High fund-raising costs!

Many of you may have witnessed the following scenario: A couple of young, smart looking marketing types land up at your office or home claiming to represent a well-known Indian nongovernmental organization (NGO). They are often persistent to the point of aggression where their fund-raising targets are concerned. But, interrogate them beyond a point and you will be amazed how very little they know about the organization or the cause they claim to represent. But this is only natural, because these management trainees are not representatives of the NGO but fund-raisers hired by telemarketing and other such agencies.
Welcome to the world of ‘outsourced fund-raising!’
What is ‘outsourced fund-raising?’ It is fund-raising not undertaken directly by the NGO, but by a commercial agency on behalf of an NGO. On paper that seems so practical and nice. In fact credulous NGOs often ask, "Could you please give us a list of such agencies?” After all the biggest and the best NGOs in India engage telemarketing agencies to raise funds!
But does anyone know what these agencies charge NGOs?
There is one that we personally know that charges 55% plus service tax. While lamenting about this fee to another wellknown NGO, we were told, "Oh we pay the lowest to these agencies compared to all others.” We asked what that entailed with some trepidation and were informed that it was "just 40%.” In other words out of the Rs 100 given say for the education of a girl child or cancer patient, Rs 40 gets deducted right at source by the agency. Now the balance Rs 60 goes to that big NGO which itself implements no direct program but instead partners with other grassroots level organizations. If one were to factor in administrative costs at both NGOs, probably less than Rs 10 out of the donation of Rs 100 may reach the end beneficiary. Shocking but a stark reality!
What’s worse, sometimes these fund-raising solicitors are not even agency representatives. They are absolute frauds. And who is to tell a professional fund-raiser from an absolute fraud knocking at your door at two in the afternoon? Sometimes children are drawn into this exercise much to their personal embarrassment but with pressure from the schools.
Very recently cyberspace was abuzz with a report titled "Worst Charities.” It was the result of a year-long investigation by three news outlets that identified America’s "50 worst charities” and reviving the perennial question of what the nonprofit world should do to purge unscrupulous nonprofits and fund-raisers.
The inquiry by the Tampa Bay Times and the Center for Investigative Reporting, joined in recent months by CNN, highlighted charities that channeled most of the money they raised to professional fund-raisers, mimicked other charities’ names, deceived donors on telemarketing calls, diverted money and contracts to undeserving recipients who had ties with their organizations, and used accounting tricks to inflate the amount they reported spending on their missions.
The charities on the "50 worst” list sent almost one billion dollars to commercial solicitors (fund-raisers) and spent an average of less than four cents on direct cash aid to the needy over a decade, the investigation found.
Some of the "50 worst” contested their rankings and some groups that were not on the list tried to distance themselves from those that were. The American Cancer Fund, a small charity that educates cancer patients about treatment options, posted a notice on its website stating it is not the Cancer Fund of America, which ranked No. 2 on the "worst charities” list. "We have never paid a telemarketer to make calls for us; we have never called you and asked you for money.”
Incidentally, the Cancer Fund of America paid more than $ 80 million to fundraisers over 10 years while spending less than one million dollars in cash aid, the investigation found, while its founder and at least a dozen other family members earn one million dollars a year in salaries from the cancer group and four spinoff charities.
The American Foundation for Children with AIDS, No. 46 on the list, issued a detailed rebuttal, saying it no longer uses professional fund-raisers and has "worked diligently to free itself of this inefficient source of revenue.”
Is there a lesson from all this for NGOs in India? Above all else, what would be deemed reasonable? Unfortunately, we have no legal clarity on this in India.
However, in the USA, the North Carolina Charitable Solicitations Act defines the prima facie "reasonable fee” that a professional fund-raiser may charge according to a three-tiered schedule. A fee up to 20% of receipts collected is deemed reasonable. A fee between 20% and 35% is deemed unreasonable upon a showing that the solicitation at issue did not involve the "dissemination of information, discussion, or advocacy relating to public issues as directed by the charitable organization which is to benefit from the solicitation.” A fee exceeding 35% is presumed unreasonable, but the fund-raiser may rebut the presumption by showing that the fee was necessary either because the solicitation involved the dissemination of information or advocacy on public issues directed by the charity, or because otherwise the charity’s ability to raise money or communicate would be significantly diminished. The Act also provides that a professional fund-raiser must disclose to potential donors the average percentage of gross receipts actually turned over to charities by the fundraiser for all charitable solicitations conducted in the State within the previous 12 months. Finally, the Act provides that professional fund-raisers may not solicit without an approved license, whereas volunteer fundraisers may solicit immediately upon submitting a license application.
It is time to pull our socks up and think of a viable solution. Perhaps we could take a lead from the North Carolina Charitable Solicitations Act with regard to benchmarking "reasonable fund-raising fees?”

Reprinted with permission from Philanthropy (July-August 2013), the newsletter of the Centre for Advancement of Philanthropy, which is edited by Noshir Dadrawala