How Fundraising Fraud Became Big Business After World War I

The big business of charity fundraising started during WWI, and fraudsters and grifters were quick to take advantage of patriotic sentiment.

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In January of 1925, the House of Representatives passed a resolution to investigate the finances of a charity called the National Disabled Soldiers’ League. Incorporated in 1920, the league purported to “foster and perpetuate national patriotism” by working to improve the lot of disabled soldiers, sailors, and marines.

The NDSL had raised around $290,000 in the prior three years — mostly through mail campaigns in which they sent envelopes containing pencils to prospective donors to solicit donations. The problem was that they could only prove that about 10 percent of that money had gone to the actual cause. The other 90 percent likely went into the pockets of three men who took over the league less than a year after its founding.

In the hearings, a select committee — chaired by Hamilton Fish, Jr. — observed evidence of the NDSL’s unprincipled dealings. They had held excessive, bacchanalian annual conventions, after which they stiffed local hotels, restaurants, and entertainment workers. They were denounced by prominent men (like Senator William Calder and vaudeville star Edward F. Albee) who had once held positions on their advisory board. They dodged all government investigations into their finances, refusing to show their books. The league even cheated the Donnelly Corporation, the company that made their pencils.

The NDSL was a perfect example of the kind of organization that soft-hearted Americans were warned against in the years after the First World War. A 1922 article in the Rochester Democrat and Chronicle told of “the suavely professional solicitor of tear-stained checks for shady causes” and advised readers to “ask before you give.”

Whether ineffectual charities were nefarious scams or just mismanaged, they were making a whole lot more money after the armistice. The drives that raised funds for the war effort and foreign relief during the war had inadvertently created an army of consultants ready to offer their services to every church, league, and club in the country.

Raising money for a cause — or, pejoratively, systematic begging — was a new sector in the economy of sentiment, and it was big business.

A political cartoon depicting a man, labeled "Unworthy Charity", picking the pocket of a short person who represents a generous public. The caption reads: "Ask before you give!"
Rochester Democrat and Chronicle, February 12, 1922

Writer James H. Collins called it the new “drive industry” when he wrote about it in this magazine 100 years ago, saying fundraising had “become a form of higher finance which is distinctly with us yet.” According to his reporting, the largest national fundraising effort before the war had been a long-planned drive for a clergy pension fund with a goal of four million dollars. But more recently, such multi-million-dollar drives had become commonplace, and — in the year since the war ended — he counted 1 to 1.5 billion dollars raised for various causes around the country.

He noticed that people were beginning to grow weary of fundraisers. “You’ve seen the drive develop in patriotism and run to the pestiferous,” Collins wrote.

Before the 20th century, charitable fundraising in the U.S. for any given cause was accomplished mostly through soliciting a handful of wealthy donors. Charles Sumner Ward and Lyman Pierce, in their work for the Young Men’s Christian Association, pioneered the method of a fundraising campaign targeting the masses. Then, systematic, crowd-sourced fundraising took off. As public relations historian Scott M. Cutlip wrote in Fund Raising in the United States, “World War I brought intensive, hard-hitting campaigns that raised millions and established philanthropy on the broad, democratic basis that characterizes it today.”

“War bazaars” were popular events for getting dressed up and indulging in some shopping and entertainment for the cause of the doughboys overseas. Or at least that was the idea. In at least one case, such an event raised almost $80,000, and a New York World investigation found that only $754 went directly to the “great war charity.” The rest was depleted by expenses for the event. In a 1917 call for this kind of graft to be avoided by funneling all war expenses through the government, The Washington Times decried the “philanthropic camouflage” of “gentlemen whose business is urging others to contribute.”

Several methods for collecting money became ubiquitous in the U.S. by 1920. Coin boxes to collect loose change were installed in all kinds of businesses. On “tag days,” volunteers — like women from the “Anti-Saloon League for enforcement of the prohibition laws” in Nashville — would swarm street corners with buckets soliciting donations. Passersby who gave would receive a “tag” pin, marking them against further harassment. Often, donors’ names and contributions were printed in the local paper after a drive for Belgian relief or war bond sales.

