Holiday Humbug -- Chronicle of Philanthropy, December 17, 1998

From the Chronicle of Philanthropy, December 17, 1998, page 43.

Holiday Humbug by Regulators: Mostly Hogwash

Along with Salvation Army kettles and Toys for Tots campaigns comes another annual holiday tradition: announcements from state officials and charity-watchdog agencies urging us all to exercise caution in our year-end giving.

The motivation for those warnings is obvious. The end of the year represents the busiest time for individual donations. Holiday sentiments combine with tax-law deadlines to give the time between Thanksgiving and the new year especially philanthropic vertones.

Unsavory fund raising, to be sure, is a blight, and legal standards and official prosecution are a valuable part of society's effort to limit the damage caused by unscrupulous individuals. Yet the annual responses by charity regulators, usually based on a relatively few transgressions among the vast number of non-profit organizations, are questionable both in timing and context. Indeed, if we look closely at the data presented in these year-end announcements, the plausible connection to the holiday season turns out to be weak, and most warnings fail to provide enough context for the public to distinguish among the differing legitimate fund-raising costs of various types on non-profit organizations.

Typically, these year-end announcements warn about excessive rewards retained by commercial fund raisers. To buttress the warning, a list that summarizes the year's reports of fund-raising contracts is attached. The rankings highlight those contracts where a discouragingly small proportion of the gross receipts served any charitable purpose.

In most cases, however, the fund-raising campaigns listed were not concentrated around the end of the year. Instead, they represent the typical, year-round fund raising of the various organizations. What's more, there is no indication from these data that year-end appeals were especially likely to be made by unscrupulous solicitors. Instead, the lists highlight two noteworthy facts.

First, they reveal the names of fund-raising companies that consistently appear to enter into exploitative agreements with their clients. Those fund raisers extract unconscionable amounts of money from the public and deliver only a limited amount-sometimes even a fixed amount-to the non-profit organization with which they are involved. The claimed ``charitable'' purposes seem clearly incidental to the contracts' fund-raising goals.

The second revelation is the type of charitable organization that is likely to enter into such agreements. Typically, a high proportion of the entries represent fund raising done on behalf of social lodges or mutual-benefit employee groups, such as police officers' or firefighters' associations. They technically qualify as charities, but their principal missions are social or civic rather than charitable. Another noticeable grouping are organizations whose names sound a lot like those of well-known, established institutions and imply missions that tug at donors' heart-strings. While some of those organizations are legitimate and need to expend money to build up a solid base of donors, others exist only to capitalize on thegood names of legitimate organizations.

Such revelations can inspire cynicism among donors. What they should inspire is a New Year's resolution among charity leaders to do more to insure the continuing health of America's non-profit groups. Legitimate charities with a long-term interest in the success of fund-raising efforts can help the regulators and watchdogs do their work in several ways:

Established organizations that seek to expand the number of their donors can refuse to do business on any terms with fund-raising firms that repeatedly show up on these lists in a highly unfavorable light.
Non-profit leaders can use informal conversations and community contacts to try to persuade their counterparts involved in employee groups or mutual-benefit associations of the damage that results from the hiring of unscrupulous fund raisers.
Associations of non-profit groups can make strengthening the hands of regulators and other observers a higher priority, as, for example, the statewide associations in Minnesota and Maryland have done. Developing and circulating standards of practice about fund raising and other issues can raise everyone's awareness of the importance of respecting people's reasonable expectations about how donations will be used.
Accountants and other professional advisers can educate their clients about the new requirement to present the complete costs of fund raising in financial statements and in their annual informational tax returns filed with the Internal Revenue Service, known as Forms 990. The task of educating donors to accept the real costs of meeting fund-raising needs will be much simpler when consistent and accurate reports are the industry routine.
Indeed, we all can work to improve public understanding of the importance of fund raising to charitable enterprise. No organization should be ashamed to ask the public to support its work. If the challenges of fund raising are handled with intelligence and a concern for the well-being of the non-profit world as a whole, then no one who works in the non-profit arena has any reason to fear explaining to anyone what his or her group has done-and why.

With a year of work on resolutions such as these, we ought to be able to enter the Third Millennium with a feeling of pride both in America's tradition of broad support for charitable causes and in the techniques in use to protect the wellsprings of generosity on which it depends.

Putnam Barber, a regular contributor to these pages, is president of The Evergreen State Society, in Seattle, which works to strengthen non-profit groups and civic organizations. The society's World-Wide Web address is http://www.tess.org .