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Is Your Favorite Charity a Scam? How to be Sure

Not all charities are created equal. Here’s how to find out if you’re donating to a great organization — or getting scammed.

6956082589_b9f1e73118_zIf you care enough about making a difference in this world, sooner or later you’ll put your money where your heart is, and donate to a charity that touches you personally, or else succeeds in making a direct appeal you.

Yet just because a charity claims to support a laudable cause doesn’t mean you can trust it as far as you can throw a Brink’s truck. In fact, at least one so-called “charity” continues to dupe countless Chicagoans every single day. (We’ll get to that apparent ongoing ruse in a moment.)

What’s more, it’s surprising how many people forget to take those gifts and write them off come tax time. (The Internal Revenue Service lists eight tips for deducting charitable contributions.)

As for the organizations that do a great job, another Chicago-based non-profit has its hands full rating national charities of every type and stripe for how efficiently they spend their money.

Charity Ratings can Guide Your Giving

The American Institute of Philanthropy publishes its Charity Rating Guide three times a year, and if you visit the website, you can see all the charities that earn top scores for their work. The top-rated charities list counts some 30-plus eco-concerns, for example, that earn anywhere from B+ to an A+. This means that they generally spend 75% or more of their budgets on programs; spend $25 or less to raise $100 in public support; do not hold excessive assets in reserve; and receive “open-book” status for disclosure of basic financial information and documents to AIP.

So if you give to, say, the The Conservation Fund or the Sierra Club Foundation, take heart and keep giving: Both earned A+ scores from the AIF.

Now I suppose you could play the wise cracker and ask what AIF’s score is. That I don’t know, but another website, Charity Navigator, allows you to search its database for ratings for various causes. I plugged the Sierra Club into its search engine and learned the group collected $47.2 million in revenue for fiscal year 2011. Of that amount, $46.7 million went to program expenses. Overall rating: 4 stars from Charity Navigator, or a 66 score out of a possible 70.

Watching out for Charity Scams

That’s the good news; now the bad: Charity frauds exist. For starters, smaller causes will easily fly below the radar of AIF or Charity Navigator, meaning you’ll have to do more homework on your own. And any time you give a dollar, you should use the same measuring sticks that you apply to investing or spending wisely. Con artists want you to stop thinking and start getting emotional; that’s how they pick your pocket.

Another common source of charity fraud comes from spam in your mailbox, especially after a headline-grabbing natural disaster hits. So take note: If an email misspells words or phrases like “global warming” or “lymphoma,” comes in text-only form, or asks you for passwords and bank information, chances are it’s a scam artist fishing for your hard-earned pay.

Still, people can act short-sighted, especially when a little self-congratulation makes them myopic. That’s how one suspect organization seemingly takes advantage of folks who want to feel good about getting rid of clothes they don’t need anyway (presumably to buy new clothes for those overstuffed closets). Enter the world of for-profit clothing donation boxes.

At last count, more than 500 giant bins belonging to the Gaia-Movement Living Earth Green World Action Inc. dot the city of Chicago, inviting people to toss away unwanted clothes in the name of supporting environmental causes. Also known as The Gaia Movement USA, the group claims to support “projects that help people all over the world conserve their resources. These easy projects work directly with community members.”

But a 2004 Chicago Tribune article by David Jackson and Monica Eng puts it bluntly: “The Gaia bins offer what people seem to want: painless altruism, cleaner closets and utter convenience.”

The bins also finance a shadowy international organization known as “Tvind,” sometimes called “the Teachers Group.” Started in 1970 by a collective of teachers who ran a countercultural high school in Denmark, Tvind morphed into a $100 million labyrinth of commercial ventures and charities, according to the Tribune article. Some allegedly had ties to the ruthless regimes of Cambodia’s Pol Pot and Zimbabwe’s Robert Mugabe.

Since then, Gaia bins have reportedly spread to California, while the leader of Tvind remains elusive to authorities. Mogens Amdi Petersen was arrested in Los Angeles in 2002 after 22 years in hiding. He was extradited to Denmark on charges of tax evasion and fraud; a Danish court acquitted him in 2006, but as the case was on appeal, Petersen left Denmark and went back into hiding again, according to various news reports.

Not that Gaia’s green bins continue to be anything less than ubiquitous — and preying, the evidence suggests, on the good intentions of clothing donors with at least some charitable heart, but not enough head.

The Moral: Think Before You Give

Put another way, the money you give to a charity, even something as close as your local church or synagogue, represents an investment. You have a right to see how the money’s being spent, and ask about efficiency and transparency. If someone balks at answering those questions, or tries to make you feel guilty for asking them, you have a good indication right there that something’s amiss.

Doing this diligence has its obvious rewards: You’ll see, first-hand, how your money changes lives and fosters hope. Failing to do it, by contrast, might mean that you’ll feel cheated, or worse.

United Way, for example, suffered a huge blow in 1995 when its longtime president, William Aramony, was jailed for defrauding the organization out of more than $1 million, which he used to fund multiple affairs and a lavish lifestyle.

And ask donors who gave to The Second Mile how they feel today about the founder, disgraced Penn State football coach Jerry Sandusky. As a monstrous pedophile Sandusky was doing anything but “providing children with help and hope,” to quote the defunct now-charity’s motto.

About Lou Carlozo

Based in Chicago, Lou Carlozo is a personal finance contributor for Reuters Money, a columnist with DealNews.com, and a former managing editor at AOL's WalletPop.com. Contact him with story ideas for Money Under 30 at feedbacker@aol.com, or follow him via LinkedIn and Twitter (@LouCarlozo63).

Comments

  1. I’m all for understanding what the organizations you support actually do with your money. Now that I work for a large non profit I see first hand a lot of the complexities of giving, both for the individual and the organization he/she supports. I would look into what the organization does as well as what the most effective way to give is. For example we have individual who contribute designated funds so far beyond what the programming actually calls for we’re strapped to create an endowment of sorts for one limited part of our ministry when others are hurting. I would encourage everyone who gives to understand what they’re giving to and how to designate (or give without designation) so that their contribution is most beneficial to the organization they want to see prosper.

  2. I agree with Krista (see above). I work for a nonprofit and very often, donors read articles like this and think they are capable of understanding the nuances of running a large organization. These people can have all sorts of misconceptions about overhead, budgets, salaries, programming costs, etc. Don’t donate to any organization that asks for your banking information, obviously. But be smart. Find their EIN and read their Form 990 online and see what type of work this organization actually does. Then think about how your gift could make an impact and where it could do the most good.

  3. Its a shame there are people who live at the expense of others. I totally agree with you that you should think before you make that decision to donate something to an organization and always ask yourself whether what you give will be used for the reason that made you donate.