Giancarlo Berrocal, CFE
How many times have you seen an ad on social media asking you to donate to a cause? The reality is that many of us have a generous heart that prompts us to act and promote just causes like increasing research to fight breast cancer, protecting the environment or providing natural disaster aid in a developing country. Our natural tendency is to sympathize with these causes, which often compels us to donate money and/or property. Unfortunately, not all causes we are called to join have a noble motive; some of them are organized by unscrupulous individuals who take advantage of our generosity to steal our money. But how can you donate without being a victim of a charity scam? Is there a bulletproof way to give you the peace of mind that your contributions are going to the desired cause?
According to Giving USA’s 2021 annual report, Americans (individuals and corporations) gave around $471 billion to charity in 2021. To put it into perspective, America’s generous giving is more than Austria’s gross domestic product. Typically, generosity is a sign of a nation’s prosperity and good values, especially in difficult economic times. Nonetheless, giving to charity also poses certain risks and challenges. The FBI’s 2020 IC3 Annual Report showed an increase in charity fraud cases in recent years. Reported charity fraud accounted for $4.4 million in losses, which has increased more than twofold since 2018.
Charity fraud is not only financially detrimental to donors, but also to an individual’s trust in charitable organizations, which affects legitimate charities. According to the Give.org Donor Trust Report 2021, “Trust is considered highly important in the giving process. However, self-reported reliance on trust as a giving indicator has eroded over the past 4 years.”
What can you look for to avoid charity fraud?
According to the Donor Trust Report 2020, individuals are more likely to trust a charitable organization when they exhibit the following factors: evaluation by a third-party independent organization, name recognition and accomplishments shared by the organization. However, these factors alone may not be enough to prevent and deter charity fraud. There are certain red flags you should pay attention to in order to avoid being a victim of this type of scam.
Red flags of charity fraud
· Pressure to donate — fraudsters will try to instill a “sense of urgency” in the victim’s mind to make them donate immediately.
· New charitable organization — Some scammers will create an organization after a major event (earthquake, COVID-19 pandemic, etc.) for the purpose of defrauding individuals. Typically, the name of the organization cannot be found online using basic online searching tools.
· Use of certain payment methods — Scammers usually prefer cryptocurrencies, gift cards and wire transfers as a form of payment to receive donations.
· Less than 65% of donations go to intended cause — BBB Wise Giving Alliance recommends that any charitable organization should spend at least 65% proceeds in charity’s program activities.
· Use of robocalls/automated calls — Be suspicious of robocalls trying to raise money. These robocalls are most likely scams.
· Negative media/reviews — If a charitable organization is being flagged in social media or the press for dubious practices or scams/fraudulent conduct, then you should refrain from making any donation.
Steps to follow to avoid charity scams
· Look up the organization’s website to verify its authenticity. Do not click on links or download attachments sent by a purported organization via email/texts.
· Be aware of crowdfunding — if a person is raising money using crowdfunding campaign through a fundraising platform such as GoFundMe, make sure you know or trust the person who is behind the campaign. Crowdfunding is easy to set up and the legitimacy of the fundraising campaign is difficult to verify.
· Use online resources to verify the charitable organization’s review and credibility. You can use these free resources such as Charity Watch, Charity Navigator, and BBB Wise Giving Alliance.
· Use a check or credit card to make your donations.
· Look at the charitable organization’s IRS tax exempt status.
· Verify the charitable organization’s registration status in your state.
How to report charity fraud
If you become a victim of charity fraud, report your case immediately to:
· The Federal Trade Commission
· National Center for Disaster Fraud
· The FBI
Also, contact your State Consumer Protection Office.
SOURCE: ACFE Insights – A Publication of the Association of Certified Fraud Examiners