The United States is home to roughly 1.6 million tax-exempt organizations.
That’s far too many to examine closely. So the Tampa Bay Times and The Center for Investigative Reporting used data collected by the nonprofit charity tracker GuideStar USA to narrow the pool to the 5,800 charities nationwide that report paying professional solicitation companies to raise donations.
We focused on these charities because relying heavily on for-profit fundraisers is one of the most inefficient ways to collect donations. Regulators and industry experts widely consider the practice a red flag for bad charities.
To tell the stories of America’s worst charities, reporters started in California, Florida and New York, the largest states that require charities to disclose the results of their professional fundraising campaigns.
These states capture the fundraising activities of thousands of charities across the country, and in many cases record the donations raised and the cash paid to fundraisers in every state where a charity solicits donations.
Reporters zeroed in on charities that consistently kept less than 33 cents of every dollar donated. Watchdogs generally flag charities as wasteful if they keep less than 65 cents of every dollar raised.
The Times and CIR then looked back at a decade of IRS tax filings to identify and rank the 50 worst charities based on which groups paid the most to their fundraisers over that time.
One or two costly fundraising campaigns were not enough to make the list. Charities had to pay fundraisers the bulk of the money raised in at least 75 percent of all campaigns over the years.
In addition, the Times and CIR excluded charities that ran fewer than five campaigns, got half their cash revenue from other sources or had revenue less than $200,000. The reporters also calculated the cash each charity spent on direct cash aid.
The Times and CIR counted money given directly to individuals or passed on to independent charities as grants.
Grants given to a charity related to the original organization were not counted. Neither were donated items or the costs of educational campaigns. Both can be legitimate forms of charity, but they are easily manipulated to mask fundraising costs.
The data has limitations.
After facing criticism for high fundraising costs year after year, charities and fundraisers have learned how to hide the costs of telemarketing and direct mail. Some have obscured costs by reporting mailing expenses and other fees separately. Others run their own telemarketing operations in-house.
Some of the charities’ IRS filings were incomplete or had not been filed. Others contained obvious errors that sometimes could not be clarified.
The Times and CIR had three experts review the methodology for identifying the 50 worst charities. All of them, including Chuck McLean, vice president of research for GuideStar; Robert Tigner, general counsel of the Association of Direct Response Fundraising Counsel; and Putnam Barber, a nonprofit expert at the University of Washington, said the methodology was sound.
In addition to identifying the nation’s worst charities, the Times and CIR used public records requests to compile the first nationwide database of state regulatory actions against charities and their professional fundraisers. The data, available at tampabay.com/charity, contains some 8,000 actions from more than 35 states.
Some disciplinary actions may be missing. Fifteen states provided no information; 24 states directed reporters to press release archives that may not have been comprehensive.