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To Regulate or Not to Regulate

 

In December 2001, New York State Attorney General Elliot Spitzer introduced a four-part initiative aimed at reforming charitable fundraising, particularly telemarketing campaigns. He called for the reforms after he released his annual "Pennies for Charities" report, in which he found that charities had received only 31.9 percent of the $184.7 million raised for them through telemarketing campaigns in New York in 2001.
In response to the initiative, charities across the country are voicing their concerns.

Critics of the proposed regulations point out that they will cost the nonprofits too much money and time to follow. The proposed "comparison shopping" regulation has raised the most concern. It would require charities to collect bids from at least three telemarketing firms/professional fundraisers before awarding a fundraising contract. The regulation would apply both to organizations seeking a first-time contract and those that wish to renew an agreement. The critics contend that this process will be costly to the sector as well as difficult for many small charities to perform.

In March, GuideStar asked newsletter readers to share their feelings on the topic of regulating fundraising professionals. Readers were first asked if they believed that the use of professional fundraisers should be regulated and then if their respective organizations had ever had an experience with a professional fundraiser. Some 71 percent of respondents said professional fundraisers should be regulated, and 53 percent indicated that their organizations had had experience with professional fundraisers in the past.

One anonymous reader, although agreeing that some sort of regulation is needed, commented, "I believe that it would help those who are trying hard to earn a living as a fundraiser." Whereas the majority of respondents indicated the need for legislation, others thought the new regulations would be costly and ineffective. "There are enough regulations on the books that apply to professional fundraisers. Nonprofit professionals are just as capable of evaluating proposals and making good decisions as their for-profit counterparts are. In fact, they are more likely to be even more scrupulous because of the public trust they must maintain. More regulation is costly and doesn't help," stated one.

"It's not necessarily the regulation of fundraisers that should be considered but, rather, the guidelines that public charities should abide by when utilizing professional fundraisers," commented another.

Still other readers plan to avoid hiring outside fundraising firms or professionals altogether. A reader responded, "In the future we will do everything we can to have staff (even if we have to hire someone) to do our fundraising."

"This highlights the public policy dilemma that will remain unanswered by the proposed regulations," says Dan Moore, GuideStar's vice president of public affairs. "There is a cost to fundraising whether the campaigns are conducted internally or through professionals. The focus on professional fundraising costs may lead some organizations to bring those costs within the organization. Such a decision could, in fact, cost an organization more money than using a professional. But it would shield the organization from negative publicity in an attorney general's report about charities using professional fundraisers."

"Is this really the way we want charities to be making decisions?" Moore added.

The New York Attorney General's initiative, which can be found in a December 19, 2001, press release, addresses many concerns raised by the annual report. First, Spitzer called for the issuance of subpoenas to several charities and professional telemarketers. Legal action, including lawsuits for fraud, could be taken against these companies, depending the information obtained.

Second, he called for new regulations requiring charities to perform "comparison shopping" before contracting with telemarketing firms. Spitzer also recommended that a super-majority of an organization's board be required to approve contracts with fundraisers when the nonprofit would receive only a small percentage of the donations collected in its name.

Third, Spitzer called for state legislation that would require telemarketing firms to disclose what percentage of the funds the charity had received from past telemarketing campaigns before accepting donations.

Finally, Spitzer proposed federal legislation requiring that for any charitable solicitation in which the organization would receive only 50 percent or less of the funds raised, only the amount actually remitted to the charity would be tax deductible.

Topics: Charity Law and Regulations GuideStar Nonprofits