Carol Patterson, a former fundraising volunteer for the American Diabetes Association, says she feels betrayed by the American Diabetes Association after learning that just 22 percent of the money she helped raised went to the group. (Grant Cornett/Bloomberg Markets)

Carol Patterson was waiting for a call from her doctor. When the phone rang on that afternoon in August 2011 at her home in Cortland, Ohio, it wasn’t a physician on the other end. A woman named Robin said she was representing the American Diabetes Association.

Robin didn’t ask for money. She asked Patterson to stamp and mail fundraising letters to 15 neighbors. Both of Patterson’s parents and one grandmother had been diabetic, so she agreed to do it.

“I thought since it does run in the family, it wouldn’t hurt for me to help,” says Patterson, 64, a retired schoolteacher. She guessed, based on what she knew about charity fundraising, that 70 to 80 percent of the money she brought in would be used for diabetes research.

In fact, most of the money Patterson, her neighbors and people like them across the country raised — almost 80 percent — never reached the Diabetes Association. Instead, that money went to the company that employed Robin and an army of other paid telephone solicitors: InfoCision Management.

Just 22 percent of the money the association raised in 2011 from the nationwide neighbor-to-neighbor program went to the charity, according to a report on its national fundraising that InfoCision filed with regulators.

“It’s like a betrayal,” Patterson says, sitting in her kitchen in June, after being shown copies of the North Carolina report and the contract the association signed with InfoCision. “I know I won’t donate again.”

Many of the nation’s biggest-name charities have signed similar contracts with telemarketers during the past decade.

Charities should never agree to contracts with telemarketers where they receive only a small percentage of the funds donated through the calls, says Ken Berger, who runs Charity Navigator, the nation’s largest nonprofit watchdog group. “These organizations were created to provide public benefit,” he says. “The fact that the vast majority of money is instead lining the pockets of telemarketers defies the whole reason behind the very creation of these charities.”

The American Cancer Society, the largest U.S. health charity, enlisted InfoCision from 1999 to 2011 to raise money.

In fiscal 2010, InfoCision gathered $5.3 million for the society. Hundreds of thousands of volunteers took part, but none of that money went to fund cancer research or help patients, according to the society’s filing with the Internal Revenue Service and the state of Maine.

In fact, InfoCision kept 100 percent of the funds it raised, plus $113,006 in fees from the society.

Major charities are fully aware of what telemarketers will tell potential donors under these sorts of contracts. InfoCision scripts approved by both the Diabetes Association and the Cancer Society for campaigns in 2010 — described by the telemarketer as “neighbor-to-neighbor” — instructed solicitors to say, when asked, that at least 70 percent of the money raised will be used for charitable purposes.

Yet in contracts with InfoCision, the charities said they expected that the telemarketer would keep more than 50 percent of the money it collected.

Altogether, more than 5 million Americans have volunteered to raise money for these two groups — and other charities that hired InfoCision — from their neighbors since 2005 after being pitched by solicitors using charity-approved scripts.

‘False pretenses’

Charities should be held accountable for the fundraising done in their name, says James Cox, a professor at the Duke University School of Law. “If that’s what they do systematically, then they’re obtaining money under false pretenses,” he says. “I don’t just think it’s incredible. I’d be surprised if it isn’t criminal.”

Naomi Levine, executive director of the George H. Heyman Jr. Center for Philanthropy and Fundraising at New York University, says charities are knowingly being dishonest.

“I’m amazed at that,” she says. “I didn’t know about it. It’s deceitful.” Levine, 89, was a nonprofit fundraiser for three decades, bringing in more than $2 billion for NYU.

“Even for them to engage in a program like that is shocking to me,” she says. “And I’m in the field. So how can you expect donors to know that?”

Richard Erb, vice president of membership and direct marketing at the Alexandria-based Diabetes Association, defends his group’s practices this way: “If we came into it and said, ‘Geez, I’m not going to make a dime on this,’ do you think we would have anyone who would give us money?”

Greg Donaldson, a senior vice president at the Cancer Society, likens telemarketing campaigns that net the charity low percentages of donations to retailers pricing a product below cost to lure shoppers. “It’s certainly not inconsistent for organizations like ours to invest in some loss-leader strategies, to engage people in long-term meaningful relationships,” he says.

