Gotcha on Tape: Fundraising Fraud

Americans give about $250 billion a year to charity and with all that money, there's plenty of room for fraud.

They're called "badge scams," charities that play on our desire to help the people who help us -- police organizations, fire departments and rescue companies.

What most people don't realize is that there is no law requiring any particular percentage of your donation to be used for the good cause you want to support and often, much of it isn't.

When fundraisers for the American Deputy Sheriffs Association phoned Lisa Heddens and Bob Brammer, they called the wrong people.

"Some sort of gut instinct said something just wasn't right," Heddens, an Iowa state legislator, said.

"I don't think they knew who they were calling," said Brammer, who is a spokesman for the Iowa attorney general.

Brammer recorded one of the recruiting calls and let ABC News hear it.

"There's no emergencies. You can put your hands down, too," the fundraiser is heard, laughing.

The telemarketer might not have been laughing if he'd known the identity of Brammer and Heddens.

"I kept pushing to say now I want some more information, and he was not willing to provide that," Heddens said.

When Heddens asked where the organization was located, the fundraiser told her that donations were mailed to Des Moines, but she persisted.

"We do all of the calling from Wisconsin," the fundraiser finally admitted.

Brammer asked at least nine times how much of his donation would go toward the charity.

"I recall asking repeatedly what share of my donation is going to be used for the charitable purpose," Brammer said. "And you really can't get a straight answer to that question."

The Better Business Bureau's Wise Giving Alliance says at least 65 percent of a charity's budget should be used for its stated mission.

Records obtained by "Good Morning America" show the American Deputy Sheriffs Association took in almost $6 million in 2004 and spent less than 3 percent on charity.

"Consumers, contributors don't know, don't have any idea how small an amount of their charitable contribution is going for the charitable purpose," said Iowa Attorney General Tom Miller.

So what was the charity spending its money on? Fundraising.

According to a contract obtained by "GMA," the American Deputy Sheriffs Association agreed to pay a telemarketing company called PAI as much as 87 percent of the money it collected.

PAI owner Duane Kolve is now facing racketeering charges in Wisconsin because of his company's alleged misleading practices.

In court papers, Eau Claire County, Wis., District Attorney Rich White revealed that an undercover investigator had gotten a job at PAI.

"Our investigator was advised that you say whatever you have to say to get a donation," White said.

"There was no corporate culture nor was there any company policy to get money by any means possible," said Chris Van Wagner, Kolve's attorney. "They were raising money for charity. There was no fraud."

White disagrees.

"The misrepresentations combined with the misimpressions -- that is fraud, period," he said.

So next time you get a call asking for money, try to think like a state legislator or the attorney general's right-hand man.

Start asking questions.

At least 13 states have taken legal action against the American Deputy Sheriffs Association, and the company has now agreed to stop doing business in Iowa.

In another twist, the state of Ohio put a court-appointed lawyer in charge of the American Deputy Sheriffs Association to clean it up.

An executive formerly affiliated with the charity, Thomas Buchman, defended the association by saying that fundraising was very expensive and that profit margins were very low.

To make sure your charitable donations are well-spent, ask the caller whether he or she works directly for the charity or whether he or she is a paid fundraiser.

Ask what percentage of your donation goes to the cause you want to support.

Before you give, check with one of the watchdog groups that monitors charities.

The watchdog groups can also confirm the charity is a registered 501-c3, so you'll know you can get a legitimate tax deduction.