AOL?The New Spam/Scam Playpen
E-Postage and the Fleecing of 30 Million AOL Members
March 7, 2006: Vol. 2, Issue No. 18
IN THE NEWS
AOL to pay e-mail tab for nonprofits
America Online intends to pick up the costs for nonprofit groups that wish to send e-mails to AOL members, a move that comes less than a week after a consortium spoke out against the company's plan to charge for a new bulk e-mail service.
Dulles, Va.-based AOL said Friday that it will offer nonprofit organizations two new free e-mail options that possess many of the features, including images and Web links, of the company's premium service designed for commercial mass e-mail. On Monday, a consortium of nonprofit and public interest groups, including MoveOn.org Civic Action, the American Federation of Labor - Congress of Industrial Organizations, Gun Owners of America and the Electronic Frontier Foundation, lashed out at the plan by AOL and Yahoo to charge a fee for guaranteed delivery of bulk e-mails.
—Greg Sandoval, CNET News, March 3, 2006
I started amassing an archive of direct mail samples around 1980. In 1984, my wife, Peggy and I launched WHO'S MAILING WHAT!--a newsletter about direct mail for direct mailers based on the collection we were building. The mailings were sent to us from correspondents around the country. (I paid their mailing costs and gave them a free subscription to the newsletter as a thank-you.)
Over the years, Peggy and I have gone on three photographic safaris to Africa, where in the late 1980s, Somali poachers were crossing the border into Kenya and shooting elephants for their ivory tusks and leaving the bloody carcasses to litter the landscape.
Having taken many beautiful photographs of elephants, I was upset and sent $500 to Richard Leakey, head of Kenya Wildlife, along with a letter urging him to buy ammunition to shoot poachers. He sent me a nice thank-you note.
Around that time, the network of WHO'S MAILING WHAT! correspondents began forwarding me mailings from more than a dozen animal activist groups begging for money to save the elephants from extinction.
After a great deal of research, I discovered what these groups were doing with the donors' money to save elephants.
They were pocketing the money.
The more I got into the business of fundraising, the more I discovered that unless you delve deeply into the finances, the work and the methodology of individual nonprofits, chances are good that you'll be fleeced.
The announcement by AOL and Yahoo that they are going to start charging e-postage to bulk mailers that allows them to bypass Spam filters resulted in an outcry of horror from liberal and conservative organizations from MoveOn to Gun Owners of America, as well as readers of this publication.
In a knee-jerk reaction to the criticism, AOL announced that nonprofits will not have to pay the e-postage that will be charged to other bulk mailers.
By allowing nonprofits to bypass its Spam filters and enter members' in-boxes with an imprimatur, AOL is setting up its membership for the fleecing of the century.
How Mail Order Charities Can Work
From the Jan. 9, 1990, edition of the Chronicle of Philanthropy by Connecticut Attorney General Clarine Nardi Riddle:
Contemplate this only somewhat fictitious example: A "charity" is created to educate the public about the common cold. It hires a professional fundraiser to conduct a direct-mail campaign to raise money. (Telemarketing can be easily substituted for direct mail here.) The direct-mail copy provides a statistic on how many people annually catch a cold and includes the following tips on how to avoid it: wear a hat, eat soup, and avoid people who sneeze.
Three years of nationwide mailings produce $10 million in contributions. The professional fundraiser bills the charity for $9.75 million. The remaining $250,000 is consumed primarily by the executive director's salary. The charity's management determines that the mailing had a dual purpose of soliciting money and educating the public about the common cold. Thus, on its annual report (and its Internal revenue Service Form 990) 50 percent of the $9.75 million that was paid to the fund raiser can be counted as a program expense because the charity says it educates the public. Not a bad percentage for a "start-up" charity. But what exactly is the benefit to society that makes this charity worthy of donor support and tax exemption?
Prior to the worldwide ban on ivory—which effectively took care of the elephant poaching problem—three groups were legitimately working to save elephants with operatives in Africa chasing poachers—Kenya Wildlife, the African Wildlife Foundation and the New York Zoological Society's Wildlife Conservation International.
A slew of other animal activists started sending out desperate pleas on behalf of elephants, many accompanied by lurid photographs of the carnage and orphaned elephants standing over the corpses of their parents.
These con artists were making mailings to raise money to make mailings to raise money and so ad infinitum. Like Attorney General Riddle's charity for the common cold, Form 990 declared that the money was going toward creating awareness of the problem—"public education."
Public education was not needed. The media were filled with gruesome pictures and descriptions of the elephant slaughter. Park rangers, guns and ammunition to shoot the poachers were needed.