InfoCision, based in Bath Township, Ohio, says on its Web site that it raises more money for nonprofits than any other telemarketer in the world. The privately held company, which isn’t required to and doesn’t disclose revenue or profit, was founded by Gary Taylor. It also does marketing for corporate clients such as Time Warner Cable and Verizon.

During the past decade, many of the nation’s biggest health charities have hired InfoCision, including the American Heart Association, the American Lung Association, the March of Dimes Foundation and the National Multiple Sclerosis Society.

Overall, InfoCision brought in $424.5 million for more than 30 nonprofits from 2007 to 2010, keeping $220.6 million, or 52 percent, according to state records.

InfoCision Chief of Staff Steve Brubaker says his company is vital to the success of charity fundraising. Many nonprofits have stayed with InfoCision for more than 20 years, proving the firm offers value and integrity, he says.

“We’ve developed that high level of trust by being good stewards of their money and mission,” he says.

Campaigns to develop new donors are more expensive than those seeking money from previous supporters, he says. He turned down a request for interviews with Taylor and InfoCision executives.

Charities say they see little downside to contracts that allow InfoCision to keep most, or even all, of the money raised.

“We have break-even contracts with these telemarketers so we don’t ‘lose’ money and sometimes we even make a little,” says Mike Townsend, spokesman for the American Lung Association.

March of Dimes spokeswoman Michele Kling says, “This cost of fundraising is in line with other large nonprofit health organizations.”

Kelly Browning, chief of the American Institute for Cancer Research, says he’s happy that his organization has used InfoCision for more than a decade. “They have the kind of scale required to do it and do it fairly efficiently,” he says.

Pleas for donations

Big charities generally get most of their contributions through their own mailings, phone calls, Web sites and foundation grants. In those appeals, charities generally without question say that 70 to 80 percent of the money directly serves the cause donors are supporting. The rest covers overhead.

The Diabetes Association says on its Web site that it invested more than $33.5 million last year in medical research.

“An impressive 73 percent of every dollar spent supports research, advocacy and services for people affected by diabetes,” the site says. “Please make a tax-deductible donation today.”

On its site, the Cancer Society calls itself “The Official Sponsor of Birthdays.” The society says it offers support to the 13.7 million Americans with cancer and pays for research and public education about the disease. “Because of supporters like you, people who rely on the American Cancer Society will get the help they need,” its site says. “Please donate.”

Americans trust charities — and like giving them money. The United States is the most generous country, according to the World Giving Index based on Gallup data of 153 nations.

Americans donated $298 billion to charities in 2011, according to the Center on Philanthropy at Indiana University. And they gave with confidence.

When the center and Bank of America polled households with annual incomes exceeding $200,000 in 2010, 94.5 percent said they trust charities compared with 68.4 percent for corporations and just 31.9 percent for Congress.

‘Emotions of fundraising’

Telemarketing companies know that people more often give with their hearts than with their heads. On its Web site, InfoCision says: “Telephone purchases and donations are made on impulse. These are dictated not by reason or logic but by feelings of emotion. We are very familiar with the emotions of fundraising: sympathy, fear, anger, guilt, etc.”

InfoCision calls often begin with no indication that a telemarketer is phoning on behalf of a charity. It’s the charity’s name that frequently shows up.

Solicitors in recordings obtained by the Ohio Attorney General’s Office sometimes identify themselves to donors as “volunteers.” They’re not; they’re paid employees of InfoCision.

The bigger issue is what telemarketers say about how much money will go to the charities.

According to documents obtained through an open records request with the Ohio attorney general, the Diabetes Association approved a script for InfoCision telemarketers in 2010 that says: “Overall, about 75 percent of every dollar received goes directly to serving people with diabetes and their families, through programs and research.”

Yet that year, InfoCision’s contract with the association estimated that the charity would keep just 15 percent of the money; the rest would go to InfoCision.

‘We’re a business’

Erb, of the Diabetes Association, offers no apologies for the script, saying the association runs many fundraising campaigns and, overall, about 75 percent of the money goes to its programs. He acknowledges that the contract with InfoCision estimated that it would keep 85 percent of what it raised.

