Charity Scams (and How to Avoid Them)
The act of giving triggers the release of feel-good endorphins in the brain, a helper’s high, as some call it. And scammers know it. That’s why they prey on people’s inherent predisposition to give, literally hi-jacking our human behavior to profit themselves.
Here are some of the ways they do it”and our best tips to avoid common scams so you can ensure your donated dollars actually do the good you intend.
Common Charity Scam Tactics
Imposter Charities. Fake charities sometimes set up a site or send emails that closely mirror a commonly known charity. An email or website that doesn’t end in .org is a red flag. If you receive a solicitation from a charity, independently Google, their organization ensures that the link you use to donate is legitimate.
Creating a Sense of Urgency and Other High-Pressure Tactics. Many scammers are experts at hacking the human brain; they use social engineering to psychologically manipulate people into giving to fraudulent causes or divulging personal information that can be used to later steal. Scammers will often create a sense of urgency, or make highly sentimental claims, sometimes posing as a person affected by a recent natural disaster or emergency. Legitimate charities typically do not employ such high-pressure tactics. Bottom line…beware of sob stories and urgent pleas. They might be a scam in disguise.
Vague Promises. Fundraising appeals from scammers often come with fuzzy promises about what they will actually do with your money. A legitimate charity should point to specific outcomes that they expect to accomplish with your donated dollars. Even legitimate charities are sometimes well-intended but fail to or poorly deliver on their promises. That’s why it’s important to thoroughly research a charity before giving.
Promising a Prize. Some schemes will guarantee sweepstakes winning for donating. The FTC advises that this not only a scam but also illegal.
Bypassing Banks. Illegitimate schemes will often ask money to be sent via money order, wire transfer, gift cards, cryptocurrency (like Bitcoin), or a foreign bank. The safest way to make a donation is by credit card or check.
Real Charities Not Doing Much Good. Unfortunately, some tricksters have figured out how to straddle the grey line between fraud and not. They set up legitimate charities but pay themselves a hefty salary to administrate the charity. That’s why it’s important to research a charity to determine what percentage of donations go to actually serve their cause versus lining the pockets of their founders. When choosing a charity, look for those that spend no more than 30% of total costs on administration and fundraising expenses.
How to Avoid Charity Scams
Make Sure the IRS Recognizes the Charity. Tax-exempt organizations are required to register with the Internal Revenue Service. You can search their database of tax-exempt organizations at https://apps.irs.gov/app/eos/.
Do Your Research. Thoroughly research a charity before giving. What are they doing to serve the community, and do they actually do what they say they will do? How much of their costs go to overhead and administration versus providing actual services to the community they serve? The following organizations provide reputable information on how charities do business and spend their donations.
Check Your State’s Solicitation Registry. Most states require nonprofits to register with the state if they plan to solicit charitable donations. You can find yours at nasconet.org.
Report Suspicious Organizations. Help others avoid being victimized by charity scams. You can report scams to FTC.gov/complaint. You can also report to them to your state’s charity regulator. Make sure you include specific information, like the organization’s name, contact information, and any specifics of your conversation or communications with the fundraiser.
Need Help With Your Charitable Solicitation Registration. If your charity solicits donations, you will likely need to register with your state AND any other state in which you solicit donations (even online). Failure to register can result in fines and penalties against directors and officers and even barred from further fundraising activities within a state. Caritas Law Group can help with your charitable solicitation registration needs. Contact us at [email protected] for an estimate. Caritas Law Group serves nonprofits of all types and sizes and files registrations in all states that require them.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.