Charity Fraud: Is That Celeb Legit?

June 1, 2012 — -- It's one thing to think twice before sending cash to a Nigerian ex-ambassador who perished in a plane crash and named you as the beneficiary of his $25 million inheritance.

It's quite another to donate money to Mary J. Blige, whose Foundation for Advancement of Women Now (FFAWN) is being sued by TD Bank for a $250,000 loan that was taken out in June 2011 --and only $368.33 has been repaid. Or to "Three Cups of Tea" author Greg Mortenson, who was recently ordered to repay $1 million in donations to his various charities. Or to phony Hurricane Katrina, Japan earthquake or tornado relief organizations.

"We see a lot of phony charities that pop up after storms or disasters," said Katherine Hutt, a spokesperson for the Council of Better Business Bureaus in Arlington, Va. Indeed, the National Center for Disaster Fraud, which the Department of Justice established in 2005 to investigate, prosecute and deter fraud associated with federal disaster relief programs following Hurricanes Katrina, Rita and Wilma.

The most recent data shows that in 2010, individual Americans donated $211.77 billion to charity, reports the Giving USA Foundation, a research and education group, and its research partner, the Center on Philanthropy at Indiana University. But while giving has increased, so has the number of fraudulent charities, reports the U.S. Department of Justice.

The tactics range from the high-tech to low-tech. Phishing, for example, is a real hazard: Users simply click on email links that lead to bogus web sites that appear legit but aren't. Instead, the users' credit card information and passwords are stolen.

"Legitimacy is a big issue today, particularly in time of crises," said Bob Ottenhoff, president and CEO of GuideStar, which collects information-- including nonprofits' official Web addresses, tax forms and financial data--on the 1.9 million non-profit organizations in the U.S. "Fake web sites pop up. It's good to be a little skeptical, and if you don't know the charity or haven't heard about it before or are not quite sure, that's a reason to say, 'I'll think about it'. I often say, 'send me some information." Ninety percent of the time you never hear from them."

The best way to protect yourself is to be proactive. Consumer and charity watchdog sites like the Better Business Bureau, Charity Navigator and GuideStar also list nonprofits' official web addresses, as well as tax forms and financial data. The BBB also rates them based on 20 standards of accountability, including the structure of the board of directors and the transparency of financial data.

"We recommend that donors check out three things before they give," said Sandra Miniutti, Charity Navigator's vice president.

First is the charity's financial health. Either go onto a charity watchdog site like Charity Navigator, which also rates nonprofits, or ask the organization for a copy of their Form 990, an informational tax return that charities must file annually with the IRS. By law, they are required to provide it to anyone requesting a copy.

You should also check on issues around accountability and transparency.