Michigan telemarketing firm takes huge chunk out of charity donations

2:18 PM, Dec 23, 2013   |    comments
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(DETROIT FREE PRESS) - When the Vietnam Veterans of Michigan was looking to augment its fund-raising, the charity turned to a Southfield-based telemarketing firm to call up potential donors.

For the past dozen years, Associated Community Services has put its banks of script-reading phone solicitors to work for the veterans group, dialing into homes and convincing people to give up their credit card number and make a donation.

In 2011, the most recent year for which records are available, Associated Community Services raised $89,740 on behalf of the veterans group. But when the final check was cut, the charity received only $8,855 - a mere 10% - to put toward services for veterans. ACS kept the remaining $80,885 as payment for its fund-raising work, according to forms filed with the Internal Revenue Service.

ACS is one of the nation's largest charity telemarketing firms. Employees call millions of Americans on behalf of cancer patients, homeless veterans or disabled firefighters. Donors who give once over the phone find themselves flooded with calls for the firm's other charity clients, according to a recent investigation by the Tampa Bay (Florida) Times and The Center for Investigative Reporting.

People like Judith Johnson of Stacyville, Iowa, who is legally blind and living on a small Social Security payment, are being targeted. In one recent year, ACS' callers convinced her to write 25 checks to 11 different charities, the CIR and Tampa Bay Times investigation found.

The repeated calls were no fluke. After Johnson gave to one charity, ACS put her on a list that got her bombarded with calls for nearly a dozen more of the company's clients.

Telemarketers sometimes called several times a day. When she was sick or sleeping, they told her to get out of bed and find her checkbook. When she hesitated, they berated her for not doing enough.

Johnson told one phone solicitor she couldn't afford to give to Children with Hair Loss. The woman on the phone came back with this response:

"She said, 'You're going to let this poor little child be bald-headed when they're only 4 years old?' " Johnson told the CIR and Tampa Bay Times for its investigation. "I really felt bad for the children, so I think I gave her around $10."

Unbeknownst to Johnson, just $1.75 of that donation made it to the charity. The telemarketing firm pocketed the rest.

ACS President Richard Cole said the company does not target elderly people and has no way of knowing the age or financial situation of the people they call. But during an investigation into the company, the Iowa attorney general found that most of the company's prolific donors - those who gave 20 times or more - were 69 or older.

ACS has also come under fire in Michigan - where the state Attorney General's Office alleges the firm violated the state's charitable trust law 230 times. It has been hit with criticisms ranging from harassing homeowners to exploiting elderly would-be donors to using misleading call scripts. Ex-employees have detailed deception and high-pressure tactics. It has been banned from doing business in Iowa.

For some charities, contracting with ACS or similar telemarketing firms is a way to access a new swatch of potential contributors that the smaller nonprofits might not otherwise have access to because they lack staff or an in-house telemarketing infrastructure.

But philanthropy experts say the price of admission is much too steep.

'Hang up the phone'

Saline-based Vietnam Veterans of Michigan runs a home for disabled veterans, sends care packages to troops and helps vets with referrals, said the organization's president, Sandie Wilson, who has 10 employees.

Its association with ACS come to light earlier this year, when the Michigan Attorney General's Office slapped the telemarketing firm with a cease-and-desist order for using what state legal officials consider deceptive scripts for soliciting donations.

ACS calls on behalf of the veterans group were flagged, along with those for four other charities - the Foundation for American Veterans in West Bloomfield; the Cancer Fund of America in Knoxville, Tenn.; the Breast Cancer Society in Mesa, Ariz.; and the Children's Cancer Fund of America in Powell, Tenn.

Wilson said she has contracted with ACS for 12 years. For the first five years the charity operated, Wilson used another fund-raising firm, but she "didn't like their tactics" and received numerous complaints about them.

The charity president had been told that ACS' profit is only 5% after expenses.

"There's things called rent, payroll and telephone charges and billing charges and all that kind of stuff. Telemarketing is a costly thing to do," she said.

Vietnam Veterans of Michigan had annual expenses of $245,000-plus in 2011, according to its Form 990 filed with the IRS. The $80,855 it spent on ACS' services represents about one-third of its budget.

