Beware fake charities

Think you'd never donate to a fake charity? We set up shop in front of Kmart and prove that people often don't pay attention.

By Stacy Johnson Dec 21, 2011 1:24PM

This post comes from Brandon Ballenger at partner site Money Talks News.

Last year, people donated more than $211 billion to charity.

That Giving USA Foundation estimate leaves no doubt Americans are generous. What's less clear is how careful we are about giving.

In the video below, Stacy Johnson explains the genuine risk of donating to a fake charity, then provides a demonstration. See if anybody notices, and then read on for more about protecting yourself.

As Stacy admitted, changing "Salvation Army" to "Sal's Vacation Army" is pretty silly. But the point is that in more than an hour on a busy sidewalk, not a single person noticed. And many fake charities are even less obvious. They might have a name that sounds similar to a real charity, or outright steal a familiar name they don't represent.

In some ways worse, real charities that have gained our trust don't always spend our donations in ways we'd like. Some nonprofits pay their CEOs more than $1 million (.pdf file) a year. Others put family members in executive positions, or spend a large percentage of donations on raising even more with telemarketing and mailing campaigns.

Here's how you can make sure your money goes to a good place:

Be skeptical of cash requests. This includes giving change on the street corner to people who say it's for firefighters or veterans. Cash is easily lost or stolen, and is the easiest way for scammers to get your money. Writing a check out to the full charity name -- not the person collecting donations -- is a better idea.

If you have any doubts, a few questions might also help. If you've never heard of an organization, ask about the history or give them a call. Organizations that pop up overnight -- after a natural disaster, for instance -- can disappear as quickly. Even if they're legit, they may not have the infrastructure to do as much good as established charities. Another good question: "What's it for?" The solicitor should be able to explain how the donation will be used, as the Salvation Army spokeswoman in the video above does.

Understand the mission. Taking time to do a little research is better than asking questions on the spot. Tell the solicitor you'll mail the organization a check or donate online. They should be grateful for the support, not pressuring you to give immediately.

The first thing to check out: mission or purpose statements. These sum up groups' motivations and goals, and should be featured prominently on their websites and promotional materials. They might also be listed on a charity or business watchdog site. Here's the Salvation Army's, from the Better Business Bureau: "The Salvation Army's mission is to share the love of God, supply basic human needs, provide personal counseling, and undertake the spiritual and moral regeneration and physical rehabilitation of all persons." This way you can find a charity whose interests are aligned with yours.

If you can't find a mission statement, you should wonder how organized the group is, and how they make spending decisions.

Check their spending. Rather than take charities at their word, you can look at how they actually spend. Either request an organization's tax return (called Form 990) and dig through it yourself, or visit a charity watchdog site that collects and analyzes them. Here are a few: Charity Navigator, CharityWatch, and GuideStar. These sites also feature reviews from donors, which may give more insight.

Verify tax status. Making sure you get a tax deduction for your donation is one thing, but -- as Stacy said in "Is your charity still charitable?" -- "losing tax-exempt status is a definite red flag and something you'd want explained." Sometimes good charities go bad -- not necessarily in a scheming way, just through poor management. You can find the IRS list of organizations that lost 501(c)(3) charity status online.

The Federal Trade Commission has more guidance, including a website with resources for checking out charity fraud.

More on Money Talks News and MSN Money:

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1Comment

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Apr 23, 2012 4:04AM

Thanks for sharing the information. We should be careful while donating. You have mentioned very good points to check whether it is a fake one or real one. I do agree with you before donating money we should check spending of charity. I donate money to http://www.jasonhalek.org/content/jason-halek-%C7%80-christmas-donations-children. I deeply researched them & found they are good & use money for children’s welfare.

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