How to Avoid Charity Scams
Mallie Jane Kim

As Evelyn Young was leaving the Kmart in Bloomington, Ill., this past summer, a young boy crossed the parking lot toward her, a rolled-up paper clutched in his hand. He came close, unrolling the paper as a form of identification, and asked Young if she would support the local Boys & Girls Club. Young, who unfortunately for him is the executive director of the Boys & Girls Club of Bloomington-Normal, knew the club never sends kids out to ask people for money and was horrified to encounter someone "doing illicit kinds of solicitations in our name." She reported the incident to the police.

Generosity is alive and well in the United States, even with the economy ailing. Charitable giving, though down 3.6 percent from 2008, surpassed $300 billion in 2009, according to the annual philanthropy report put out by the Giving USA Foundation, a research and education group, and the Center on Philanthropy at Indiana University. Three fourths of those donations came out of individuals' pockets. Ken Berger, CEO of Charity Navigator, an online site that rates charities to inform potential donors, estimates that together Americans give two to three times more than people in any other country.

But it can obviously be risky to simply say "yes" and open your wallet. How can donors be sure their hard-earned dollars make a tangible difference rather than lining the pockets of impostors or real charities that misuse funds? Experts agree that taking a little time for research is vital in order to avoid scams and to support effective organizations. "Use your heart, by all means," Berger advises. "But use your head as well."

The danger of being scammed is on the rise as the holidays approach, says the FBI, and it's always higher directly following a disaster like the earthquake last January in Haiti. As of early September, the bureau had received nearly 450 complaints about potentially fraudulent charities claiming to provide relief there. "When big money is involved, you're going to have scoundrels that come out of the woodwork," Berger says.

Many will be using high-tech tactics. Phishing, though an increasingly well-known trick, still ensnares the unsuspecting or distracted, who click on E-mail links leading to false Web sites that ask for donations. The bogus sites are designed to seem real, but credit card data and passwords are captured by the scammers for their own gain. Victims who do not monitor their bills and credit scores may not know they've been scammed for quite some time.

The best way to avoid phishing is to type a charity's Web address directly into your browser. If you need to find a group by searching, note that most nonprofit Web sites contain the organization's name followed by ".org." Consumer and charity watchdog Web sites like the Better Business Bureau, Charity Navigator, and GuideStar also list nonprofits' official Web addresses, and may include the tax forms and financial disclosures required for a nonprofit to retain tax-exempt status. Charity Navigator rates nonprofits based on their financial viability and efficiency (how much of every dollar goes to run programs and how much toward administrative and fundraising costs), and the Better Business Bureau rates them based on 20 standards of accountability, including the structure of the board of directors and the transparency of financial data. Any charity that meets all 20 standards is classified as a BBB Accredited Charity.

A quick search on sites like these is a great way to find out if an organization actually exists and to avoid giving to sound-alike charities. In 2005, Kent Ray Stryker of suburban Los Angeles was sentenced to 51 months in prison after he created more than a thousand 800 numbers and "doing business as" names, which allowed him to cash and deposit checks made out to "National Cancer Society" or "National Arthritis Association," plays on the established American Cancer Society and National Arthritis Foundation.

Not all charities with similar names are scams, but neither are all created equal. If you want to give to the Children's Defense Fund, a child advocacy organization with a four-out-of-four-star rating on Charity Navigator, be sure you aren't giving to the Children's Charity Fund, which educates the public about handicapped and disabled children's needs but has a zero-star rating due to fundraising costs that run an exceptionally high 87.2 percent of total spending. Charity Navigator calls nonprofits with a zero rating "exceptionally poor performers," says CEO Berger. "I would also call them 'run in fear.' "

Online or in person, the high-pressure pitch is a scammer's hallmark. The best policy is to avoid giving cash or wiring money; ask any solicitor on the street or who comes knocking on the front door for a website to get more information; and give directly to an organization rather than through a third-party telemarketing firm, which will likely keep a healthy cut, if not all, of your donation.

Choose well.

One giving trend that GuideStar CEO Bob Ottenhoff has noticed is that more and more people "invest" rather than "grant" their donations, a sign that they are looking for results. "This is an important decision I'm making with my hard-earned money," Ottenhoff says. "I want to make sure it's making a difference."

