Fallout from the Cancer Charities Fraud: How to Protect Yourself as a Donor

The non-profit world was reeling recently in the wake of the announcement by the Federal Trade Commission that they, along with all 50 states and the District of Columbia, had filed a complaint against four cancer charities, accusing the organizations of defrauding donors to the tune of $187 million.

Notice - Beware of ScamsThe four charities – Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America, and The Breast Cancer Society – are all connected to James Reynolds, Sr., who was also named in the complaint.  The complaint alleges misuse of donor funds, primarily benefiting Reynolds and his family personally with very little money going toward the charities’ stated missions.

You can watch a video of the FTC’s press conference here:

One of the accusations levied against the charities revolves around the reporting of gifts-in-kind, which are contributions of non-cash items that are used to directly support those in need – things like food and supplies.  By improperly reporting gifts-in-kind, an organization can appear to be more financially successful than it actually is.

Charitable fraud, as infrequent as it is, is nothing new.  There have been a number of major scandals involving charities over the years, not all of them fraudulent – from the Red Cross’s 9/11 scandal (which boiled down to a lack of communication and transparency) to the United Way scandal of the 1990s (which did involve personal misuse of charitable funds).

The key point is that as a donor, you have all the power.  There is information readily available to help you make wise charitable decisions and avoid giving to an organization that is not what it appears to be.

To help you, here are four tips to guide you in vetting potential charities:

1. Conduct research online

Past charitable frauds and deceptions have led to a number of charity “watchdog” organizations that you can use to research an organization.  The biggest are Charity Navigator and Give.org.  Charity Navigator has a page listing 10 “best practices” of savvy donors, while Give.org has a section on its website devoted to giving tips for donors.

[Side note: Charity Navigator has come under recent pressure from some in the non-profit sector to make changes to its proprietary method for ranking charities.]

One of the key areas to check is an organization’s financial effectiveness: how much of each dollar raised is going directly into programs and services, and how much is going to overhead (fundraising and administrative expenses)?  You generally want to see at least 70% of dollars raised being spent on programs.

But don’t judge a charity solely by its overhead costs.  If a charity has unusually high overhead, call and find out why.  There may be a perfectly good reason.

If you really want to dig deep, look up an organization’s information filing with the IRS, Form 990.  Charities are required to make their 990 publicly available.  You can call the organization to request the document or download it from Guidestar.org.

And make sure the organization is registered with your state’s charity official. Find yours here.

2. Call the organization

Nothing beats picking up the phone and speaking to someone at the organization.  (If you have trouble getting through to a live person during work hours, that could be a bad sign.)

Ask to speak with the Executive Director or highest ranking member of the staff.  If the organization does not have paid staff, speak with the President of the Board of Directors.

Ask questions to which you want answers, like:

  • How will you use my donation?
  • How do you measure your impact on the community / those you serve?
  • How do you fundraise?  Do you hire commercial fundraisers?  If so, are the fundraisers paid a set amount no matter how much they raise, or are they paid based on what they generate?
  • Do you have a long-term strategic plan that has been vetted by the Board?  (Ask for a copy.)
  • How do you recruit Board members?
  • Is the founder of the organization still involved?  If so, how?

Let your intuition guide you.  If an answer sounds too good to be true, it just might be.

3. Check with your local Community Foundation

Community Foundations often know most of the charities, particularly the smaller ones, in their service areas.  If you come across a charity that sounds interesting but is new to you, call your Community Foundation and ask what they know.  You might get some valuable insight.

Another option is to make your gift to the Community Foundation itself, restrict the gift to your particular area of interest (homelessness, the environment, animals, etc.), and let the Community Foundation vet the charity that will ultimately benefit from your donation.

Identify Community Foundations in your area using the Council on Foundations’ online locator tool.

4. Use common sense

Finally, a little common sense will go a long way to making sure your donation is used properly.  For instance:

  • Avoid sending cash in the mail.
  • Watch for sound-alike names to make sure you are supporting the correct charity.  With over 1.5 million non-profits in the U.S., overlap and duplication of names are inevitable.  For example, take two well-known organizations, Make-A-Wish America and The ALS Association.  Entering “Wish” on Charity Navigator generates 77 results.  Entering “ALS” on Give.org generates 14 results.
  • If you get a call asking for money over the phone, write down the organization’s name but don’t release personal or financial information over the phone.  Then do your research and, if you wish to give, send a check directly to the organization. Commercial fundraising firms often keep a high percentage of each dollar raised.
  • Make sure the organization is currently approved by the IRS to accept tax-deductible gifts.  Check an organization’s tax-exempt status here.

Giving to charity is rewarding, and Americans have shown themselves to be generous year after year.  Unfortunately, there are those who would take advantage of that generosity.  With help from tools that are readily available, you can make the most of your giving – secure in the knowledge that each dollar is going to benefit the world at large.

Comments or questions?  Contact me on Twitter: @juanros

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