Sometime during the war, the tactics associated with money drives became a means for padding resumés and charging varying amounts of commission. A column in Topeka’s Capper’s Weekly in 1920 claimed that more than 10,000 men and women had entered this new field as directors, collectors, and publicity agents: “The war showed the possibility of this modern method of getting money. It has also created a new industry or profession, that of the drive-making.”

The explosion in American fundraising necessitated some standards for best practices. Giving up 30 percent of funds to a campaign manager and publicist (as Collins described one hospital doing) was unnecessary, let alone the 50 to 70 percent reported from various other campaigns. Five to ten percent was reasonable, according to most experts, with costs much more or less signaling dishonesty or inefficiency.

The National Information Bureau (later named the National Charities Information Bureau) was formed as a sort of cooperative watchdog group in New York in 1918. The bureau released eight guidelines for giving, including making sure a charity keeps good records with a C.P.A., that they aren’t duplicating the work of others, and that they avoid “remit-or-return” schemes like sending trinkets in the mail. In 1920, according to Collins, the bureau only approved of 124 of the 1,021 national money drives in the U.S.

For attentive donors, the National Disabled Soldiers’ League wouldn’t have passed the bureau’s sniff test. The league failed to produce financial records throughout the congressional committee’s investigation,they relied on remit-or-return mailing for fundraising, and they supposedly engaged in the work of advocating for veterans without coordinating with similar organizations. In 1921, the Disabled American Veterans of the World War of Minneapolis denounced the NDSL and its grifter kingpins, where they claimed “the officers … receive 90 percent of the dues as salaries.”

Another effort that aimed to breed more efficiency in charities was the popular Community Chest system. Before it became known primarily as a serendipitous card from the Monopoly game, the Community Chest was an organized group of community members who would direct lumped donations to local charities to eliminate duplication of efforts and competition. Cleveland created the model for a Community Chest program in 1913, and the idea spread around the country throughout the early century. Eventually, they merged to form the United Way Foundation, one of the largest non-profits in the world.

A political cartoon depicting a chest full of gold. The chest is labeled "community chest" and the caption reads: "Give But Once - But Enough for All"
The Pomona Progress, May 17, 1924, newspapers.com

As technology and media have progressed, fundraising methods have evolved to suit ever more platforms for giving. War bazaars gave way to telethons just as mailing lists have given way to powerful donor relations software. Even as United Way marked a centralization of fundraising for charities in the latter half of the 20th century, the rise of the popular site GoFundMe — where one in three campaigns seeks to cover individuals’ medical costs — is a decidedly decentralized trend in giving.

That the drive industry is still “distinctly with us” after more than a century is a given. Though it has expanded and adapted to the changing world, charitable fundraising can still be approached with the same rules the National Information Bureau laid out in 1918:

A serious of guidelines that worthy charities should follow that was published in the Post in 1920.
The Saturday Evening Post, August 14, 1920

After the congressional investigation into the NDSL, the House special committee recommended the case to be turned over to a Federal Grand Jury. They found that three men, John Nolan, James McCann, and Kenneth Murphy, were in complete control of the finances, and their bank accounts were receiving suspicious deposits while the league’s money was unaccounted for. The next month, the Postmaster General barred the NDSL from using the mail. “Nothing is sacred to these crooks,” the Buffalo Courier printed. “Religion, patriotism or anything else they will capitalize so long as they can see in it a chance to get money.”

Five years later, Murphy was at it again, planning a fundraising campaign to build a memorial to the Allied General Ferdinand Foch. He had even talked Franklin D. Roosevelt into joining the committee. Hamilton Fish, Jr. heard that familiar name and publicly denounced the project, calling attention to Murphy’s previous scams with the NDSL. “I hope in the future,” he said, “that members of the House and Senate, who permit the use of their names for these fake veteran organizations, will take the trouble to find out something about them.”

