How Charity Fraud Hurts the Sector

charity fraud as shadow

I’ve talked before about how much it pains me to find out charities are doing not-so-good work. Those organizations that take in money but only donate a small percentage to their actual cause make us as donors really think (or at least they should).

 

If you missed the recent news about the four “cancer charities” are being sued by the Federal Trade Commission, you should know that it’s the largest case to date of charity fraud. Not only does this charity fraud harm the mission of other cancer charities, it has the potential to harm charitable giving as a whole.

 

I also learned, as I was writing this article, about the corruption of FIFA, featuring its senior leadership – over 20 years of money laundering, fraud, and racketeering. While FIFA isn’t really a normal nonprofit, they still have nonprofit status, which has controversially allowed them to accumulate even more money.

 

With websites like Yelp for businesses, ZocDoc for doctors and dentists, Guidestar for nonprofit organizations, and Amazon for specific product reviews, consumers and donors have the tools to be more educated than ever when it comes to where they spend their money. And when news like this is prevalent, you should help to educate them about the integrity of your organization and show them where their money is going.

 

If you have trusted relationships with current donors, I wouldn’t spend a ton of time proving to them that your organization is legitimate. But new donors will want to know:

 

Your organization is actually a 501 (c) (3). There are hundreds of thousands of organizations that apply for charity status and the FTC is sometimes unable to keep up. A charity’s tax-exempt status affects their end-of-the-year finances and it’s important that their charitable donation is actually a charitable donation. They can check your status by simply visiting the IRS website.

 

Their money is actually going where they think it is. A lot of larger organizations will hire third party companies to handle some of their fundraising outreach, when in actuality, these organizations charge a fee (most of the time). I always encourage donors to donate directly to the cause, whether that’s right on the cause’s website or by sending a check through the mail.

 

Their money is going where you say it is. You should be very honest about where their donation is going. I love charities that host fundraisers with 100% of proceeds going toward a particular cause. People want to be able to send their money directly to a cause and are more inclined to do so. However, if you rely heavily on donations for administrative costs, that’s okay too – just don’t lie and say that 100% of the proceeds go toward cancer research if you’re actually only sending 50%. If this is the case, just don’t make the claim at all. (I feel like this should go without saying, but I’ve seen it before and I know it goes on frequently.)

 

They’re making donations to the right organization. A lot of scammy organizations will use similar names to more prominent organizations in an effort to confuse donors into thinking they’re more legitimate. You should be proactive as an organization and search similar organization names every once in a while. If something similar pops up, do your homework on the organization. If it seems sketchy, encourage your donors to do their homework too.

 

What do you do to integrate integrity into your organization? Share in the comments section below!



  • Deanna Liderman

    Very interesting and timely topic. I believe nonprofits will face more financial scrutiny as more of these fraudulent cases come to light. Sometimes this fraud extends beyond corruption, I wrote my Master theses on the topic of charity funds being used by terrorist organizations to finance their operations. I believe this has only grown in the past 5 years.

    What I struggle with is understand the mechanisms for vetting those organizations. If the organization is misusing donor funds, if only a small % of total donations actually make it to the programming expenses, if the organization is outright lying about its mission or what it actually accomplishes, what recourse do we have as donors, philanthropists, nonprofit professionals, financial experts, etc. to hold them reliable.

    I believe there should be a separate oversight institution and a centralized forum (agency, hotline, website) to report fraud and misuse of nonprofit funds. I believe some nonprofits are taking in the money without doing any good to anyone but themselves, which, in effect, diverts those funds from better and more strategic uses.

    I think its time we hold the “do-gooders” reliable when they are not doing any good to anyone by their own egos.

    Kind regards,
    Deanna

    • KadiOU09

      Deanna – Excellent points, and couldn’t agree more! I try really hard to do my homework before sending my dollars anywhere, but there is only so much I can do!

      Thank you so much for your comments!! 🙂