Most people expect that when they give money to charity it will go directly to those in need: starving children, homeless veterans or people suffering from a rare disease. However, a new report from journalists at the Tampa Bay Times and the Center for Investigative Reporting (CIR) shows that there is often a staggering gap between how much charitable organizations collect and the how much is actually used for charity. The Times CIR report called those groups that spend the smallest percentage on their cause the “worst charities in America.”
At the top of the list is Florida-based Kids Wish Network, a nonprofit group that grants wishes to children with life-threatening medical conditions. Combing through thousands of pages of tax documents, reporters found that in 2012 the organization brought in $18.6 million but only spent $240,000 granting sick kids wishes. The rest of the money, according to the report, went to for-profit fundraisers and consulting firms that solicit donations for Kids Wish Network. In the 16 years Kids Wish Network has been in operation, it has spent more than $110 million on these services.
In other words, the charity hires telemarketers and ad agencies to help it raise money. For every $100 that was donated in 2012, $98.70 went to employees of the charity and the contractors it hired to help it raise money, while only $1.30 went to the stated mission of Kids Wish Network.
The implication of the Times/CIR report is that organizations that use a large percentage of their donations on fundraising and other forms of overhead are dishonest. But some industry experts caution that high overhead is not always an indication of a bad charity. "There isn't a correlation between what is spent on overhead and outcomes," said Ann Gregory Goggins, senior director at the Bridgespan Group, a nonprofit group that provides consulting services to other nonprofits.
In other words, it takes money to raise money. If charities did not spend money on fundraising and campaigns to increase awareness, many important problems would go unnoticed and opportunities to do something about them would be missed. For this reason, Goggins argues that overhead is not the most meaningful way to judge a charity, and the “overhead is bad” narrative can get in the way of more meaningful analysis. "At the crux of this argument is the fixation on a number that isn't meaningful," she said. Different charities require different levels of overhead to achieve their objectives, she said.
Telemarketers are expensive
Kids Wish Network isn’t the only charity to hire professional telemarketers to help it collect donations. Prominent organizations such as the American Cancer Society and the American Diabetes Association do so as well. Still, nonprofit experts say the use of paid telemarketers is often an indicator that an organization isn’t being a prudent steward of the funds it's been entrusted with. The main justification for using paid solicitors is that even if they aren’t cheap, using them can bring in more total revenue for the cause. In some cases, however, the costs can be even higher than the returns.
A Bloomberg Markets Magazine report last year showed this to be the case for the American Cancer Society (ACS). Since 1999, the ACS has contracted with InfoCision, an Ohio-based direct marketing company, to help collect donations. In 2010, InfoCision pulled in $5.3 million for the ACS, according to Bloomberg. Tax documents, however, show that none of this money went to cancer research. In fact, at the end of the year, the American Cancer Society actually had to pay InfoCision an additional $113,006 for fees it owed.
This does not necessarily mean that telemarketing in general, or InfoCision in particular, has been bad for the ACS. The 2010 numbers cited by Bloomberg are an example of the worst case scenario, a risk that charities take when they hire professional fundraisers.
The need for transparency