ARTICLE

Fair share? Telemarketers for Iowa charities keep most of the money they raise

Bill Brauch is Director of the Consumer Protection Division of the Iowa Attorney General's Office, which monitors telemarketers with this undercover phone. When the phone rings, a legal secretary waves the stop sign to quiet the office. Photographed Tuesday, May 10, 2011, in Des Moines. (Liz Martin/SourceMedia Group News)
Bill Brauch is Director of the Consumer Protection Division of the Iowa Attorney General's Office, which monitors telemarketers with this undercover phone. When the phone rings, a legal secretary waves the stop sign to quiet the office. Photographed Tuesday, May 10, 2011, in Des Moines. (Liz Martin/SourceMedia Group News)

Iowa charities that use outside telemarketers received an average of just 22 cents of each $1 raised, a Gazette investigation found. An overwhelming majority of Iowa charities that contract with telemarketers agreed to accept 20 percent or less of the revenues generated. When Iowans responded to telemarketers who called on behalf of out-of-state organizations, the splits often were more lopsided. Fundraisers sometimes kept 98 or 99 cents of each dollar donated. Because most telemarketers operate outside Iowa, more than 67 percent of the money donated to Iowa charities flowed instead to California, Florida, Ohio, Tennessee, Arkansas, Minnesota, Oregon, Michigan and Wisconsin.

Telemarketing registrations, financial disclosures and contracts are filed with the Consumer Protection Division of the Iowa Attorney General’s Office, which made them available to The Gazette.

A contract between Special Olympics Iowa and DialAmerica Marketing Inc. provided for the New Jersey telemarketer to keep 87.5 cents of each $1 raised through magazine sales. When DialAmerica called on behalf of Special Olympics Iowa for 24 months, ending in October, the non-profit received $142,100 of the $982,766 generated. That’s 14.5 cents for each $1, or 85.5 percent to DialAmerica, because some donors chose to give to the non-profit without purchasing a magazine.

Gary Steinke, an Urbandale resident who joined the Special Olympics Iowa board last year, said he was not aware telemarketers were getting so much of the money raised on the organization’s behalf. “I must say that I’m shocked,” said Steinke, whose 14-year-old son is a Special Olympian. “What also bothers me is that 80-some percent of this money is going out of state in the name of Special Olympics Iowa,” he said.

Mike Lightbody of Iowa City has coached Special Olympians for 10 years and has bought magazines from DialAmerica. “As a person who has given that money, I really got the feeling that a lot of it went to Special Olympics Iowa,” Lightbody said. “The 12 cents on the dollar seems pretty low.”

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Mark Reed, president and CEO of Special Olympics Iowa, said the deal with DialAmerica is a marketing program. “We tell (Iowans called by DialAmerica) very clearly upfront that if they would like to purchase a magazine, that 12 and a half cents out of every dollar of the magazine subscription will go to Special Olympics,” Reed said. If people say they would rather make an outright donation, DialAmerica routes the contribution to the Iowa group, Reed said.

DialAmerica’s website says it makes 200 million calls per year. Some smaller telemarketing firms claim to share. 40 percent to 50 percent of magazine sales revenue with charitable organizations. The $454,458 raised in the first year of its two-year Special Olympics Iowa campaign was not tax-deductible, according to DialAmerica.

Overall, Iowa donations that did not qualify as tax-deductible totaled at least $1,206,666 — or 44 percent of the money collected by telemarketers during the most recent reporting periods.

Special Olympics Iowa also has a contract with an Arkansas telemarketer, The Heritage Co. For the collection year ending May 31, 2010, Heritage said it kept 52.4 percent of $454,712 raised. In September, Heritage was fined $15,000 by the state of Iowa after solicitors were recorded repeatedly obscuring their role and inflating the percentage of donations that would go to Children’s Wish Foundation, National Children’s Cancer Society and Mothers Against Drunk Driving. Reed said none of the calls was on behalf of Special Olympics Iowa and that he remains confident in the telemarketer’s integrity.

Tracking telemarketers

The Attorney General’s Office requires commercial fundraisers to disclose whether their activities have incurred disciplinary action or legal sanctions outside Iowa, but relies on self-disclosure, on other agencies and on the Internet to identify telemarketing violations.

