How to Identify a Fake Charity

You stumble across a website for a fantastic charity. It's a cause that hasn't been done before, and you're excited that you can help them out. But you find out, six months or a year later, that you've been had. You gave money to a charity online that was really a charity of one; all the funds went to the person who set it up.

It is appallingly easy today to create and maintain a fake charity. Online tools like Paypal and ad exchanges make it simple to market and fund a fraud, and websites-in-a-box, where you simply fill in the blanks with your fake charity name and information, make it simple to create a web presence for your fake.

If you don't want to simply give to United Way or the Red Cross, and you also don't want to be taken in by a fake, learn to identify the frauds.

It's Easy To Set Up A Fake Nonprofit

It is easier to create a fake charity than it is to identify one. You start with an idea, big or little: save the whales, the cancer victims, or the lost dogs of New Orleans. You register with your government. Then you set up a website for your charity, complete with easy donation methods like Paypal. You might even offer something in exchange for a donation: an ebook, for instance, costs you nothing but the time involved in developing it, or the small cost involved in purchasing an already-written ebook from one of the many vendors online (find them at eBay).

You can set up a real charity using the exact same methods. The difference: a fake charity never does anything with its cash except deposit it in the bank account of the person who started the charity. A real charity reports where their money has gone, and is accountable for its expenditures to a board of directors.

Signs Of A Legitimate Charity

It is easier to determine which charities are legitimate than identifying which ones are fake. Start with a careful examination of the website. Look for the following signs:

• A board of directors numbering at least six people, with their credentials or regular job titles and place of employment listed
  
• A permanent street address in the United States or your own country.
  
• A 501(c)3 statement
  
• Success stories
  
• An outline of this charity's goals
  
• Downloadable financial statements that detail where money has been expended in the past
  
• Accurate statistics with verifiable and legitimate sources
  
• Good writing, spelling, and grammar

Any charitable website lacking two or more of these traits is suspect. That does not mean the charity is fake. On the contrary, it might be very new and very legitimate, but without a track record. However, fake charities generally lack at least two of the above items.

Of the traits above, the most important is a fair-sized board of directors who you can contact. A charity run by one person lacks accountability. A board of directors made up of "pillars of the community" is unlikely to endorse a charity created to cheat people out of money. If you're donating a large amount of money, call or write to at least one of these directors asking for more details about the charity.

A permanent street address in the US or your home country verifies that the charity is answerable to the law. Charities set up in the Bahamas or Nigeria are much more likely to be fake.

A statement that a charity has 501(c)3 status ensures that your donations are tax-deductible. It also ensures that the IRS looks at the charity's financial statements and has verified that it does perform charitable work.

Success stories help you understand what this charity does. An outline of goals does the same thing.

By law, 501(c)3 charities in the United States must make their financial statements available to anyone who asks; most large charities have put downloadable copies of them online, along with annual reports, so they don't have to mail them out. Though financial statements can be faked, most frauds don't bother.

Accurate statistics assure you that the charity knows what they are doing.

The use of good English also assures you that the charity is run by intelligent, conscientious people who pay attention to details. Fraudulent charities are more likely to have websites riddled with errors.

Never respond to an email charitable solicitation. Charities and nonprofits have become very wary of being labeled "spam," so they avoid using email for most purposes. If you've given to a charity before, you may be sent email solicitations -- but then, if you've given already, you probably are certain the charity is real! Regardless, one of the hottest scams today is sending out fake charitable solicitation emails. Don't fall for it, and never respond by clicking links in an email, even if it's one of your favorite charities. Go to their website instead.

A real charity will always be registered with the state's Secretary of State and the IRS, and should have an EIN number. If you have doubts, check with these agencies, and email the charity to make sure you're checking the correct state. Remember, though, just because the charity is properly registered does not mean it is legitimate or a good choice as the recipient of your money. You can also ask what major grants the charity has received; if they have received none, there may be a reason for it.

Finally, make sure that at least 80% of money raised goes toward programs the charity runs, not salaries and business expenses. Some of the most advertised and heartrending charities have as much as 35% of their funds raised go toward executive salaries, not the programs. Most legitimate charities will tell you that this is far too much. More than 35%, and you're probably looking at a concealed profit-making scam.

If You Think A Charity Is Fake

There are numerous websites that help you identify fraudulent charities, mostly because they only list legitimate nonprofit agencies. If you don't find your charity on any of them and it is a charity that claims to operate in the United States, you can be pretty certain that it's a fraud.

A list of links follows.