Charitable cash cow

Private companies make big profits raising money for nonprofits

Nonprofit charities in the Golden State should have been raking in the cash in 2004. Gracious Californians gave $60 million more toward fundraising campaigns that year than they did in 2003, totaling almost $293 million. The following year, donors gave even more: $332 million.

Yet despite the increasing generosity of Californians, the percentage that nonprofits actually took away from those campaigns steadily decreased from 2003 to 2005.

Most of the gains went to private, for-profit fundraising companies hired to conduct telemarketing services and coordinate special benefit events like gala dinners, rodeos, and variety shows.

Such companies charge steep fees and commissions that frequently leave charities, especially smaller or less experienced ones, with little or even nothing at all, according to state disclosure records.

Commercial fundraisers collect millions each year relying on the public image of selflessness projected by nonprofits devoted to promoting cultural literacy, saving lost or exploited children, finding cures for deadly diseases, or improving the welfare of defenseless animals.

Some desperate nonprofits elect to allow commercial fundraisers to take a percentage of the money they raise, at times as much as 80 to 90 percent. Alternately, larger charities may agree to set costs and fees associated with the campaign, but that strategy can also prove costly.

For example, the San Francisco Museum of Modern Art hired the Los Angeles company SD&A Teleservices in 2004 for a phone solicitation campaign that raised $12,000. But because the company's fees were greater than the contributions received, the museum had to pay $19,854 more to cover the venture. Similarly, the San Francisco Ballet lost $3,400 in 2005 to the same company after SD&A raised $12,745 from donors, thousands less than what it charged.

Several people we interviewed said the benefits of a fundraising campaign might not materialize until later if contributors eventually become long-term supporters. But unless the typical donor has time to find out how much ultimately makes it to the cause they care so much about, they're unlikely to be aware of the extraordinary costs involved in nonprofit fundraising.

"The charity agrees to it because they want the easy money that they don't have to do any work for," Daniel Borochoff, president of the American Institute of Philanthropy in Chicago, told the Guardian. "Then the person goes out and spends $1 million to get that $200,000, and the charity tries to rationalize it by saying 'Well, it's money we wouldn't normally have. We don't have staffing for fundraising.' But they're ripping off the public and disrespecting the intentions of the people who gave that money."

The Los Angeles Times published a months-long investigation July 6 that examined required forms submitted to the California Attorney General's Office showing the total revenue generated from 5,800 nonprofit fundraising campaigns and how much of that money went to the charities.

Between 1997 and 2006, the paper discovered, 430 campaigns raised a total of $44 million — but in each case, every dime went to the fundraising company. Charities lost money in 337 more cases. In hundreds of instances, charities entered into contracts that assured them only 20 percent or less of the funds raised, regardless of how successful the campaign turned out to be. The AIP recommends spending no more than 35 cents on each dollar raised. The Times also pointed out that donors enjoy tax deductions from their contributions, even if huge portions go to for-profit companies.

"Nonprofits spend a lot of money attracting donors and then they fall away the next year, so they have to reach out and attract even more donors," Elizabeth Boris, director of the Center on Nonprofits and Philanthropy in Washington, DC, told us.

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