Today, the fundraising industry is sprawling and complex. Charities and non-profits — whether dubious or entirely dependable — still vie for well-meaning Americans’ dollars. Graduate students in philanthropic studies take courses in fundraising processes and donor behavior, not to mention the contemporary craft of grant writing.

It would, perhaps, have come as a surprise to enthusiastic early-century advocates of the Community Chest to know that in 2017, Brian Gallagher, CEO of the centralized progeny organization United Way, would receive more than $1.6 million in compensation. United Way maintains that it is comparable to CEO salaries at other non-profit organizations of similar size, but that might just further illustrate how competition has played a role in building the so-called “non-profit industrial complex.”

There are charities in the U.S. for animals, veterans (and sometimes both), medical research, homelessness, hunger, and too many environmental organizations to count. Several watchdog organizations, like CharityWatch, Charity Navigator, and the Better Business Bureau, provide reports on many of these — including financial audits, board makeup, and quick figures on spending.

On GoFundMe or other similar websites, it’s a philanthropic wild west. You can donate to a family who has just lost their house to a fire or a college student who has been diagnosed with brain cancer or any number of bizarre, cheeky, or politically-charged fundraisers. GoFundMe pages are vetted inasmuch as individuals provide and request evidential information. Although the company claims that less than .1 percent of the fundraisers on their site are fraudulent, plenty of high-profile scams have become big news stories over the years.

The current, entrenched system that makes a philanthropist out of everyone might seem inevitable and commonplace, but Americans living before war drives and tag days would never have seen it coming. They would have reacted with great suspicion to anyone soliciting them for their hard-earned dollars or mailing them pencils. What they didn’t yet understand was that their empathy for the downtrodden and poor could fuel the makings of a fantastic business model.

First page of the article "The Drive Industry"
Read “The Drive Industry” by James H. Collins from the August 14, 1920, issue of the Post. Subscribe to the magazine for more art, inspiring stories, fiction, humor, and features from our archives.

Featured image: Library of Congress, 1920, National Photo Company Collection: TAG DAY UP TO DATE IN WASHINGTON D.C. No longer can the citizen who rides in an automobile feel secure on tag days. In the past the lowly pedestrian has been the one to “Come across” while the automobilist was comparatively safe. Washington society ladies sprang a new one today in selling tags for the benefit of Columbia Hospital. Fair damsels on horseback “Held Up” automobiles while their sisters on foot “Worked” the sidewalks. Photo shows Miss Ellen Messer receiving a liberal contribution from a surprised automobilist.

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Comments

  1. A very interesting feature indeed, starting with a most unusual opening photo at the top. Could it have had a little 21st century photo shopping adding some special effects? I’m not surprised at the discouraging dishonesty of 100 years ago. Old as mankind himself/herself, unfortunately. I suppose it’s a wonder that as much money actually makes it to the designated charity as it does, now or then.

    You give a detailed history of fundraising here over the past 100 years. Only $754 going out of $80,000 in 1917 (probably a million now) actually going to that World War I ‘war bazaar’ charity for our military men is a really disgusting outrage. Getting dressed up, indulging in in a little ‘shopping and entertainment’. Mmm hmmm.

    I’ve had my own dealings with the United Way at work that didn’t go so well in 1991 or ’92. In Robinson’s department store’s financial department we had a rep from the United Way come into the conference room around October annually, and tell us all about the organization with a heart-tugging slide show of unfortunate kids, not unlike Smile Train that I give to, and the ASPCA.

    About a week later there was a big scandal with how much money the CEO was making and had absconded with! My supervisor (and the others) were coming around asking for additional money in addition to the $1 I already had deducted from each weekly paycheck. It got to be too much and I finally said to her, “Nancy, I’m one of the top collectors in this department, bringing in owed receivables of about $100k per month you love to brag about. I don’t like what’s been going on with the United Way, and am respectfully asking you to stop asking me for money, or I’ll have to go to H.R. and stop the $1 per week deduction I’m still allowing against my better judgement!” She didn’t ask again.

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