charities over the phone actually make it to the good cause if the person on the other end of the line is a professional fundraiser.
The practice is common and legal. A spokesperson for Michigan’s Attorney General told Target 8 a U.S. Supreme Court decision makes it illegal for states to legislate how much of your donated dollar actually goes to a charitable cause.
Target 8 focused attention on Michigan charity Children With Hair Loss (CWHL) after learning it was one of two charities in the state to which the independent watchdog group Charity Watch gave an “F” rating.
The charity, a registered 501(c)(3), provides free wigs to children up to age 21 who have lost their hair due to an illness. The charity opened in 2000, and is based in South Rockwood, about a half hour outside of Detroit.
CWHL states on its website that its goal is to “assist as many of these children as possible in changing their lives by improving their outlook and empowering them with a degree of self confidence that will allow them to face the world with renewed self esteem.”
In West Michigan, Sharon Potter, owner of Salon Nouveau, has been volunteering, creating wigs, her time for the charity for the past nine years.
“We can do multicolor, I can create custom styles for [the children. We can do anything,” said Potter, describing her efforts for the charity. “I can cut them, style them, do anything that they need. I can make them look exactly like their hair looked before they lost it.”
It can be tough work, but Potter said it is rewarding on many levels.
“It can be emotionally draining because some of the families, the children they don’t make it,” said Potter.
She described the reaction of the kids who receive the wigs as “joy.”
The good deeds are not in question, but the independent watch dog group that gave CWHL an “F” rating said some of the charity’s fundraising techniques may be.
“Our ratings are focused on how cash is being used,” said Charity Watch analyst Stephanie Kalivas.
The Chicago-based Charity Watch rates charities that have at least three years of financial data. Kalivas said the grade is based on Charity Watch’s belief that CWHL spends too much on fundraising and too little on its mission.
Target 8’s research shows more than half of the money CWHL raised last year went to fundraising fees, while about a quarter went to charitable purposes.
Target 8 explained that to Potter.
“I was very surprised,” said Potter. “I don’t know much about nonprofits — I’m not organized enough to have one for myself — and I wasn’t aware how much [professional fundraisers] charged for that kind of a thing. I know that since [CWHL is] so small and so new, we do have to depend on others to try and raise funds.”
Dating as far back as 2003, the then-fledgling CWHL signed a contract with Southfield-based charity telemarketing company Associated Community Services, or ACS.
While Michigan does not require charities to make documents like fundraising contracts public, other states do. Target 8 obtained the fundraising contract from New York’s Attorney General’s office.
It guarantees the charity 17.5% of whatever ACS raises from donors over the phone.
Last year, the charity got about $109,000 from ACS’s efforts, while the company kept more than $500,000. According to tax filings, CWHL also independently raised several hundred thousand dollars without ACS’s help.
Charity Watch representatives told Target 8 their organization believes 60% to 75% of charitable donations should go to the charity’s purpose.
CWHL’s founder initially explained over the phone that it signed up with ACS as a young charity that needed help raising funds and awareness to their cause.
Representatives cancelled a planned interview with Target 8, saying they were too busy to speak on the topic on camera.
When Target 8 stopped by the charity’s offices outside of Detroit, marketing director Christine Villemure eventually agreed to answer a few questions.
“Children With Hair Loss has been working with a telemarketing company for a few years now, and quite honestly it hasn’t been a bad experience. It’s been a good experience,” said Villemure. “And we’re always trying to get that percentage upped and increase how much the charity gets versus the telemarketing company. [It’s] something we’ve tried to for many years, so since the telemarketing company isn’t able to provide that for us, we’ve grown very strong over the last 13 to 14 years, and we’re actually able to cancel using a telemarketing company.”
Target 8 asked ACS to confirm that, but was told CWHL hasn’t cancelled anything. ACS would not answer Target 8’s questions about whether anyone from CWHL had made any request to cancel the contract.
In Michigan, charities working with professional fundraisers commonly don’t receive high percentages of donated dollars. An annual report from Michigan’s Attorney General said that on average, the professional fundraisers keep 62% of what they raise, leaving the charity 38%.
Target 8 went to the offices of ACS to ask if its callers are misleading potential donors. ACS employees called security.
ACS filed for bankruptcy in April 2014. Court documents Target 8 obtained show that ACS owes millions in back taxes to the IRS and the state.
Michigan’s Attorney General has also accused the company of intentionally misleading seniors to try to get credit card donations over the phone. The AG accused ACS callers of telling hesitant potential donors that they were “registered with the Attorney General’s Office.” ACS agreed to pay a $45,000 fine. Target 8 obtained those phone calls.
Listen to two of the calls:
ACS later sent Target 8 a statement that said:
“In our work with nonprofit organizations, ACS assumes all upfront expenses and risk. The average initial cost of acquiring new donors is approximately $1.50 for every $1.00 raised. After expenses, our clients receive approximately 80 percent of all dollars raised through our services. Importantly, our efforts enhance name recognition for our charity clients while building and expanding a donor base. Increasing donor activity decreases fundraising costs over time.
“It is also important to understand that all non-profits incur sizable fundraising and administrative costs. Many of the larger, well-known charities are able to underwrite those costs, however, through substantial corporate donations; a luxury most non-profits do not enjoy.”
TIPS FOR DONATING:
Charity watchdogs said donors should give directly to the non-profit instead of through a third party.
A spokesperson for the state Attorney General’s office said that anyone calling potential donors has to identify him or herself as a professional fundraiser if asked and disclose how much of their solicitation will go to the charity.
Guidestar.org is a free resource that allows users to look at nonprofit IRS tax filings. If professional fundraising fees are a concern to a potential donor, those fees are listed on IRS tax filing Form 990 on line 16a on the first page.