On March 25, 2010, and April 20, 2011, Joseph Gehl, president of Center Stage Attractions of Fort Lauderdale, Fla., signed Iowa registration forms in which he said the fundraiser had not been the subject of “a legal, administrative or other proceeding regarding any solicitation or registration as a solicitor or fundraiser.”

That wasn’t true, though. In May 2009, the Federal Trade Commission and South Carolina officials announced that Operation False Charity had found in the previous year that Center Stage Attractions solicitors had failed to make required disclosures when calling on behalf of the Columbia (S.C.) Fire Fighters Association.

Callers failed to disclose they were professional solicitors and did not give the true name of their fundraising company. Additionally, a notice of solicitation was not filed before the fundraising campaign. As a result, Center Stage Attractions signed an Assurance of Voluntary Compliance in March 2008 and was fined $12,000.

An AVC is an agreement settling concerns that, in this case, a telemarketer violated consumer protection laws. The telemarketer is allowed to deny the allegations but agrees to avoid future violations. Fines often are assessed as part of the settlements.

Iowa Professional Firefighters, an AFL-CIO affiliate based in West Des Moines, has relied on Gehl to conduct telemarketing on its behalf for about 15 years, said Rick Scofield, 56, a retired Cedar Rapids firefighter and president of the group.

Scofield, of Marion, said he is satisfied with the professionalism of Gehl’s fundraising. “I don’t get a lot of complaints,” Scofield told The Gazette. Scofield said he also is satisfied with the 20 percent the union group receives from Gehl’s company. “They do all the work,” he said.

Center Stage Attractions appears to be flying under the state’s radar. “It is very unlikely our office would ever be unaware that a particular fundraiser had entered into a settlement with another law enforcement agency, regardless of the form of settlement,” said William Brauch, 54, director of the Consumer Protection Division of the Attorney General’s Office. Even if his office was unaware, “we do not believe that a failure on the part of any company to report past enforcement activity has in any way diminished our ability to protect the people of Iowa against misleading charitable solicitations,” Brauch said. Brauch said no contract is on file between Center Stage Attractions and the Iowa Professional Firefighters, “as it is our understanding that that fundraiser is no longer raising funds on behalf of that charitable organization.”

Scofield told The Gazette that Center Stage is fundraising “right now.” “We write them a check every week for the amount owed to them,” Scofield said.

‘Unfair, deceptive’

In a contract with Minneapolis-based Public Safety Council LLP, the Iowa State Reserve Law Officers Association, based in Marshalltown, agreed to an 85/15 split of revenues. The telemarketing firm raised $97,265, of which $14,590 went to the law enforcement support group. The remaining $82,675 flowed from the accounts of Iowans to the owners and employees of a call center in St. Paul, Minn.

Iowa Attorney General Tom Miller concluded the Minnesota telemarketing firm used “unfair and deceptive” language in calls to Iowans — based on “undercover telephone traps” recorded by a staff member posing as an Iowa woman with a history of donating to charitable causes.

Public Safety Council LLP, an affiliate, a subcontractor and the organizations’ owners, J. Michael Callan and Robert T. Callan of Minneapolis, agreed in December to an Assurance of Voluntary Compliance in Iowa. Callan companies also conducted telemarketing campaigns for the Iowa Association of Chiefs of Police and Peace Officers and for the Iowa State Police Association. The charitable organizations agreed the telemarketers could keep 84 or 85 cents of each dollar raised.

In March, Associated Community Services of Southfield, Mich., signed a consent judgment and agreed to pay $35,000 into Iowa’s consumer fraud enforcement fund after representatives of the company were recorded misleading Iowans when soliciting on behalf of Vietnam Veterans of Iowa Inc. Disciplinary actions imposed on telemarketers in other states do not disqualify them from operating in Iowa or calling the state’s residents but can heighten awareness inside the Consumer Protection Division.

“The registration law was proposed by this office, in large part, in order to require the ongoing provision of what amounts to evidentiary data to assist the attorney general in ensuring that fundraisers not engage in deceptive solicitations,” Brauch said.

2 cents to charity

For Iowans who respond to telemarketing appeals for out-of-state charities, revenue agreements can be even more unfavorable than the in-state splits.