People researching ways to help in Haiti, for instance, could tell from reading the American Red Cross Web site that the charity had teamed up with Fonkoze, a microfinance institution there, to provide emergency grants and loans to help people like Marliene Emilien and her children. The entire second floor of the family's home collapsed to ground level during the earthquake, destroying both the home and her small business selling rice. "The loans help [people] start in a new direction," says Mat Morgan, communications officer for the American Red Cross. Emilien decided to use the loan to switch to selling soft drinks. The Red Cross estimates 210,000 Haitians will benefit from the loan and grant programs.

Arthur Reimers, a Greenwich, Conn., private investor and "venture philanthropist" who practices this sort of investment giving, says that if an organization's mission piques his interest, he checks to see if its strategies appear best suited to the goal. "If there's three different ways that somebody's attacking different problems, you try to figure out which one is more effective," Reimers says.

Suppose you want to help the homeless.

Of the programs in your area, whose solutions match up best with the problem you care about most? In Washington, D.C., for example, So Others Might Eat, which started in 1970 as a soup kitchen, provides housing and food, medical and dental care, counseling, and job training. Calvary Women's Services runs three shelters exclusively for women, focusing on teaching healthful cooking, financial literacy, and life skills classes to transition residents into independent living.

In urgent disaster response situations, Berger suggests the best alternative is to support an organization already on the ground and with a track record in disaster relief. Damage to Port-au-Prince made importing and distributing emergency supplies a logistical nightmare after the earthquake, but Partners in Health, which provides community-based healthcare to the poor, has operated in Haiti for decades and was able to immediately step up its work. The American Red Cross, which had 14 people stationed there plus supplies prepositioned in Haiti and at a regional warehouse in Panama as part of an emergency preparedness plan, was also able to react quickly. Organizations like these are "most readily able to overcome obstacles quickly," says Berger, "because they know everybody."

Websites like Charity Navigator break down the spending of charities they rate, so potential donors can see how much actually goes toward doing good versus administrative costs and fundraising. The Better Business Bureau's guideline: At least 65 percent of spending should go toward program costs, and no more than 35 percent toward fundraising efforts. But results are the most important measure to look at, experts say. "There may be a case where a charity has higher-than-average overhead, but it has got gangbuster results," says Berger. Or, he adds, an organization may have low overhead but poor results because of noncompetitive salaries and high leadership turnover.

A six-figure executive salary can seem excessive, but complex, multibillion-dollar organizations like the Red Cross have to pay what the market demands, which is typically still a step down from the for-profit CEO pay scale. According to Charity Navigator, the Red Cross paid its CEO $446,867 in the fiscal year ending June 2009--just 0.01 percent of its annual revenue of $3.2 billion--and 91.8 percent of expenses went toward emergency preparedness and response.

Measurable results.

The Better Business Bureau's standards suggest that charities' annual reports should be publicly available, so you have access to a mission statement, accomplishments over the past year, the leadership roster, and financial information. "Stories without data are meaningless," Berger says. Nurse-Family Partnership, which provides maternal and early childhood care to low-income families, offers a "Proven Results" section on its Web site, for example; it says studies have shown that the group's services resulted in 79 percent fewer pre-term deliveries for smoking mothers, a 59 percent reduction in child arrests by the age of 15, and a 20 percent reduction in the months families were on welfare. "It's not just how many people got a job from a job-training program," Berger says. It's also how many people are able to keep that job, and how many have become self-sufficient.

Available at Amazon.com:

Hot Time in the Old Town: The Great Heat Wave of 1896 and the Making of Theodore Roosevelt

American Insurgents, American Patriots: The Revolution of the People

Broke, USA: From Pawnshops to Poverty, Inc.How the Working Poor Became Big Business

Were You Born on the Wrong Continent?: How the European Model Can Help You Get a Life

The Disappearing Center: Engaged Citizens, Polarization, and American Democracy

The Virtues of Mendacity: On Lying in Politics

Bush on the Home Front: Domestic Policy Triumphs and Setbacks

The Political Fix: Changing the Game of American Democracy, from the Grassroots to the White House

Read the latest political news.