Let's say a donor gave $50 to one of these bogus charities to help save elephants. The next day she receives a request to save elephants from the African Wildlife Foundation or Wildlife Conservation International—the two legitimate organizations. She would say to herself, "I gave to elephants yesterday," and throw the mailing away.
These fraudulent organizations were just as guilty of poaching—and just as guilty of killing elephants—as the Somali ivory hunters.
They were deeply wounding the very cause they claimed to be helping.
The Nonprofit Shysters
You can take the elephant scam and run that business model across the entire nonprofit spectrum—animals, the environment, international relief, religion, politics, minorities, culture, health and handicapped, and social action causes.
In many cases, the lion's share of the money goes to fundraising agencies for administration, overhead and fees, as well as to their closely allied subsidiaries—printers, mailing houses, data processors and list companies.
Under this business model, the charity—able to mail at ultra-low non-profit rates—has been set up as a front that funnels money into all these for-profit organizations. The main program is "public education," which is accomplished by sending out a lot of mail asking for money and including a few facts about AIDS, battered wives, starving children, abused animals, tsunami victims or global warming.
How to Determine if a Charity Is Legitimate
Four documents are needed:
1. The Direct Mail Package, Telemarketing Script, Web Site Pitch or TV Infomercial. This is what the charity is telling the public about its activities and how it spends its money.
2. IRS Form 990. This is what the charity tells the IRS about its activities. It states the revenue and expenses and what the programs are. When "public education" is in the mix, this should be a red flag. When a charity is adding a large percentage of its revenue to increase its endowment fund or net assets—rather than spending it on the primary mission—consider that another red flag.
3. Contract With the Fundraising Agency. This is the linchpin, without which any meaningful analysis is impossible. It will answer such basic questions as:
Who owns the donor list—the charity, the agency or is it jointly held? The house list is the main asset—in many cases the only asset—of a charity. Fundraising agencies that own or control the charity's list will charge the charity list rental fees to mail its own names and will keep list rental income from outsiders for itself. This is fraud.
*It is unethical for an agency to receive a percentage of the money raised. In the words of the Association of Fundraising Professionals (AFP):
16. Members shall not accept compensation that is based on a percentage of contributions; nor shall they accept finder's fees.
Fundraising agencies can get around this by charging a fee for each piece of mail that goes out—anywhere from 2¢ to 10¢ or more. Instead of collecting money at the back end (a percentage of the money raised), they are taking their cut up front. As a result, the agency has no incentive to "mail smart," but rather to mail a lot, because that's how it makes its money (along with payments to its closely allied printers, lettershops, etc.
4. The Annual Report. This includes the vision statement, activities of the past year and the complete financials as prepared by accountants.
Rounding up these four sets of documents for each charity is time consuming and horrendously difficult. I don't believe the charity watchdogs—BBB, Charity Navigator, GuideStar—really understand these complex, smoke-and-mirrors business models or go to the trouble of detailed analysis.
It's a given that the young techies at AOL won't have a clue about which charities are worthy and which are not—or how to do a proper research and analysis.
This free pass on e-postage for nonprofits will mean open season for scammers and spammers among AOL's 30 million unsuspecting members.
The resulting financial carnage will cause deep, long-term damage to the work of legitimate charities and the causes they espouse.
Takeaway Points to Consider
- You and your organization are besieged with requests for money from legitimate-sounding charities. Their copy and illustrations are heart-rending. How can you say no?
- My suggestion: Give to the well-known groups that are regularly covered by the media and whose reporting is transparent.
- Never give to someone over the phone. Ask for material in the mail so you can make a decision. If the rep says that nothing is available by mail, hang up.
- If you receive a solicitation from a cause that interests you, write, phone or e-mail and ask for the following: (1) IRS Form 990; (2) contract with the fundraising agency; (3) annual report. The fourth element—the direct mail package—is in your hands. Save it, and when these other documents arrive, spend time comparing what they all say.
- If the charity fails to send you any one of the three documents described above, take a pass.
- People who give to charity feel good about what they have just done. However, how would you feel if you found out that your hard-earned dollars actually helped pay for a Caribbean cruise for the head of the fundraising agency and only a tiny percentage of your gift went to the cause that was promised?
- My guess is that 25 percent or more of pure-play direct mail, Internet and telemarketing-based nonprofits should be shut down for reasons ranging from inefficiency to fraud.
Web Sites Related to Today's Edition
Association of Fundraising Professionals (AFP)