Fundraising organizations that set up charities seemingly for their own gain are on notice. CNN reports that its 3-year-old investigation into Quadriga Art's activities on behalf of the Disabled Veterans National Foundation found that QA took almost all of the money raised for DVNF and provided nothing of value to veterans. As a result, "the New York State Attorney General's office has reached a nearly $25 million settlement with one of the nation's biggest direct mail companies."
"This potentially could change how professional fundraisers operate in the state of New York and possibly the entire country," CNN asserts.
According to the Attorney General's office, QA abused DVNF by creating a "funded model" for donations by assuming the upfront costs for printing, packaging and mailing the direct mail campaigns so that QA could be paid out of the campaign revenue. "In exchange, the fundraiser obtains effective control over the charity's donated revenues, as well as a lien on the charity's donor list," states Monday's settlement announcement.
Under this model, DVNF never knew how much money came in or how much the direct mail cost. As a result, though DVNF fundraised $116 million, it ended up owing QA.
DVNF became very popular very fast, but its fundraising strategy outpaced DVNF's programs and services, Schulhof writes. "We mailed too much, and too quickly, for a young charity," he says. "We made mistakes that permitted donors to believe that greater programs were in operation before they could be fully realized. And in our work to assist this young organization, our efforts created the impression that we had an operational involvement with the charity itself."
In the settlement, QA will pay $9.7 million in damages, forgive DVNF's $13.8 million debt and give New York State $800,000 for costs and fees. Another direct mail vendor, Convergence Direct Marketing, will pay $300,000 and the total damages, $10 million, will be paid to help disabled American veterans, according to the AG statement.
The AG's office further states, "In addition, Quadriga will … adopt a number of significant reforms to improve transparency and set a higher ethical bar for the direct mail charitable solicitations industry."
Nonprofits, fundraisers, direct mailers and associated marketers: What does this settlement mean to you?
Will this settlement set a precedent for "funded model" charities?
Please respond in the comments.