In today's follow the money, we take a look at people who gave to charities with no idea that almost all of the money was sent to for-profit fundraisers. Reporter Sarah Kleiner with the Center for Public Integrity uncovered the story.
Sharyl: Is it accurate to say it's more efficient for some charities, they think, to hire a third party, for-profit fundraiser that does the fundraising for them, but they take a big cut of the money?
Sarah Kleiner: Yes, absolutely. And charities will say time and again that it's inefficient for us to raise money. We need to hire someone to do that.
Sharyl: You start your story with an example of somebody who got a call and thought he was donating to something, really, where almost none of his money went. Is that true?
Kleiner: That’s true.
Sharyl: Tell me about it.
Kleiner: Eric Thomas is a retiree. He's a veteran, lives in Florida and got a phone call last year asking if he would be willing to donate to the Children's Leukemia Support Network. He sent $100 because he himself has leukemia and he thought he was helping children with the same illness that he's going through. It turns out that $84 out of the $100 he sent went to a network of companies that are run by a man out of Las Vegas. And most of the rest of the money was spent on salaries and other overhead like bank fees and that sort of thing.
Sharyl: So explain how that corporation or the for-profit organization kept $84 of the $100.
Kleiner: The Las Vegas telemarketer is at the top of this food chain and most of the money that is being raised for these groups that sound like charities but are actually political action committees is staying with those for-profit companies.
Sharyl: What do the political action committees do with the money that they receive?
Kleiner: These political action committees that sound like charities are sending most of the money they raise to the for-profit companies. And then the operators of these groups, of these political action committees are getting paid themselves. And most of the rest of the money is paying accountants, bank fees, rent, payroll taxes, etc.
Sharyl: It's almost as if what you describe, the telemarketer seems to be using the charity to raise money rather than the charity using the telemarketer to raise money. So, if I'm someone who's giving money and I find out that not even half, maybe not even a penny of the donation is going to the cause I think it sounds like, isn't that a scam?
Kleiner: So again, it's legal to spend most of the money on fundraising for charities and also for political committees. Political committees have wide latitude in what they're able to spend their money on.
Sharyl: If people get a phone call, like the ones you've described, what do you think they ought to do?
Kleiner: Ask questions and do research. Ask, how is my money going to be spent? How much of it is going to be spent on this stated purpose? And who is this that's calling me? Is this a third party? And then do research online.
We asked for an on-camera interview with the Las Vegas telemarketer criticized in Kleiner’s story. He declined, but defended his business model insisting he follows all legal requirements. He also said the small charities he worked with couldn't afford their own fundraising operations and appreciated his work. But he conceded fundraising costs can eat up a lot of the donations. He also said he has now stopped working with charities.