- § 1.2 Charitable Fundraising: A Portrait
- (a) Scope of Charitable Giving in General
- (b) Online Charitable Fundraising
- *§ 1.3 Evolution of Government Regulation of Fundraising
- § 1.4 Contemporary Regulatory Climate
§ 1.2 CHARITABLE FUNDRAISING: A PORTRAIT
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From the standpoint of the law of charitable fundraising, two aspects of the portrait of charitable giving in the United States are important: the extent of charitable giving in general and the increasing use of the Internet for the purpose of soliciting charitable contributions.
(a) Scope of Charitable Giving in General
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Charitable giving in the United States in 2017 is estimated to have totaled $410.02 billion. Giving by individuals in 2017 amounted to an estimated $286.65 billion; this level of giving constituted about 70 percent of all charitable giving for the year. Grantmaking by private foundations is an estimated $66.9 billion (16 percent of total funding). Gifts in the form of charitable bequests in 2017 are estimated to be $35.7 billion (9 percent of total giving). Gifts from corporations in 2017 totaled $20.77 billion (5 percent of total giving for that year).
Contributions to religious organizations in 2017 totaled $127.37 billion (31 percent of all giving that year). Gifts to educational organizations amounted to $58.9 billion (14 percent); to human service entities, $50.06 billion (12 percent); to foundations, $45.89 billion (11 percent); to health care institutions, $38.27 billion (8 percent); to public-society benefit organizations, $29.59 billion (8 percent); to international affairs entities, $22.97 billion (6 percent); to arts, culture, and humanities entities, $19.51 billion (5 percent); and to environmental and animals groups, $11.3 billion (3 percent).24
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(b) Online Charitable Fundraising
Not that many years ago, use of the Internet for charitable fundraising was only nascent. One analysis of online fundraising, in its beginnings, did not have statistics on this approach to gift solicitation.25.1 But it was clearly coming, and was expected to someday be a major force in charitable fundraising. Now, that âsomedayâ has arrived.
In mid-2014, The Chronicle of Philanthropy gave a special report on online fundraising, with the theme being âDigital Giving Goes Mainstream.â25.2 Among the findings in this report was that Internet gifts climbed 13 percent in 2013 in relation to 2012, although online fundraising âstill accounts for a very small portion of the money charities rely on.â25.3 Nonetheless, in 2013, the Leukemia & Lymphoma Society raised over $98 million online, the California Community Foundation raised more than $95 million online, the American Heart Association raised $59 million in that manner; other totals were over $45 million (World Vision), about $40 million (Campus Crusade for Christ International, Cystic Fibrosis Foundation, National Christian Foundation, Salvation Army), about $30 million (March of Dimes Foundation, Young Life), and about $20 million (Global Impact, Memorial Sloan Kettering Cancer Center, United States Fund for Unicef, University of Michigan).25.4
About one year later, another report speaks of the âtransformative promise of online fundraisingâ that has yet to materialize.25.5 This report looks at the âshort history of online fundraisingâ and finds that it âis not without signs of progress.â It summarizes the successes of online-giving websites and notes that â[y]ear to year, more people give money online to charity.â Still, for most charitable organizations, this report states that online giving ârepresents a sliver of their overall fundraising.â The âpromised revolutionâ is âmoving at glacial speedâ because of ancient tech infrastructure, reluctance on the part of fundraising management to place more emphasis on online operations, and lack of understanding by senior executives and board members of the potential of online fundraising. This report concludes that âeffective online fundraising doesn't eliminate the human touch at the core of giving.â Every day, the report states, âyou see more meaning and substance on the Internet, more people forging thoughtful, deep connectionsâdeeper connections, perhaps than a professional fundraiser could ever hope for with a yearly newsletter.â25.6
§ 1.3 EVOLUTION OF GOVERNMENT REGULATION OF FUNDRAISING
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There continues to be a nationwide crackdown on fraudulent charities that exploit disadvantaged groups in order to solicit donations. On October 11, 2018, the Minnesota attorney general filed a lawsuit against the American Federation of Police and Concerned Citizens, Inc. (AFPCC) for deceptively representing that contributions it received would be used to help families of officers killed in duty. The attorney eneral found that in fact only 17 percent of AFPCC's spending in 2017 and just 9 percent of the $4 million it received in total donations were used for charitable purposes. On July 19, 2018, the Virginia attorney general announced that his office was taking legal action against two charities, Hearts for Heroes, Inc., and Operation Troop Aid, Inc., alleging they both had used donations to benefit their organizations instead of helping veterans and troops. This suit and settlement are part of a 16-state action. According to a release from the Virginia attorney general's office, the Operation Troop Aid, Inc. settlement requires it to dissolve and prohibits its CEO from assuming any fiduciary role with a nonprofit corporation or soliciting on a nonprofit corporation's behalf.