GiveRight Inc. of Los Angeles calls Iowans on behalf of the Media Research Center in Alexandria, Va., which bills itself as America’s “leader in documenting, exposing and neutralizing liberal media bias.” GiveRight often enters into fee- or expense-based contracts. To satisfy the legal requirements of some states, GiveRight estimated in most cases its expenses would claim 98 percent of all funds raised. GiveRight offers charitable organizations the services of its six divisions, including a Manila, Philippines, call center, which provides a “low-cost solution for reinstating longer lapsed donors ...”

In January, executives of the Nature Conservancy, a national organization based in Arlington, Va., signed a contract with Fine Line Communications, a Canadian telemarketer based in Winnipeg. A copy of the contract on file in Iowa provides for the Nature Conservancy to approve scripts created by Fine Line for calling prospective donors, including those in Iowa. Because states require different levels of disclosure, a short script was created to satisfy the laws of Kentucky and Massachusetts.

If donors ask what percentage of their contribution goes to the Nature Conservancy, the scripted response is: “We are not paid a percentage of any donation raised for the Nature Conservancy, but rather a flat fee per person we speak to, regardless of whether or not you choose to give. The Nature Conservancy directs 76 percent of all funds to conservation programs. The difference is allocated for administration and fundraising costs.” While the Nature Conservancy may operate on 24 percent overhead, that fact is not the answer to the donor question: How much of my donation goes to the charity? The revenue split between Fine Line and the Nature Conservancy is 95/5.

“The U.S. Supreme Court has made it very clear that government cannot regulate the percentage of a donation that must go to the charitable purpose vs. fundraising. The court has said that is an issue of free speech,” Brauch said, “but the court has also made it very clear that solicitors may not engage in misleading solicitations.” Brauch said no single source dictates the appropriate split of donations. “The right test is determined by each and every individual donor,” he said, “but it seems from our discussions with Iowa donors that 25 percent is a reasonable line.”

No contract on file between any charitable organization and professional fundraiser sets out a 75/25 split favoring the charity. In most contracts, the ratio is flipped, so that at least three-fourths of all donations are retained by the telemarketer.

CHECK IT OUT: Financial records between telemarketing companies and Iowa charities

Telemarketer Documents

Best in show

The most favorable arrangement on file involved Iowa Public Radio, which received 61.4 percent of $46,799 raised by ComNet Marketing of Medford, Ore., for a one-year campaign. Iowa Public Radio depends on telemarketers for only about 5 percent of its annual revenue, said Kelly Edmister, chief administrative officer. It enjoys a more beneficial arrangement because it shops around.

“We go through (a request for proposal) process,” Edmister said. “Our goal is always to improve the quality and effectiveness of our fundraising efforts.”

Because Iowa Public Radio is charged by the Board of Regents with reducing its dependency on state and university funding, “we’ve always got to find the better deal,” Edmister said. So Iowa Public Radio is switching from ComNet to Phone Bank Systems of East Lansing, Mich. “What we found in our most recent change is it was more efficient to go to a per-call charge vs. a per-hour charge,” Edmister said. “We can limit the expense, because we can monitor the calls they make and … say, ‘Don’t make anymore calls this month.’ ”

She said Iowa Public Radio hopes to net $70,000, or 65 percent of the anticipated revenue, in response to telemarketing by Phone Bank Systems.

Not that lopsided

Asked if he thought Iowans would be as generous when contacted by a telemarketer if the fee splits were disclosed, Scofield, president of the Iowa Professional Firefighters union, hedged. “I’m not real sure,” he said. “That’s their choice. We don’t pressure anybody. … If people ask (the telemarketer), ‘How come you’re getting three-fourths?’ and they explain they have expenses, they might (donate), and if they don’t, that’s fine.” Bottom line: “It’s an agreement that we make and we agree to, and I am comfortable with it,” Scofield said.

Scofield challenged the idea that the splits are lopsided. “On the surface it appears lopsided, but really it’s not,” he said. “It takes money to run a business. … “You have to remember the fundraising company we employ (Center Stage Attractions), they have to pay their employees, they have to pay for their space, they have to buy all the telephone lines ...”

And sometimes, telemarketers have to pay their fines.

A look at Iowa charity telemarketing agreements

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