Beware Charity Phone Calls

About twice a year, Al O'Leary gets a phone call at home from people raising money in behalf of New York City police officers. When O'Leary tells them who he is, he said, they invariably hang up.

O'Leary is the communications director of the New York City Patrolmen's Benevolent Association, a union of about 50,000 police officers. The union, he said, never makes phone call solicitations and although O'Leary can't verify that the caller is running a scam -- there are other police unions in the city besides the PBA, he said -- he finds the hang-ups suspicious.

A few times, he said, he asked the callers to send him information about their fundraising efforts and they never did.

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O'Leary can't help but assume the worst.

"They're stealing," he said. "They're taking money out of people's pockets who think they're helping New York City police officers and that's simply wrong."

As Americans begin to plan their year-end charitable donations, some government officials and charity watchdog groups are warning consumers to protect themselves by avoiding phone contributions. Some charity solicitation calls, officials say, are downright scams -- like the kind O'Leary believes he has faced -- while others really do represent legitimate charities and nonprofit groups.

But donating to legitimate, professional fundraisers also has a potential downside: Often, only a small percentage of the donations collected are passed directly to the charities. The rest is used to pay the for-profit telemarketers who make solicitation calls on behalf of charities.

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For instance, in most of the charitable campaigns conducted in New York State -- 475 of 584 campaigns -- less than 50 percent of the funds collected were given directly to the charities involved, according to a study released this month by the state Attorney General's Office.

In dozens of cases, less than 10 percent of donated funds were passed on to charities.

Attorneys general in several other states, including California, Connecticut, Colorado, Massachusetts and North Carolina, have yielded similar results, according to recent studies.

"I think people who give over the phone are typically unaware how much of their donation remains in their telemarketers' hands," said Sandra Miniutti, the vice president of marketing at the charity watchdog group Charity Navigator. "I don't think people would give if they knew."

The issue, she said, takes on increased significance now, as tough economic times push charitable giving down and nonprofit groups scramble for any cash they can get.

Signing up for the National Do Not Call Registry won't keep consumers from receiving such phone solicitations, Miniutti said.

Telemarketers calling on behalf of charities are exempt from the registry's ban on solicitation calls. When the registry took effect in 2003, she said, it influenced many telemarketers to move into the nonprofit fundraising business.

The shift, she said, meant "you didn't see a whole lot of telemarketing firms go out of business."

The Direct Marketing Association, a trade association representing telemarketers, declined to comment for this story.

Why Charities Need Telemarketers

Steve Abrahamson of the American Civil Liberties Union -- one of the nonprofit groups listed in the New York State Attorney General's report -- said the ACLU works with four different telemarketing companies because the companies are more efficient than the ACLU would be if it were to use its own people to solicit donations by phone.

"We'd have to hire hundreds of people, have phone facilities for them and all the systems that manage the calls, " said Abrahamson, the ACLU's associate director of membership. "It would not be economically feasible and it would cost us much more."

The ACLU pays its telemarketers on a per-call basis, he said. As long as the solicitation call is made, the telemarketer charges the group, regardless of whether the call secures a pledge.

The result is that the ACLU can't establish guarantees that more than 50 percent -- the benchmark set by some experts -- of the cash value of donations collected will actually be passed on to the ACLU. During one 2008 campaign listed in the New York Attorney General's report, $23,000 of the more than $260,000 collected by a telemarketer in behalf of the ACLU actually made it to the ACLU's coffers. That's less than 9 percent.

Abrahamson said that campaign was especially tough because it focused on donors who hadn't contributed to the ACLU in a long time. The campaign's goal, he said, wasn't simply to collect donations for 2008 but to convince them to give in years to come.

But Abrahmason added that, generally, the group would not want to directly tie a telemarketing agency's compensation with the amount actually collected. That, he said, might put too much pressure on telemarketing employees to secure donations from tentative donors.

"We want to make sure we're not creating incentives for people to be harassing our members," he said.

It is usually legal for telemarketers to keep the bulk of the donations they collect. The Supreme Court ruled in 2003 that states can't regulate how donations should be divided between charities and the telemarketers they hire.

What is illegal, law enforcement officials say, is misrepresenting the charitable cause for which you're collecting.

Government Cracks Down on 'False Charity'

The Federal Trade Commission partnered this year with state attorneys general offices across the country to crack down on organizations that allegedly misrepresented the causes for which they were raising money. "Operation False Charity" targeted more than 80 fundraising companies, nonprofit groups and individuals believed to be engaged in fraud.

One case was brought to the attention of law enforcement authorities by a Kentucky sheriff with personal experience with the problem: Warren County Sheriff Jerry "Peanuts" Gaines said a group claiming to represent his office tried to solicit donations to pay for bulletproof vests.

He learned of the group, he said, when several people stopped by his office last spring, checks in hand, after receiving calls and letters from the group. "I said, 'You keep your check,'" Gaines recalled.

After turning down his would-be donors, Gaines called the Kentucky Attorney General's Office.

The office last month announced a settlement with the United States Deputy Sheriff's Association, the group that was allegedly raising money for the vests without Gaines' knowledge. The association last year donated about $10,000 to Kentucky law enforcement agencies, "much less than what was actually raised," according to a statement by the attorney general's office.

Under the settlement, the group will donate $71,500 in equipment to Kentucky sheriff's departments.

A lawyer for the group noted that the settlement was reached without any finding of wrongdoing.

Tips for Charitable Giving

If you donate by phone, government officials and Charity Navigator suggest that consumers take several steps to ensure their contributions will be put to good use:

Ask questions such as whether the caller is from a telemarketing company or works directly for the charity; what programs are conducted by the charity; how much of your donation will be used for a charitable program; and how much the telemarketer guarantees to the charity.

Do your research: A number of state attorney general offices have Web sites providing evaluations of different charities. Ratings for more than 5,000 charities can also be found on the Web site for Charity Navigator.

See it in writing. Ask the caller to send you information about the charity, including its annual report or a brochure outlining its accomplishments.

Skip the phone. Try donating through a charity's Web site instead.

With reports from ABC News' Rich Esposito.