When Attorney General Jerry Brown announced a major push against charity fundraising companies last year – saying some telemarketing firms had "shamelessly exploited the goodwill of decent citizens" – he focused on misleading sales pitches and the misuse of donor funds.
But Brown was highlighting the extreme edge of a persistent problem: Charities have accepted extremely low returns from their telemarketing firms for years.
Records at the California Department of Justice show more than 200 nonprofits receiving 15 percent or less from the telemarketing firms they've hired to raise money. Instead, the vast majority of the donations went to the fundraisers’ payroll and fees.
In total, the attorney general reported about 30 percent of California nonprofits received less than 15 percent from their fundraisers. The amount given to charities was about $156 million, or 44 percent of the $356 million raised by commercial fundraising firms in 2008.
The situation has been festering with little notice by the public or state authorities. California Watch was able to find several examples of charities operating with low returns from their commercial fundraisers for at least a decade.
"It’s like taking the food from a hungry person’s mouth," Daniel Borochoff, president of American Institute of Philanthropy, which runs Charitywatch.org, said about high overhead of fundraising firms – a problem he's been monitoring since the mid-1980s.
"There’s confusion because telemarketers mislead people by saying, 'All of the money will go to the cause,' " Borochoff said, "when most of it goes to a charity account and then is given back to the commercial fundraiser."
A nonprofit called VETS, or Victory Ensured Through Service, based in Palo Cedro, a tiny town east of Redding, reported that Zagar and Associates had returned only about 9 percent each year from 1997 to 2008. In 2008, the charity reported raising $195,083 but receiving only $18,105 from Zagar.
Here's what the Sacramento Bee's Andrew McIntosh discovered about the charity:
On official documents, the telemarketing operation, Zagar and Associates, is run by Carl Lee Zagar of West Sacramento.
Zagar has one client: V.E.T.S., according to records it filed with the state attorney general's office. V.E.T.S.' treasurer is Candace Filek, a records supervisor at the Shasta County Sheriff's Office.
Although Zagar is not listed in V.E.T.S.' nonprofit filings, Filek said the two of them launched the nonprofit years ago after growing tired of watching large national veterans' charities raising money and failing to deliver results.
'It doesn't go where it's supposed to go: directly to the veterans,' Filek said.
Questions about VETS have persisted despite even legal action in another state.
In 2000, the Bee reported, Oregon's attorney general issued a notice of false trade practices to VAP and Nielson. Investigators had found that "Care Packs" the group was selling for $29.95 contained items worth less than $5, court documents show. In a 2001 settlement, VAP agreed to end solicitations in Oregon and reimburse the state $2,750 for the investigation but admitted no wrongdoing, the Bee reported.
Children’s Charity Fund, a nonprofit that serves disabled and handicapped children based in Florida, received 15 percent each year for about a decade from The Campaign Center Inc., based in New York, and another firm, Civic Development Group, a New Jersey telemarketer that was sued by the Federal Trade Commission earlier this year and agreed to pay a $19 million fine.
According to the California attorney general's 2005 report, The Campaign Center had raised $36,887 for the Children's Charity Fund and passed back $5,533. In the past, Garrett Morgan, CEO of the fundraising firm, has said there is no strict rule on how much telemarketing firms can collect for reaching out to the public, adding: "What's the value of public awareness?"
The charity's president, Ken Bowron, told Tampa's Fox 13 News that he wasn't proud of agreements that allowed professional fundraisers to keep million of dollars, but added: "If I didn't have the fundraisers in the beginning, then no child would have gotten help.
In another case, a charity called We Tip, based in Rancho Cucamonga, reported receiving only 11 percent of the money raised in its name by the telemarketing firm, R.E.W. & Associates. That was in 1997. More than a decade later, in 2008, the charity's take had increased to about 15 percent.
We Tip, which has a robust website, bills itself "as an anonymous crime reporting resource for citizens, and a tool to aid law enforcement" and "a way for all citizens and students to turn their anger into action." Officials at the nonprofit did not respond to calls from California Watch.
Commercial fundraisers argue that little revenue is better than no revenue. Jack Kinney, the fundraising director of Rambret Inc., a telemarketing commercial fundraiser, said, "When you’re on the good side making money, the percentage doesn’t matter."
The commercial fundraisers offer guaranteed money, regardless of the percentage, Kinney said. The majority of expenses, Kinney said, “is to pay their people who do their fundraising, their biggest expense is to pay people who do it.”
San Fernando Police Officer’s Association used Rambret Inc. and in 2008 received 2.6 percent of what was collected. In 1997, the association received 7 percent of the total revenue from Rambret.
Not every firm simply has high overhead. Other firms are outright defrauding charities.
In 2009, Attorney General Brown in conjunction with the Federal Trade Commission filed eight lawsuits against 53 people, 17 telemarketers and 12 charities. This was part of a nationwide sweep called "Operation False Charity." The cases were filed in Los Angeles, Orange, San Bernardino and San Mateo counties.
"These individuals shamelessly exploited the goodwill of decent citizens trying to help police, firefighters, and veterans … millions went to pay for aggressive telemarketing and bloated overhead – and in one case – to purchase a 30-foot sailboat," Brown said in a statement.
Brown highlighted a settlement with The Association for Firefighters and Paramedics Inc., which billed itself as helping burn victims. Brown said there was a diversion of thousands of dollars to pay for meetings in resort communities, including a Caribbean cruise and trips to resorts.
In 2000, commercial fundraiser Kinship Communications generated $395,361 in revenue for the association and spent $355,815.53 on expenses, the majority on commission and salaries.
The association had misrepresented how and where the donating public’s contributions would be spent, according Brown's office. Donors were told that between 80 to 100 percent of their donation would go to the association.
Brown sought to dissolve this charity and file a permanent injunction against the charity’s president, Michael Gamboa, to prohibit him from any future involvement with a California charity. Gamboa had earned $114,980 in salary, accounting for 4.37 percent of the generated expenses. He could not be reached for comment.
Many charities registered in California charities don’t use commercial fundraisers. The Desert Samaritans for the Elderly in the Coachella Valley, for one, reported 85 percent of the revenue generated from its commercial fundraiser. But even with that generous return, they now rely on private donations from individuals and corporations and local events like silent auctions.
“Telemarketers have such a bad reputation,” said Dena Bates, program director for the charity.