Critter Corner: FTC Urges Research Before Charitable Donations

Dear Hayek,

I am thinking about giving charitable donations this month. I want to make sure that the charities I am choosing are legitimate and that most of the money I give goes to those in need. I also want to make sure I’m not getting scammed, as I heard scams related to charitable giving are rampant at this time of year. What are some suggestions when it comes to researching charities before giving money to them, and how can I be sure I am avoiding scams? Thanks for your help. Happy Holidays!

Shari Tibble

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Dear Shari,

It is very generous to want to give to charity during the holiday season! And, you are wise to research the charities you are considering! In fact, if you intend to make a monetary donation to any charity this holiday season, the Federal Trade Commission urges you to do your research first.

“You often don’t realize whether your money is reaching a legitimate charity or a scam because you don’t have further contact with them. It’s not like you’re getting a product back in the mail from them, so it’s really important to do your research in advance,” said Chuck Harwood, a regional director for the Federal Trade Commission. “Slow down and make sure you know who you are donating to before you actually make that donation.”

These are some of the actions he suggests you take:

• Make sure the charity you are considering supporting is a bona fide, tax-exempt 501(c)(3) public charity (all of the charities evaluated by Charity Navigator meet this basic requirement). If you aren’t sure, ask for the organization’s EIN (Employer Identification Number) and then look up that organization using Charity Navigator to confirm its status. Charity Navigator not only lets you confirm whether the charity is a legitimate entity, but it also gives you a rating for each charity using a four-star rating system which also awards up to 100 points based on many different factors, all giving you an idea of how much of your donation will actually wind up helping people in need of that organization’s services, as opposed to lining the pockets of organizational executives.
• Examine the charity’s finances. Financially healthy organizations – those that are both financially efficient and sustainable – have greater flexibility and freedom to pursue their charitable mission. Use Charity Navigator to do so.
• Ensure the charity is accountable and transparent. Charities that are an open book and follow good governance practices are less likely to engage in unethical or irresponsible activities. Use Charity Navigator to do so.
• Research the organization online, and check out what charity watchdog groups have to say about it. One of the most reliable charity watchdog groups besides Charity Navigator is org (created by the American Institute of Philanthropy). According to Newsweek, CharityWatch.org is “the toughest of the bunch, rating more than 600 charities on a scale of A+ down to F. According to the New York Times, CharityWatch “is the pit bull of watchdogs. Its staff members dig deeper than most other overseers, going to state and federal records to get information that charities do not volunteer, honing in on program efficiency and exposing abuses.” Among other services, CharityWatch.org provides a list of top-rated charities and a top compensation list, which is a list of the 25 charities that pay the most compensation to the organization’s top executive.
• Beware of fake websites that mimic legitimate ones.
• Beware of similar sounding charities, or local chapters of bigger charities. For example, if you search American Red Cross in Charity Navigator, you’ll see that the national organization has a three-star rating, but you’ll also see that many of its state chapters have “high advisory” warnings.
• Beware of pressure tactics. If an organization is putting pressure on you to donate, especially during an unsolicited phone call or door knock, don’t be afraid to say no.
• Be extra cautious of raffles and sweepstakes. Many legitimate charities do sometimes offer raffles and sweepstakes, but so do many scammers trying to impersonate legitimate charitable organizations. Here’s a good article about how to identify legitimate charitable raffles and sweepstakes and weed out the scams. Again, the bottom line is to always check out the charity using Charity Navigator and/or org.
• Don’t assume a request to donate is legitimate because a friend posted it on social media.
• Be sure to ask questions if you’re contacted by a professional solicitor, and don’t trust any answers given over the phone. As explained above, check out the charity yourself using Charity Navigator or org.
• You can also search your state’s public charities’ annual filing database to find out the breakdown of how much of your money goes to the program you want to support. Here is the database for Virginia, Maryland, and Washington, DC.
• Keep in mind that you may be able to double your donation to a nonprofit with a company match. Different companies have different guidelines, deadlines, and maximum matching amounts. If you’re not sure whether your company offers a matching charitable gift program, be sure to ask before you donate.

Consider the Way You Give

Create a budget for how much you can (or would like to) give. Understanding the tax benefits of giving and Medicaid eligibility implications is important. Please see today’s article for more details.

Hope this is helpful,

Hayek