The majority of charities are generous and responsible organizations, but, just like any business, the way a charitable organization operates can vary widely–from a legitimate and efficient charity to an organization that spends a large percentage of funds on its own administration to an outright charity scam.
That’s why the Federal Trade Commission advises consumers to do their research before clicking the “Donate” button to make a charitable contribution.
Charitable Contributions – Your Mileage May Vary
According to the BBB Wise Giving Alliance, a charity watchdog organization, charities should spend at least 65 percent of their total expenses on program activities and spend no more than 35 percent of related contributions on fundraising.
Consumer Reports issued a list of what it believes are the best and worst charities in a variety of different categories by combining the scores of watchdog organizations. You can likely get more bang for your buck by donating to a top-rated charity than a lower-rated charity that raises money for the same cause.
Online Donation Options and Crowdfunding Can Muddy the Waters
In 2018, crowdfunding sites like GoFundMe and online donation options like Facebook’s Charitable Giving Tools did incredible things for charitable giving by making it easy to donate to causes you care about. Case in point, on Giving Tuesday November 27, 2018, online fundraisers promoted on Facebook raised an incredible $125 million–almost three times more than it helped raise for charities the previous year.
The problem is this: the ever-increasing number of online donation options and crowdfunding causes can make it even more difficult to separate worthy charities from the bad actors. Anyone can start a crowdfunding site–even a scam artist. And many crowdfunding sites are started by a good Samaritan third-party who intends to share the donations with an individual or group in need. But do they?
Three individuals were charged in New Jersey after starting up a bogus GoFundMe campaign to aid a homeless veteran. The feel-good story was featured on “Good Morning America” and “The Ellen Show” and raised approximately $400,000 from 14,000 donors, but the story was a hoax. The perpetrators used the money to buy luxury items and a trip to Las Vegas.
GoFundMe now offers some protection if the company, law enforcement, or donors discover that funds have been misused. Facebook’s fundraising tools have been used to support 750,000 non-profit organizations, which the company says are approved and verified through its own internal processes.
Sound-Alike Charities – Coincidence or Deception?
The Federal Trade Commission states that it has identified and sued sham charities that collect millions of dollars in donations, yet don’t spend the money as advertised.
One common problem is sound-alike charities–those that have similar names either because they simply fundraise for a common cause or because they want to intentionally deceive potential donors.
One infamous charity scam occurred in 2016 with the Cancer Fund of America, Inc., which also conducted business under a variety of other names. The group spent only 3 percent of its donations on “direct aid,” and investigations revealed that the other 97 percent of donation dollars were spent on the charity’s founder and employees.
The American Cancer Society, on the other hand, which could have been the inspiration for the sound-alike name of the fraudulent organization, meets all 20 standards of charity accountability as measured by the BBB Wise Giving Alliance.
In a more recent 2018 case, the Federal Trade Commission banned an organization called Help the Vets, Inc. from soliciting charitable contributions after it discovered that 95 percent of the donations it received went toward the founder’s salary, benefits, and administration expenses.
Pick a Cause with Your Heart; Pick the Organization with Your Head
The problem with fraudulent charitable giving may lie in our human nature. We often manage charitable solicitations as they come in–from social media, email, or even a phone call. A better way of approaching your charitable donations is to make a charitable giving plan–set a budget, pick the causes you want to support, and then research the organizations that will likely best use your donation.
Perhaps the FTC said it best in their warning to consumers, “To make sure your donation counts, pick your cause with your heart, and pick the organization you support with your head.”
Here are some steps you can take to feel better about your charitable donations in 2019:
- Use Social Media For Inspiration–Not Donation – Social networks enable people to share incredible stories of those in need and to solicit help for those causes, and you likely want to support an organization that is close to the heart of you, your family, and friends. Be inspired by social media, but still do your homework. Research the cause and then determine the best way to help.
- Beware Email Solicitations – Emails are a great way for charitable organizations to let you know about their current needs and special programs such as matching donations, but be wary of any emails you receive from unfamiliar organizations–such as those you haven’t contributed to in the past. Always open a browser and search for the organization’s web site yourself, instead of clicking on a link or attachment in an email that could be fraudulent.
- Don’t Be Fooled By the Name Game – Sham charities often mimic a legitimate and well-known charity, so look carefully at the organization name and web site address. Investigations have found that while a legitimate charity will spend the vast majority of its donations on the cause, sham charities may only spend three cents of every dollar to the stated cause with the rest going towards operations.
- Check with Charity Watchdog Organizations – Look up the organization you want to support through one of several organizations that monitors and reports on charitable organizations. Consumer Reports recommends searching for the organization’s rating and reputation on Charity Navigator or CharityWatch.
- Verify Tax-exempt Status – If you don’t know if your donation will be tax-deductible, check with the organization first, or search on the IRS web site.
- Exercise Caution with Crowdfunding – Be wary about donating to a crowdfunding campaign, especially if you don’t know the fundraiser or the recipient. Crowdfunding that benefits an individual may not be tax-deductible.
- Use Negative Search Terms – Most often, governmental agencies or the media will have reported on an existing scam. Simply search for the organization name, plus keywords such as “complaint,” “scam,” or “review.”
If you believe you have been approached by a fraudulent charity or were the victim of a charity scam, take the necessary steps to report it to the authorities:
- Report it to the Federal Trade Commission.
- Find your state charity regulator through the National Association of State Charity Officials.
- Share the name of the organization, phone number, and communication you received.