Choosing the Right Charity: How Businesses and Families Can Avoid Scammers and Help the Right Causes

By Mike DuBose and Blake DuBose

 

One day, our family of companies received a persuasive telephone call soliciting money for children with cancer. Per our protocol, we told the nonprofit’s representative to send us some literature so we could make an informed decision. When the information arrived, it was professionally developed, filled with heart-wrenching photos of children receiving treatment and text that reached deep into our hearts. Upon closer inspection, however, we noticed that there was no physical mailing address or website, only a post office box, and wondered if it was a legitimate organization. Our hunch was right: two weeks later, a New York Times article showed that the charity’s leaders were under investigation for fraud. They were accused of using a large portion of nearly $200 million in donations to purchase vacations, cars, and even college tuition for themselves and family members. Inspired by this incident, we researched many other charities and found that, shockingly, even some with 501c3 nonprofit ratings from the IRS had been suspected of fraud or mismanagement!

American donors have been very generous in recent years. According to Charity Navigator, they gave a record-breaking $373 billion to charity in 2015, almost $265 billion of which came from individuals. Corporations donated $18.5 billion, and contributions from foundations and bequests represented the rest. This generosity from both individuals and businesses is admirable—but if you’re one of the many people (or business owners) who plans to donate this year, how do you know that your gifts are being used to help those truly in need…and not funding multimillion-dollar salaries for the charity’s executives?

In 2013, researchers from the Tampa Bay Times and the nonprofit Center for Investigative Reporting examined tens of thousands of pages of public records and published a blockbuster report on America’s 50 worst charities. Among the shocking findings were that the 50 organizations named spent less than 4 percent of donations raised on direct cash aid. “Over a decade, one diabetes charity raised nearly $14 million and only gave a total of $10,000 to patients. Six spent nothing at all on direct cash aid,” the special report, which ran in the Tampa Bay Times, said. Kris Hundley and Kendall Taggart, the report’s authors, noted, “Even as they plead for financial support, operators at many of the 50 worst charities have lied to donors about where their money goes, taken multiple salaries, secretly paid themselves consulting fees or arranged fundraising contracts with friends. One cancer charity paid a company owned by the president’s son nearly $18 million to solicit funds. A medical charity paid its biggest research grant to its president’s own for-profit company.”

Even within the realm of legitimate charities, there are some that more effectively use donations than others. Some well-known and respected nonprofits have faced criticism for paying executives high salaries and spending significant amounts on fundraising rather than programs. For example, a popular breast cancer foundation drew negative press in 2013, when it was revealed that the CEO received an annual salary of $684,000.

Although such instances are troubling, you shouldn’t let them keep you from donating to worthy causes. But how can you determine that, first of all, the charity you are supporting is honest, and secondly, that it’s a good steward of the funds or items you’ll be giving? Fortunately, there are many resources out there that can help you find trustworthy, helpful nonprofits who deserve your hard-earned money.

First, you want to ensure that you are donating to a legitimate charity. One good rule of thumb, according to a 2014 U.S. News and World Report article by Lars Peterson, is to look for organizations with tax-deductible nonprofit status (such as 501c3). “If you want to make sure your donation is tax deductible, check if the organization is qualified to accept deductible contributions. This step insures you get the benefit on next year’s taxes – and it’s also a key hurdle legitimate charities must clear. Phony charities can clear it as well, but this is a good first step,” Peterson reports. The IRS offers a search feature that you can use to check an organization’s status at www.irs.gov/Charities-&-Nonprofits/Search-for-Charities.

