America’s worst charities blow money on for-profit fundraisers

UntitledFinancial digging by the Tampa Bay Times and the Center for Investigative Reporting revels a list of the American charities that spend the most money on paid solicitors and get little in return. The list calls the group the worst charities in America for the wasteful spending.

At the top of the list is the Kids Wish network who paid solicitors $109.8 million over the past decade to raise a total of $127.8 million. All that spending for $18 million. Less than $0.03 of every dollar raised is spent on actually helping children.

According to the TBT and CIR, 6,000 charities pay for-profit companies to raise money. The bottom fifty that make the list payed nearly $1 billion to the money raising industry over the past decade.

The five worst charities in America, as ranked by money lost on soliciting costs, are:

  1. Kids Wish Network
  2. Cancer Fund of America
  3. Children’s Wish Foundation International
  4. American Breast Cancer Foundation
  5. Firefighters Charitable Foundation

One of the charities listed, the American Foundation for Children with AIDS, too issue with the rank list. It rebutted the way it is characterized and defended its use of for-profit solicitors in a long statement.

“The article correctly points out that these services can be very inefficient in terms of the percentage of funds raised that actually reach the nonprofit organizations,” writes AFCA.

“However, the article leads one to believe that AFCA relied exclusively on professional fundraising services. It gave no insight to the fact that AFCA worked diligently to free itself of this inefficient source of revenue.”

The Tampa Bay Times article explaining the investigative work says that the charities that make the list were plagued by other problems. 39 were disciplined by state regulators, one was shut down by a state and reopened under an new name and seven are not allowed to operate in one state.

Problems go further as 1/3 of the charities listed have family members on the payroll or board of directors.

The reporting is a part of a trend that takes a closer look at charity spending and fundraising practices. The New York attorney general’s office released a report in late 2012 on the amount of money raised by telemarketers for charity. A total of $240 million was raised in 2011, but firms kept $148 of the total. That means charities ended up with only 38.5% of the money raised.

Some fared worse than others. The National Audubon Society received only 2.53% of the $165,000 raised by telemarketers.

David Evans of Bloomberg also investigated telemarketing practices in September. He too found that aggressive efforts to raise money through phone calls yielded donations that largely filled the pockets of the fundraisers and not the organizations. Charities like the American Cancer Society and the American Diabetes Association told Evans the practice was a loss leader in order to get people on the giving rolls and raise more money over time.

Charity fundraiser Dan Pallotta used his TED talk to make the case for looking beyond overhead costs and how much is spent on fundraising. His charity walks floundered after charities balked at the high marketing costs and overhead rates that exceeded 40%. For Pallotta, the focus was in the wrong place for critics. His efforts were raising a lot of money and it required spending to raise the money.

“[W]e’ve all been taught that charities should spend as little as possible on overhead things like fundraising under the theory that, well, the less money you spend on fundraising, the more money there is available for the cause. Well, that’s true if it’s a depressing world in which this pie cannot be made any bigger,” said Pallotta in the talk. “But if it’s a logical world in which investment in fundraising actually raises more funds and makes the pie bigger, then we have it precisely backwards, and we should be investing more money, not less, in fundraising, because fundraising is the one thing that has the potential to multiply the amount of money available for the cause that we care about so deeply.”

The reporting in the TBT mentions that 35% is the point where overheads are agreed to be unacceptable. Pallotta provides the example of how his costs exceeded the mark, but raised tens of millions of dollars for breast cancer. The rank list shows the extreme that happens when fundraising costs are farmed out and grossly outstrip the money that is actually made by an organization to fund programs.

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About Author

Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.