On September 11, 2017, the Michigan attorney general announced a settlement with Breast Cancer Outreach Foundation, Inc., a Florida nonprofit corporation, resolving the attorney general's claims that the organization deceptively raised $1.4 million nationwide in 2015. The organization's solicitations stated that funds would be used for breast cancer research grants. In reality, all of the money raised, other than one grant, was paid to professional fundraisers and for other expenses unrelated to breast cancer research. As part of the settlement, the Foundation is required to pay $150,000, with $125,000 paid for breast cancer research and the remaining $25,000 to recover the state of Michigan's investigative costs. The organization is also banned from soliciting in Michigan for 10 years.
On May 18, 2015, the Federal Trade Commission and 58 agencies from all 50 states and the District of Columbia filed a complaint charging four cancer charities and the individuals controlling them with allegedly swindling more than $187 million from consumers. The federal court complaint named Cancer Fund of America, Inc. (CFA) and Cancer Support Services Inc. (CSS), their president, James Reynolds Sr., and their chief financial officer, Kyle Effler; Children's Cancer Fund of America Inc. (CCFA), its president and executive director, Rose Perkins; and The Breast Cancer Society Inc. (BCS) and its executive director and former president, James Reynolds II.
In the complaint, the FTC and state agencies labeled the cancer groups as âsham charitiesâ and charged the organizations with deceiving donors and misusing around $187 million in donations from 2008 to 2012. According to the complaint, the defendants represented themselves as legitimate charities that spent 100 percent of their proceeds on services for cancer patients, such as hospice care and buying pain medication for children. The complaint alleged that these claims were false and that the charities operated as âpersonal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted.â Investigators found that, in reality, the charities spent less than 3 percent of donations on cancer patients.
According to the complaint, the defendants used the organizations to pay lucrative salaries to family members and friends and spent contributions on personal items such as cars, trips, luxury Caribbean cruises, college tuition, gym memberships, concert and sporting event tickets, and dating site memberships. The defendants also hired professional fundraisers who received up to 85 percent or more of every donation. The complaint asserted that in order to hide their high administrative and fundraising costs from donors and government regulators, the defendants falsely inflated their revenues by reporting more than $223 million in donated gifts-in-kind that were allegedly distributed to international recipients. The complaint states that by reporting the inflated gift-in-kind donations, the defendants created the impression that they were more efficient with donors' dollars than was actually the case. Thirty-five states also alleged that the defendants filed fraudulent and misleading financial statements with state charities regulators.
Two of the charities, the CCFA and BCS, agreed to settle the charges before the complaint was filed. Under the proposed settlement orders, Effler, Perkins, and Reynolds II will be banned from fundraising and charity management, and CCFA and BCS will be dissolved. On March 30, 2016, the Federal Trade Commission announced the total disbandment of the CFA and CSS. Further, James Reynolds, Sr. was barred from ever again operating or fundraising for nonprofit organizations.
Similarly, on July 21, 2015, the New York Attorney General Eric T. Sch...