There are also some common behaviors that scam charities tend to exhibit. To be safe, follow the advice of the Federal Trade Commission (FTC): “Regardless of how they reach you, avoid any charity or fundraiser that:

• Refuses to provide detailed information about its identity, mission, costs, and how the donation will be used.
• Won’t provide proof that a contribution is tax deductible.
• Uses a name that closely resembles that of a better-known, reputable organization.
• Thanks you for a pledge you don’t remember making.
• Uses high-pressure tactics like trying to get you to donate immediately, without giving you time to think about it and do your research.
• Asks for donations in cash or asks you to wire money.
• Offers to send a courier or overnight delivery service to collect the donation immediately.
• Guarantees sweepstakes winnings in exchange for a contribution. By law, you never have to give a donation to be eligible to win a sweepstakes.”

When you are contacted by a charity and determine that it is not a fraud, there are still other factors you’ll want to consider before making a donation. One of the most important is how much of the money collected goes toward program expenses—the costs associated with actually providing help to others—rather than fundraising costs (for example, producing fancy catalogs or paying telemarketers to solicit donations over the phone). Generally, you want to support organizations with the largest possible percentage of money spent on program costs. Here are some tips on finding these worthy charities:

• Don’t donate on the spur of the moment. If contacted by a charity soliciting donations in person or by telephone, ask for its exact name, address, and telephone number, and tell them that you’d like to get back in touch later. We typically ask them to send literature so that we can review it (and conduct some of our own research). Good charities will have no problem waiting while you confirm that they’re legitimate and investigate how they allocate their funds.
• Thoroughly research any charity you are considering supporting. There are several online resources you can use to determine if a charity is legitimate and how they use donated money. The FTC recommends consulting Charity Navigator (charitynavigator.org), Charity Watch (www.charitywatch.org), the Better Business Bureau’s Wise Giving Alliance (www.give.org), and/or GuideStar (www.guidestar.org). Your state may also offer helpful information about charities licensed to operate within its borders. In South Carolina, the Secretary of State’s website features a database that you can search using key terms. Detailed financial information on many charities, including total revenue, fundraising expenses, and percentage of total expenses used on program costs, is available through the website at www.sos.sc.gov/Search%20Charities. The site also features a list of charities that have been suspended and the reason for their suspension, such as failing to pay fines for delinquent registration and annual reports. It may also be helpful to perform a Google search using your state and/or the charity’s name plus the word “scam” to make sure there are no complaints against the organization.
• Use caution when giving to charities dealing with current events. Floods, earthquakes, tornadoes, and other disasters can strike without warning, devastating families and entire communities. Funds often spring up in the wake of such catastrophes to help the victims rebuild—but these incidents also represent prime opportunities for scammers. Fraudsters prey on peoples’ emotions and the sudden nature of such disasters to persuade you to donate, then take your money and run! If you feel moved to support the victims, seek out a permanent, trustworthy charity (like the American Red Cross) over a temporary one that, even if legitimate, may not have the structure or experience to truly help those affected.

All of the information available about different charities can be overwhelming, and it can be difficult to know which organizations deserve your donations. Fortunately, numerous local and national watchdog groups have ranked good and bad charities based on the information available. On the national level, CharityWatch (formerly the American Institute of Philanthropy) maintains a well-researched list of the best charities in the US, arranged by the groups or causes they provide aid to, at www.charitywatch.org/top-rated-charities. A list of America’s worst charities is available at www.tampabay.com/americas-worst-charities.

In South Carolina, where we live, the Secretary of State’s office recognizes 10 of the top charities as “Angels” and 10 of the worst as “Scrooges” each year (the full lists are available at www.sos.sc.gov/Scrooges_and_Angels). Scrooges are charities registered with the state of South Carolina that devoted 45 percent or less of their total expenditures to charitable programs. To be named an Angel, a charity must be registered with Secretary of State to solicit funds in the state of South Carolina and has to have existed for at least 3 years. It must devote 80 percent or more of its total expenditures to charitable programs, utilize volunteers well, and receive minimal grant-based funding. These top 10 South Carolina charities of 2015 (with the location of the charity’s headquarters and the approximate percentage of funds they spent on program expenses following in parentheses) were:

