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How charity scandals sell newspapers AND garner votes for politicians?

As often seems to be the case with electoral politics, as a result of a scandal in Florida, there has been much press (which is now national) and proposed legislation that would add to the regulatory burden of charities and fundraisers.  In a multimillion-dollar charity scam, employees of Allied Veterans of the World were accused of pocketing nearly $300 million in Internet gambling proceeds over a five year period.  More than 50 were arrested and are facing criminal charges, and the lieutenant governor of Florida resigned.

Meanwhile the Tampa Bay Times got together with the Center for Investigative Reporting from Berkeley, California and produced a report entitled “America’s Worst Charities,” largely based on high fundraising cost ratios.  It is well known by those in the industry that fundraising cost ratio is a meaningless measure of a charity’s work as evidenced by numerous research studies culminating in a recent report called “The Overhead Myth.”

These same two media organizations then created something called: “Charity Checker” which they label “a community service from the Tampa Bay Times and the Center for Investigative Reporting.  Powered by BBB Wise Giving Alliance, Charity Navigator, GreatNonprofits, and GuideStar.”  Why organizations that subscribe to “The Overhead Myth” about how fundraising ratios are inappropriate measures of charities would allow their information to be used by Charity Checker is a mystery, but since both the BBB and Charity Navigator use those same fundraising ratios in their accreditation and ranking schemes, perhaps it isn’t surprising.

Meanwhile, back in Florida, state Senators and Representatives with the encouragement of the states’ top charity regulator, Florida Commissioner of Agriculture and Consumer Services Adam Putnam, have introduced “reform” legislation (Senate bill 638 and House bill 629) ostensibly to target waste, fraud, and abuse in the charitable sector.  On February 18, 2014, the House Business and Professional Regulation Subcommittee approved HB629 by a 12-0 vote.  There appears to be no political or organized opposition to these bills and so they seemed destined to become law.

The fact that the newly proposed Florida law would have done absolutely nothing to prevent the original scandal is apparently irrelevant.  The fact that more than 50 people are being prosecuted under existing laws in that case is apparently irrelevant.  The fact that all 50 states have well established fraud laws to prosecute fraudulent behavior is also irrelevant.  The fact that cost of fundraising ratios as a measure of a charity’s work have been thoroughly and widely debunked is apparently further irrelevant.  The fact that true charity scams rarely register so they can be regulated by state officials while honest charities do register and then undergo the costs of that regulation seems to eluded the proponents of the new legislation.

So, if it wouldn’t have prevented the scandal as noted above, what does the newly proposed law do?  Well, amongst other things it:

  • Requires that “each officer, director, trustee, or owner of a professional solicitor and any employee of a professional solicitor conducting telephonic solicitations must, before engaging in solicitation activities, obtain a solicitors license ….” (emphasis added)
  • Those required to obtain a license must pay to be fingerprinted and have those fingerprints submitted to state and federal law enforcement databases to identify any matches.
  • Those required to obtain a license must pay a $100 license fee in addition to the cost of fingerprinting.
  • Those required to obtain a license must submit their driver’s license number or other valid form of identification and home address.

So a telemarketing firm must itself register for a fee of $300 and presumably pay for all of its officers, directors, owners, and employees to register for $100 each and get fingerprinted at a cost estimated by the state at $31 each.  Since most telemarketing firms employ part time operators this means that a person working 5 hours a week making calls on behalf of charities and others must be fingerprinted and registered at a cost of about $131 each or for a medium sized telemarketing firm with 100 officers, directors, owners and employees an annual cost of $13,400 which will undoubtedly be charged back to the charities for which they work.

But that isn’t all the newly proposed law does.  It further provides that:

  • All solicitations, including those via a website (where the disclosure statement must be on the donation page), must include the name of the charity, its principle place of business, an address and phone number to which inquiries can be made, and upon request the amount of the contribution which may be deducted as a charitable contribution under federal income tax laws,
  • AND if the solicitation is oral,
    • the name of the registered professional solicitor
    • a description of how the contributions will be used
    • if requested, the fixed percentage of the gross revenue or the reasonable estimate of the percentage of the gross revenue that the charity will receive as a benefit from the solicitation

So Florida is now suggesting that if you are a charity in New York and you put up a website for your cause and some citizens of New York on vacation in Florida access your site and are solicited, you must not only register in Florida to solicit gifts, you must put in the above disclaimers on your website on the donation page.  There is no mention in this proposed legislation of the industry’s widely adopted “Charleston principles” that would limit the ability of a state to regulate out of state charities not actively soliciting therein.

In requiring the registration of out of state fundraising counsel whose clients solicit gifts in Florida, the legislation also ignores the decision of the United States Court of Appeals for the 11th Circuit (governing Florida) in the American Charities for Reasonable Fundraising vs. Pinellas County case which limited the ability of jurisdictions to regulate commercial activities outside their borders.

What else does the newly proposed legislation do?  It provides that Florida may remove state sales tax exemption from any charity which has been in operation 4 or more years and for the most recent 3 fiscal years has failed to expend at least 25% of its total annual functional expenses on program services.  This is not a new idea.  Since Florida doesn’t have an income tax they propose this to apply to sales tax exemption but the idea of preventing state charitable deductions for gifts to certain charities based upon their costs of fundraising is now law in the State of Oregon, and will soon be the law in other states unless stopped.

So there you have it.  Charities are criticized for having high fundraising and overhead costs so politicians increase the costs of compliance, reporting and fundraising by passage of new laws.  And what is even more pathetic than the lack of understanding of what they are doing, is the fact that the real scam artists are the ones who will never register or comply thus leaving to legitimate charities the entire cost of compliance.