Avoiding Philanthropic Scams

Search the phrase “Charity Scam” and you will find more schemes than you ever imagined.  Unfortunately, with each natural disaster, people around the world wanting to assist those affected are deceived by emails and other gimmicks.  There are a few things to keep in mind when considering a financial contribution to a charity.

  • Avoiding scams.  How can we confirm the legitimacy of the charity?
  • Targeting effective programs in assisting with the recovery effort and/or rebuilding.
  • Targeting programs that contribute most of the donated money to the described effort and not to inflated employee salaries.

Keep in mind that some overhead costs are necessary to function, and this percentage will vary depending on the size of the charity.  Both accounting and IRS rules allow charities to classify some of the costs of such combined activities, for education and fundraising, as program costs. You can find out whether the charity uses this option by viewing the Form 990 it files with the IRS (look for “joint costs” just below the Statement of Functional Expenses on page 2 of Form 990). If you see a big number there, that’s where a good part of your donation will go, too.  Make sure those phone calls and mailings are the kind of expenses you want to support before you write a check.  Also, these groups are not always effective at measuring their impact toward the stated cause.  So what do we need to know in making that decision?  What information do we evaluate?

Rule No. 1 – Do not follow links sent in an email.  Groups will use a name similar to a well known organization to fool unsuspecting donors.  Search the net for the program you wish to participate with to make sure you are reaching the real organization. FTC website on charity fraud.

Rule No. 2 – Ask if your gift is tax deductible.  Not all nonprofit organizations are considered a charity.  Check the IRS list of charities.

Research the charity.  Depending on the size of the charity, their financial report may not be exact.

  • Yep, the Better Business Bureau has a section  for charities, but I’m not sure how proactive the charities are about providing information to this group.
  • Charity Navigator is free to review available reports, although not all the groups I support are listed here.
  • GuideStar requires registration to view relevant information and further detail can be obtained by subscribing to the website.
  • Consumer Reports gives some suggestions including those listed above.
  • (6 May 2011) Three Cups of Tea reveals need to verifiy the organization before donating.
  • American Institute of Philanthropy at CharityWatch.org

When it comes to disaster relief efforts and programs in developing countries, there is still a lot of evaluation needed to understand the most effective methods for assisting those efforts.  Unfortunately some programs perform overlapping work in an area that should be coordinated for a more significant impact.  Also, some programs do not work with the local people to determine the most effective implementation for the given culture and conditions.  Here is an example with the country of Haiti.

An independent film shown on PBS stations Children of Haiti tells the story of undereducated children in Haiti, before the large earthquake in 2010.  Assistance to Haiti must be coordinated and focused on solving the problems of a corrupt and unorganized government, described by the U.N. official in a Frontline episode Battle for Haiti.  The University of Pennsylvania is also blogging about addressing the most critical problems in Haiti on their blog about High Impact Philanthropy.

For ideas on who to contribute to, the founder of Craigslist has just launched a new website for Charities call Craigconnects.


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