“Obviously, if people feel betrayed or that we’re not being honest with them, it doesn’t make me feel well,” he says. “The thing is, we’re a business. There has never been a time or a place where we said, ‘Most of this money is coming to us.”’

The Cancer Society, in a Sept. 1, 2009, contract with InfoCision, estimated that the charity would get 44 percent of the amount the company collected in the following fiscal year.

The telemarketer script for that year approved by the society for InfoCision asks solicitors to state: “Overall, about 70 cents of every dollar received goes to the programs and services that we provide.”

Donaldson, of the Cancer Society, declined to comment on the script.

Once the charity has the names of donors, he says, it goes back to them in the future to request more donations, without paying a telemarketer.

NYU’s Levine scoffs at that. Even if the society increases its future list of donors, she says she believes it purposely misled millions of people who wanted to contribute to medical research. Few would donate again if they were aware the charity had not disclosed to them that their individual contributions would end up with a telemarketer.

“I think it’s a bunch of baloney,” she says. “It’s not an honest way to get volunteers involved. Their donors don’t really know this is a loss leader.”

‘Calling from InfoCision’

The Ohio Attorney General’s office gathered recordings of calls made by InfoCision for the society’s Notes to Neighbors program in 2009, which were obtained by Bloomberg Markets.

The phone rang at the home of Paul Kolb in Cleveland Heights, Ohio, on Aug. 9, 2009. Kolb’s adult son, also named Paul, picked it up.

“Hi, Mr. Kolb?” the caller said. “My name is Stephanie. I’m calling from InfoCision for Ohio division of American Cancer Society.”

The conversation went like this:

Stephanie: “Because of supporting and caring people like you, we’ve made great strides in our mission to fight cancer and create a world with more birthdays. We’re calling today to ask for your help just by mailing 15 letters to your neighbors. All you have to do is address and stamp and mail the letters. Okay, Mr. Kolb?”

Kolb: “Yeah. Now, how much of the donation goes to the American Cancer Society?”

Stephanie: “Seventy-eight cents of every dollar.”

Kolb: “Does the money go to you guys and then to the American Cancer Society?”

Stephanie: “No, we only get, like, 22 cents of the dollar. We don’t get that much.”

Kolb: “I’ll look over the material, and if I feel comfortable with it, I can pass it out.”

Stephanie: “We need a definite yes or no. We don’t want to waste material. We’re a very legit company and American Cancer Society is a legit company.”

Kolb: “I can’t really give you a yes or no over the phone.”

Stephanie: “I’m very sorry because the money is going to a good cause.”

As it turned out, the society got less than half of the money raised in that campaign. It also turned out that Paul Kolb Jr. was an investigator for the Ohio attorney general’s office. The call to Kolb was one reason the state requested recordings of calls from InfoCision.

The society halted its Notes to Neighbors campaign in July 2011, Donaldson says, after 360,000 volunteers participated in the program last year.

‘Second to none’

InfoCision presents itself to the world in grand fashion. A green sign outside its three-story corporate headquarters proclaims the firm to be “The highest-quality call-center company in the world!”

InfoCision espouses high ethical standards. “The quality and integrity of the people we hire, the way they operate and the services we provide will be second to none in all the industries we serve,” it says on its site.

At InfoCision’s headquarters sit row after row of mostly middle-age, headset-wearing telephone solicitors. Many of them earn minimum wage, according to InfoCision filings with Ohio. InfoCision has more than 4,400 employees in three states and Canada.

Some telemarketer desks display gold trophies awarded by the company. The solicitors receive on-the-job training in reading scripts, keeping people from hanging up and coaxing time and money out of those who are reluctant.

Job turnover in the industry runs high — as much as 70 percent a year, says Sally Emch, who founded telemarketing company FutureMarket Telecenter and ran it for 19 years. It raised money for the Cancer Society and Diabetes Association.

Solicitors are on the phone almost nonstop for hours, as they cold-call hundreds of people who routinely resent them from the start, says Emch, who’s now retired.

The Taylor Institute

Taylor, whose company has received so much money from charities, is himself a benefactor. In 2004, he donated $3.5 million to start the Taylor Institute for Direct Marketing at the University of Akron, his alma mater.

