The connection between major national charities and telemarketers should be investigated by the Federal Trade Commission for possibly abusing tax-exempt status or breaking the law, U.S. Senators Richard Blumenthal and Herb Kohl say.
“I am writing to ask that the FTC investigate reports that telemarketers acting on behalf of well-respected charities are deploying deceptive tactics to induce individuals to donate money that is kept mostly, and sometimes entirely, by the telemarketer,” Blumenthal, D-Conn., wrote to the FTC on Nov. 30. “These practices are unethical and in some circumstances may be illegal.”
Blumenthal’s letter urges the FTC to investigate whether Bath Township telemarketer InfoCision Management Corp. made “misleading statements to induce charitable contributions.”
Sen. Charles Grassley, R-Iowa, said Congress and the Internal Revenue Service should consider writing stricter rules to prevent highly profitable nonprofits from avoiding taxes.
The three senators said two recent Bloomberg Markets magazine articles show that the government should act to prevent abuse by tax-exempt organizations.
Kohl, D-Wis., said the U.S. Department of Justice and the Consumer Financial Protection Bureau also should look at possible nonprofit abuse.
Bloomberg Markets reported in October that InfoCision, the world’s largest charity telemarketer, raised money for the American Cancer Society, the America Diabetes Association and other national charities while falsely telling potential contributors that 70 percent of the money raised went to the charities.
“This particular scheme is one that needs to be looked at closely by the Consumer Financial Protection Bureau, Federal Trade Commission and Department of Justice to make sure it can’t happen again,” Kohl said.
The Cancer Society and Diabetes Association approved the scripts for the telemarketers, Bloomberg Markets reported.
Blumenthal asked Jon Leibowitz, chairman of the FTC, to investigate if these tactics violate the Telemarketing and Consumer Fraud and Abuse Prevention Act.
“These telemarketers use scripts approved by the charities to mislead potential donors about how much the charities keep,” Blumenthal wrote. “The scripts are misleading, stating that 70 to 75 percent of funds raised go directly to the charities when the actual number is far less.”
FTC spokesman Frank Dorman declined to comment. Greg Donaldson, national vice president for corporate communications for the Cancer Society said, “We welcome the chance to clarify the facts and will cooperate fully.”
InfoCision Chief of Staff Steve Brubaker said that his company has been a dependable partner to some of America’s best charities for decades and takes its obligations to them and to potential donors seriously.
“Our legal counsel has asked us not to comment on the merits of these claims other than to say we vigorously dispute these allegations and will respond accordingly in the proper judicial forum,” Brubaker said.
Brubaker told the Beacon Journal on Tuesday that “InfoCision performs critically important functions for charities. Charities engage in a variety of different types of fundraising campaigns. Often, the goal of these campaigns is not only to solicit donations, but also to advance the charities’ missions.
“For example, during certain campaigns, charities engage InfoCision to educate the public about their public message, promote awareness of particular disease detection and prevention, and/or to disseminate health test kits, which enable the public to be more educated and lead healthier lives.
“For certain fundraising campaigns, particularly those designed to attract new donors or volunteers and/or educate the public, charities understand that they are investing in fundraising campaigns that may not bring in as much money in a given year as a campaign costs to conduct, or may result in relatively modest donations initially. These campaigns are nonetheless critical to the charity’s mission because attracting new donors and volunteers, who may continue to give to the charity for years to come, is essential to the charities’ growth, viability and charitable mission.
“For other campaigns, particularly those designed to re-engage previous donors, the charities receive a substantial dollar amount in donations compared to the costs of a given campaign,” Brubaker said.
The Cancer Society’s 2010 contract with InfoCision for a telemarketing campaign called Notes to Neighbors estimated the charity would receive 44 percent of the money raised. Solicitors used scripts, approved by the society, falsely claiming that 70 percent of the money raised would go to the charity.
That year, InfoCision kept 100 percent of the $5.3 million it raised for the charity, according to Cancer Society filings with the IRS and the state of Maine.
The American Diabetes Association approved a script the same year for use by InfoCision telemarketers.
“Overall, 75 percent of every dollar received goes directly to serving people with diabetes and their families,” the script says.
The association’s fundraising contract for that period estimated the association would receive just 15 percent, with the rest going to InfoCision.
Others of the nation’s largest health charities, including the American Heart Association, the American Lung Association and the March of Dimes, have hired InfoCision during the past decade. The telemarketer brought in a total of $425.5 million for more than 30 nonprofits from 2007 to 2010, keeping $220.6 million, or 52 percent, according to state-filed records.
A Bloomberg Markets December article reported that the American Bureau of Shipping, a 150-year-old Houston-based ship inspection company, paid no U.S. income taxes on just less than $600 million of profits earned from 2004 to 2010.
It paid Robert Somerville, then its chief executive officer, $21.7 million during that time. ABS allowed managers perks such as chauffeurs, chefs, maids and first-class travel. The Internal Revenue Service doesn’t have rules against such spending by nonprofits.
That caught Grassley’s attention.
“The laws and regulations that govern tax exemption are too vague or poorly enforced,” Grassley says. “Congress and the IRS have a responsibility to tighten up the laws that undermine tax fairness.”
Other nations reject the tax-free status accorded to ABS by the IRS.
ABS spokeswoman Jean Gould said the company fulfills a vital role of promoting safety at sea and serving the public good. “ABS has been a tax exempt entity for nearly a century and fully supports appropriate oversight of U.S. tax-exemption law,” she said.
Grassley said these issues may become especially relevant if negotiations to avert the fiscal cliff lead to changes in the tax code.
The Beacon Journal contributed to this report.