Denton: USPS Rule Change Could Prompt Fundraising Abuses
The current USPS rule says that any mail piece sent at the nonprofit rate must be owned and controlled by the nonprofit, though a nonprofit can contract with a for-profit fundraiser as long as the nonprofit maintains the role of principal agent. The proposed rule would give for-profit mailers much more freedom in striking deals with nonprofits, Denton said.
"The draft will cause the USPS to abandon any enforcement of the cooperative mailing rules on fundraising mail that solicits funds," he said. "Without regulatory oversight, small and unsophisticated nonprofit organizations can fall prey to one-sided and abusive arrangements of this kind. Many of these questionable contracts give the professional fundraiser exclusive rights to raise money for the nonprofit."
Under these arrangements, Denton said, donations from mailings go into an escrow account controlled by the commercial fundraiser. Fees and commissions are paid out of the account; the nonprofit gets what's left.
Denton said that in one well-known case a few years ago, a professional mailing and fundraising firm raised $1.3 million on behalf of a tax-exempt senior citizens group. The nonprofit association received less than 7 percent. The rest went to the commercial fundraiser. In other cases, unscrupulous commercial fundraising shops have established nonprofit organizations to serve as a front for scams of this kind.
"Unfortunately, the proposed USPS rule will protect these types of arrangements," Denton said. "And recent experience teaches that such one-sided arrangements are likely to proliferate if permitted by law."
Fortunately, Denton thinks that the problems with the proposed rule can be fixed with minor changes.
A 30-day notice-and-comment period will follow the proposed rule being published in the register.