A good benchmark for efficient fund-raising is to spend 13 cents for every dollar raised, and a charity shouldn't spend more than 10% of its budget on fund-raising, according to Sandra Miniutti of Charity Navigator, a Glen Rock, N.J.-based charity evaluator. Because the figures are so skewed when a charity telemarketer is involved, she advises people to "hang up the phone."

Miniutti isn't moved by the argument that the nearly $9,000 that Vietnam Veterans of Michigan got by hiring ACS is money the organization wouldn't have otherwise seen.

"But that's $80,000 that could've gone to another charity. The nonprofit sector can't afford that. The number of charities is going up, but donations are staying the same," Miniutti said. "This damages the whole sector. I don't think that's good."

Compare that to the United Way for Southeastern Michigan, which collected $53.3 million during its last full fiscal year, according to spokeswoman Ursula Adams. Of that, 14.5% was used for fund-raising and administration, and the rest was distributed to close to 100 charities in the region.

Kevin Bopp, director of operations for Central Processing Services, ACS' sister company that handles fulfillment, defended ACS' take. He said ACS typically assumes all the risk, cost and exposure, while at the same time spending money on staff, phones, licensing fees and other outlays.

"When (charities) choose to work with us, those costs go away and (there's) nothing but profit and brand awareness," he said.

Expenses to cover

Founded in 1999 with fewer than 100 employees, ACS now boasts 900-1,000 workers, 65% of whom are callers, according to Cole, who is a co-owner. The company has calling centers in Southfield and Dearborn, manned by operators who receive three weeks of training. They earn $500-$600 a week, plus incentives.

Its corporate headquarters are in a nondescript H-shaped office building on Telegraph Road in Southfield that shines silver in the late-morning light.

According to ACS, the firm has about 40 clients (six of them headquartered in Michigan), who give the company 80% of the cut on average - 75% for ACS expenses and 5% profit.

ACS declined to release its annual revenues but said it was not profitable in 2012. The company blamed "the high costs associated with donor engagement, and another challenging year economically for many Americans."

Bopp said ACS' practices include using a prerecorded script and confirming with donors that they really do want to contribute. He added that "millions of people" don't complain and have "formed lasting relationships with charities because of our effort, and I can't do that through direct mail or by e-mail that ends up in your spam folder."

Bopp disputed reports that people are being dunned until they agree to donate, but said the firm uses predictive caller technology, which will call repeatedly until someone picks up. He also denied claims that once someone agrees to donate money, ACS will go after that person again and again.

"The portrayal that we're calling over and over again until they buckle under ... unequivocally, categorically, no. If you answer the phone, you're taken out of the rotation for months, plural," he said, adding that if you ask to be taken off the list, you are.

Just that charity's list or all the ones in ACS' stable?

"It depends on what you say," Bopp said.

High-pressure pitches

Those tethered to the phone line by their ear and mouth have a different perspective.

Dwight David (Spyder) Turner, 66, of Detroit worked at ACS until January. He hated the high-pressure pitches but stayed for two years because he said he wanted to help out veterans and people with breast cancer.

"For me, it was beating people over the head for it. ... It was all about getting the money. That was the premise," he said.

Turner said he also disliked being forced to secure pledges - and credit card numbers - from elderly people and infirm.

While telemarketing companies deny targeting elderly people, ACS records subpoenaed by the Iowa attorney general and analyzed by the Tampa Bay Times and the CIR show older people are among the most reliable donors.

The majority of the firm's most active givers in Iowa were 69 or older.

The top donor was a man in his 80s in Dubuque, Iowa. Over the course of a year, he made 38 donations totaling $1,375 to 13 of the telemarketer's charities, according to the CIR and Tampa Bay Times report.

Bopp said the ACS does not strong-arm elderly people, explaining that operators have "absolutely no knowledge at any point during the call" of the person's age, race or other individual details.

"To suggest that we are ever behaving in a specific way to anyone in an adverse manner, we're either doing to everyone all the time or we're not doing it, and it's grossly exaggerated," he said.

