The Dark Side of Fundraising

Many of us in the charitable sector know the difficulties of fundraising: the struggles of cold-calling, the anxiety of meeting with a previous big donor. When fundraising is kept in-house, you can keep an eye on what's going on and ensure that the tactics meet your organization's ethics and maintain your organization's reputation.

But when that aspect of your organization's work is handed off to outside operators, things can take a murky turn.

In August of 2023, HBO released Telemarketers, a documentary series that follows Sam Lipman-Stern, who was a telemarketer for a company called Civic Development Group (CDG) beginning in 2001. CDG provided fundraising services for nonprofit organizations, handling cold calls to solicit donations. The company's offices were a strange place to work, filled with individuals "who had dropped out of school or were formerly incarcerated and unable to find work elsewhere." There was an atmosphere that was "filled with drug use, partying, and impromptu tattooing."

While some of the employees were formerly incarcerated and doing less-than-legal things other than work in the office, the actual work was also bending the law. Early on in Lipman-Stern's tenure, he heard from a fellow employee, Pat Pespas, that operations at the call center might not be completely legal. (While the backbone of the series is the two's investigation into potential fraud, the heart of the series is the friendship between Lipman-Stern and the strange yet charismatic Pespas.)

It turns out that the company had run afoul of the Federal Trade Commission (FTC) prior to Lipman-Sterns' time there. According to CharityWatch, "In 1998, the FTC filed a complaint against Civic Development Group for misleading donors while soliciting on behalf of the American Deputy Sheriff's Association (ADSA) . . . a year before it was closed down by a court appointed receiver. While the telemarketers told donors that their contributions would benefit local police and their families, the FTC charged that 'virtually no money raised by CDG in the name of the ADSA ever benefited state law enforcement officers or organizations in the consumer's locality.'"

CDG was keeping upwards of 85% of the donations that were coming in. Despite the FTC's complaint, the company continued down the same path, but started claiming that they were "consultants," not "fundraisers." Their tactics also took a further turn toward lawlessness. While previously the company's telemarketers would state the truth when asked about whether the fundraising company kept any of the money and whether they were a third-party operator, the company's new policy had the telemarketers claiming to be actual members of the charitable organization. As shown in the documentary, this led to call center employees claiming to be members of police associations and other charities, while also claiming that 100% of the funds were going to charity.

Another complaint against CDG was filed by the FTC in 2007. Three years later, the company's owners, Scott Pasch and David Keezer, agreed to a settlement. The pair was "permanently banned from telemarketing and soliciting charitable donations."

Despite the FTC's work in the CDG case, similar behavior continues from other groups. The Malone Telegram took a deep dive into the fundraising actions of an entity called the National Police and Troopers Association (NPTA), which is a subsidiary of a different group known as the International Union of Police Associations.

The NPTA is registered with the IRS, and therefore has to file a Form 990, which is the federal "Return of Organization Exempt from Income Tax." The Telegram found that "In 2017 more than $16 million was raised from contributions and only $70,000 went to charities while $14 million went to 'professional fundraising services.'" In 2018, they raised $8 million with $3 million going to fundraising. In 2019, those numbers were $8.5 million raised with $7.5 million for fundraising. Over the course of the three years, only $176,000 went toward charitable purposes while $24.5 million went toward fundraising.

Both the Telemarketers documentary and CharityWatch note the numerous similar organizations that operate in this same way. This raises a huge question: Why do these organizations do this? Lipman-Stern and Pespas dug into this question, but hit dead ends at nearly every step of the way.

Some of these organizations that are cold-calling folks are definitely scams, according to the AARP. While the organizations may be legitimately registered, they are often structured as a type of political action committee (PAC), which allows them to operate under less scrutiny than registered charities. These entities are basically operating as internal money-making machines. (Politico takes a look at how these PACs operate in murky waters.) For some organizations enlisting a call center to handle their donations, sometimes it is just a question of ease: A telemarketing entity promises a certain amount of money for no work on the part of the charity. So the charity climbs on board.

We've previously looked at how a portion of the population has minimal trust in the charitable sector. And actions like these telemarketing operations further erode that trust. In that article, we laid out some guidelines for preventing and addressing potential fraud and for helping to make sure your organization is transparent.

Those guidelines also apply to fundraising. Keeping your fundraising operations in-house can help you and your organization monitor that everything is happening in a trustworthy manner. If your organization does feel the need to enlist a third-party fundraiser, make sure that you do your due diligence to find out exactly where the money will go and in what percentages. It is best to play it safe; if your organization uses tactics in fundraising that can be perceived as scam-like, you will damage trust in your organization, and that trust will be near impossible to repair.

From the other side of the table, always make sure you do your own research before donating to a charity. Sites like CharityWatch and Charity Navigator can help you figure out if an organization is legitimate and how much of their money is going to actual charitable activities.

It can be disheartening to operate in a field that has such deceptive activities occurring. But while your organization can't control the behavior of other entities, you can work hard to ensure that you are doing what your donors expect. Try to be the type of organization that folks wouldn't mind getting a phone call from.