Pseudo charities that enrich themselves and spend little on their advertised cause while preying on donors' best natures are a multimillion-dollar enterprise in America. Yet lackadaisical regulation enables this deception, which is largely legal and benefits from tax-exempt status. Florida and other states should do more to ensure donors aren't duped and that bad actors are forced out of business.
The investigative series published Sunday and today by the Tampa Bay Times and the Center for Investigative Reporting reveals about 50 charities that appear to exist primarily for the purpose of benefitting their organizers and for-profit fundraising companies. At these 50 operations, for every dollar taken in from telemarketing calls, just pennies flow to a good cause. The rest flows into the pockets of the people who set them up or the for-profit fundraising companies they hire. Their fundraising misleads donors into believing they are helping others and robs communities of tax revenue because donors can deduct charitable contributions from their taxable income.
As reporters Kris Hundley and Kendall Taggart detail in today's article, this outrage continues largely unabated because piecemeal state regulation fails to focus on bad actors or demand transparency. Nor does the Internal Revenue Service dedicate staff to policing nonprofits. The result in many states means operators simply file paperwork to register with the appropriate state agency, such as the Florida Department of Agriculture and Consumer Services, but almost never fear any further enforcement.
For example, most states can't even provide a list of disciplinary actions against charities and solicitation companies. Regulators may fail to act on blatant violations of law, such as evidence a Florida solicitor was hiring felons to dial potential donors. And rare is the repercussion for solicitors who lie to donors. In the unusual case where charities or their solicitation companies are shut down due to fraud, operators usually can reorganize under a new name or move to another state and start the scheme all over again.
This isn't a new problem. Decades ago, several states tried to crack down on pseudo charities and their for-profit solicitors by limiting the percentage of donation revenue that solicitors could be paid. The U.S. Supreme Court unfortunately ruled in 2003 that such laws violated free speech.
But states have other options, and Florida Agriculture Commissioner Adam Putnam and the Legislature should pursue reforms. Here are five suggestions:
Florida's regulation of nonprofits and the solicitors who work for them most often amounts to a $500 fine for failing to file appropriate paperwork. That's not enough to get anyone's attention.
Florida and other states should focus on banning bad actors from working for nonprofits, not on just banning the corporate entities.
Nonprofits and their directors who are shut down in one state should not be allowed to start fresh in another state. Florida should sign reciprocal agreements with other states to recognize the disciplinary actions taken against bad actors apply everywhere.
Require telephone solicitors working for nonprofit charities to submit scripts to regulators to ensure they are not misleading potential donors.
Give donors more information
Like North Carolina and other states, Florida should create a public, user-friendly website that includes both charity regulation documents and what portion of revenue raised by each charity is spent on its advertised purpose. Florida should also follow the practice of New York and South Carolina, which highlight each year which charities are sending just pennies on the dollar to beneficiaries.