"If at any point it's clear the person we're talking to lacks capacity or there's a strong language barrier or another reason they wouldn't be able to give, we'd remove them from the list. ... Anytime any regulator has indicated any potential wrongdoing, we examine the situation and (if) we find even a shred of evidence that something should be different, it is changed post haste."

Possible violations of law

Yet it was a former ACS employee's allegations of high-pressure sales tactics used on elderly adults - demanding they fork over their credit card information, calling them as many as 10 times a day and referencing fictitious previous pledges - that got the attention of Michigan Attorney General Bill Schuette's office to begin with.

"They are targeting a customer base comprised of primarily senior citizens on fixed incomes with Alzhimer's (sic), disabled people, and frankly they are preying on them and lying to them," the whistle-blower e-mailed.

The tip triggered an investigation, which uncovered 230 alleged violations of Michigan charitable trust law through misleading fund-raising tactics, including using the name of the Attorney General's Office to trick donors into believing ACS could be trusted with credit card information.

Every alleged violation carries a possible fine of up to $10,000.

Schuette's office is currently in settlement negotiations with ACS, which has agreed to stop using the telemarketing script in question, according to Joy Yearout, spokeswoman for Schuette. If a settlement can't be reached, Schuette will file a civil action in circuit court, Yearout said.

"Anytime professional fund-raisers use underhanded tactics to deceive vulnerable seniors and veterans, they must be held accountable. State law requires honesty, plain and simple. If we need to go to court to enforce state law to protect donors, we will not hesitate to do so," Yearout said in an e-mail exchange.

Among the 14 calls the Attorney General's Office highlighted were three made on behalf of Vietnam Veterans of Michigan. Wilson, the charity's president, was surprised it had flagged the ACS script for Vietnam Veterans of Michigan; she'd approved it.

Wilson praised ACS: "I have not experienced any problems. ... Any contact I've had with them has been extremely professional."

Cole declined to discuss details of the company's talks with Schuette's office, except to call them "very meaningful discussions." He dismissed the deception claims.

"I am very disillusioned at the fact that statements from a few employees that are no longer with us are being taken factually," Cole said. "We pride ourselves on our ethics and how we do business."

Bopp questioned why companies like ACS come under fire when so many charities spend millions of dollars on marketing budgets, woo corporate sponsorships and buy TV and print ads.

"(But) it's not fine when an organization like ours is employed to gain some of that same attention and traction in the marketplace."

Generous targets

Earline Williams wouldn't be so upset if more of her money had gone to help those in need.

The 74-year-old Waterloo, Iowa, resident is a churchgoing Presbyterian with a sharp mind and a strong sense of giving. Though her husband is a retired medical technologist with a comfortable income, Williams told CIR and the Tampa Bay Times that she draws from her own retirement funds when it comes to charitable contributions.

One year recently, she was surprised to learn her donations had ballooned to $1,800, in part because of her generosity to telemarketers like those at Associated Community Services. Over a 13-month period, she made 21 donations to nine different charities represented by the firm, the CIR and Tampa Bay Times report found.

Williams tries to keep track of all the charities she supports, but she's given to so many, she can't even remember their names.

"There were so many different cancer groups, and I know I've done a couple of 'wish charities,' " she told the CIR and Tampa Bay Times. "The names are so identical that sometimes I find I've given to a different charity than I thought I was giving to."

ACS records analyzed by CIR and Tampa Bay Times reporters show Williams gave three times each to Cancer Fund of America and Children's Cancer Fund of America, charities run by a man and his ex-wife in Tennessee. Both of the groups ranked among America's worst charities based on the amount they paid professional solicitors.

Williams said she realized some of her donation would go toward paying the telemarketing workers, but she did not think it would be 85%. Of the $25 she gave to the Foundation for American Veterans in January 2011, for instance, just $3.75 made it to the charity's coffers.

Dismayed by those figures, Williams has a suggestion for all the sound-alike charities clamoring for her dollars.

"There could be so much more money for the cause if there weren't 10 groups doing the same thing," she told the CIR and Tampa Bay Times.

Tampa Bay Times/CIR special report by Kris Hundley and Kendall Taggart.

Detroit Free Press

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