• Animal Allies, Inc. (Spartanburg, SC; 92%)
• Fostering Great Ideas (Greenville, SC; 85%)
• Hartsville Christmas in April, Inc. (Hartsville, SC; 98%)
• Hilton Head Heroes, Inc. (Hilton Head Island, SC; 84%)
• Injured Marine Semper Fi Fund (Oceanside, CA; 94%)
• National Arbor Day Foundation (Lincoln, NE; 89%)
• Orangeburg/Calhoun Free Medical Clinic, Inc. (Orangeburg, SC; 92%)
• Pilgrims’ Inn (Rock Hill, SC; 86%)
• Share Our Suzy (SOS) (Columbia, SC; 83%)
• Toomey’s Kids (Murrells Inlet, SC; 94%)

The Secretary of State generally chooses different charities each year to offer more exposure, so charities not listed in 2015 may have been recognized already. One exception was a charity we support, Harvest Hope Food Bank in Columbia, SC (98%), which was named an Honorary Angel in 2015 despite having been named an Angel previously. Although each charity is typically only recognized as an Angel once, the Secretary of State’s office felt that Harvest Hope’s actions after the catastrophic flooding the state suffered in October 2015 deserved special recognition.

Other states have similar lists, so be sure to take a look when you’re narrowing the field of potential nonprofits to receive your donations. Once you have found legitimate, effective charities that you want to support, there are a few additional steps to take that will maximize your safety and financial well-being:

• Don’t pay cash. For security’s sake, the FTC recommends submitting donations by check or credit card. This creates a paper trail to prove donations claimed on your taxes as well. (Don’t wire money, either—wire transfers are like cash in that you cannot get them back once they are complete.)
• Keep account information confidential. Unless you are completely certain that a charity is trustworthy, don’t share your credit or bank card numbers, account numbers, or any other sensitive information with it.
• Minimize annoying phone calls. The FTC maintains a “Do Not Call”
  list that you can sign up for to avoid solicitors (see donotcall.gov/ to register a telephone number or file a complaint). Unfortunately, nonprofit survey agencies, charities, and politicians are exempt. Also, when you give even a small amount to some charities, they may sell your name and address to others, resulting in a lot of tedious telephone calls, e-mails, and mailings! Thus, we have chosen to thank solicitors for calling and ask to be removed from their list. (In fact, we decline all solicitations over the telephone in favor of trusted charities we pre-select each year.)

 

The bottom line: There are plenty of noble charities out there—but there are also many frauds. The trick is making sure that your donations reach the people and causes that need them, rather than ending up in a scammer’s pocket. Use our tips and resources to find charities that have been proven legitimate, and rest assured that your personal and corporate donations are making the world a better place!

About the Authors: Our corporate and personal purpose is to “create opportunities to improve lives” by sharing our knowledge, research, experiences, successes, and mistakes. You can e-mail us at [email protected].

Mike DuBose, a University of South Carolina graduate, is the author of The Art of Building a Great Business. He has been in business since 1981 and is the owner of Columbia Conference Center, Research Associates, The Evaluation Group, and DuBose Fitness Center. Visit his nonprofit website www.mikedubose.com for a free copy of his book and additional business, travel, health, and personal published articles.

Blake DuBose graduated from Newberry College’s Schools of Business and Psychology and is president of DuBose Web Group (www.duboseweb.com).

Katie Beck serves as Director of Communications for the DuBose family of companies. She graduated from the USC School of Journalism and Honors College.

© Copyright 2016 by Mike DuBose—All Rights Reserved. You have permission and we encourage you to forward the full article to friends or colleagues and/or distribute it as part of personal or professional use, providing that the authors are credited. However, no part of this article may be altered or published in any other manner without the written consent of the authors. If you would like written approval to post this information on an appropriate website or to publish this information, please contact Katie Beck at [email protected] and briefly explain how the article will be used; we will respond promptly. Thank you for honoring our hard work!