The university’s InfoCision Call Center is a 12-seat room where students learn to make telemarketing calls. In 2007, Taylor paid $10 million for naming rights to the university’s InfoCision Stadium.

Taylor began his fundraising career in the 1970s, working for the late televangelist Rex Humbard. Taylor started InfoCision in his house in 1982 to raise money for religious groups. The company’s Web site says solicitors at its religion division sometimes pray with callers.

The company has a political operation as well. It did fundraising for Citizens United, the conservative group that was the plaintiff in the Supreme Court case that allowed unlimited independent spending by corporations and unions on behalf of political candidates. From 2009 to 2011, InfoCision raised $14.7 million for Citizens United and kept $12.4 million, or 84 percent, of the money it raised, according to InfoCision filings with North Carolina.

InfoCision has also worked for the National Republican Congressional Committee, which paid InfoCision more than $115 million to raise money from 2003 to 2012, according to Federal Election Commission filings. The filings don’t say how much InfoCision raised.

InfoCision is a family affair. Taylor, 59, stepped down as CEO in 2004. His wife, Karen, 57, is chairman; son, Craig, 27, is executive vice president; and daughter, Lindsay, 30, is assistant secretary.

Taylor was an outspoken opponent of efforts by the Federal Trade Commission in 2003 to begin the National Do Not Call Registry, allowing people to block calls from for-profit solicitors. In an interview with Customer Interaction Solutions, a trade journal, he said: “The most pressing issue, without a doubt, is excessive governmental regulation. It seems that the politicians and regulators are ignoring the significant benefits we provide through job creation, economic growth and the goods and services we cost-effectively market for our clients.”

Little response from regulators

No less an authority than the U.S. Supreme Court weighed in on what telemarketers working for charities can say to potential donors in a 2003 Illinois case.

“States may maintain fraud actions when fundraisers make false or misleading representations designed to deceive donors about how their donations will be used,” the court said.

Regulators have taken some action to curb telemarketer practices. The Ohio attorney general’s office, after listening to recordings of phone calls by InfoCision solicitors, negotiated a settlement with the company, filed in civil court in April.

Ohio said InfoCision’s employees had misled people by giving them false information about how much of their contributions would go to charities. InfoCision denied it had done anything wrong and promised not to mislead future donors.

In its largest penalty, the company agreed to pay $75,000 to settle the case — or less than one-10th of 1 percent of its revenue from charity fundraising from 2007 to 2010.

The company has settled civil complaints of violating fundraising laws in six other states since 2009, paying fines and costs totaling $14,250.

What charities report

An examination of hundreds of filings that nonprofits are required to submit to the IRS shows how charities can bury, and sometimes omit, expenditures on telemarketing.

In state filings, by contrast, charities and telemarketers are required to explicitly say how much is raised by the contractors and who gets the money. Those numbers can be more telling than the IRS filings.

An InfoCision filing with North Carolina reveals that the Diabetes Association got just 22 percent of the money raised nationally by volunteers recruited by the telemarketer in 2011. That figure isn’t found in any public filing with the IRS.

Charity reports to different government entities can also be contradictory and confusing. In fiscal 2010, the entire $5.3 million raised in the name of the Cancer Society by InfoCision, along with additional fees, went to the telemarketer, according to charity filings with the IRS and the state of Maine.

Those dollar amounts and percentages conflict with an InfoCision filing with Ohio for the same period. That report says InfoCision kept 73 percent, or $5.65 million, of $7.77 million in fiscal 2010.

The Cancer Society’s Donaldson says his group didn’t pay more to InfoCision than that firm raised.

“The American Cancer Society’s Notes to Neighbors program was indeed profitable for the society,” he says.

The IRS reporting requirements skewed the society’s reports to the IRS, and the Maine filing didn’t include all of the charity’s Notes to Neighbors revenue, he says. He declined to provide any additional dollar amounts.

It’s no surprise that telemarketers are wrong when they tell people where donation money would go, says Emch, the founder of FutureMarket. She says the industry standard is that donors are kept in the dark about contracts with charities.

“Would it work for you to know that only 25 or 30 cents of your dollar was going to the organization?” she asks. “No. They wouldn’t contribute anymore if they knew the truth.”

The full version of this Bloomberg Markets article appears in the magazine’s October issue.