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How Can Businesses Protect Themselves Against Charity Fraud?

Richard Borge

A lot of good can come from corporate giving. Installing some sort of philanthropic plan can lead to networking opportunities, positive publicity, boosted morale and, not to mention, improvements in the community in which the company resides. 

Unfortunately, sham organizations that exist to prey on the charitable actions of others can make some businesses—and people—skeptical of making donations. 

“Every year there seems to be what I would call a nonprofit scandal,” says Craig Jones, marketing director at the Community Foundation of Collier County, a charitable fund that seeks to increase private philanthropy in Southwest Florida. 

Most recently, the Federal Trade Commission and state regulators declared four interconnected cancer charities as fraudulent for cheating donors out of $187 million. 

And while the appalling details of the case may have left community leaders shaken, experts say practicing due diligence on organizations can weed out impostors in the future. 

When researching a charity in question, United Way of Lee, Hendry, Glades and Okeechobee President Cliff Smith says, “the three big words to remember are ‘transparency,’ ‘accountability’ and ‘impact.’”

Organizations should have comprehensive websites with financial records readily available. Most tax-exempt organizations must file an IRS Form 990—an annual report of finances, activities and governance—which can be found on many trusted nonprofit websites. 

“By looking at the form you can get a very good idea about the organization,” says Mary George, vice president of community grant-making at the Community Foundation.

National corpora-ions such as GuideStar USA Inc. and Charity Navigator provide unbiased evaluations of non-profits based on legal documents. Regional and county community foundations can provide similar information on a more localized scale. 

These ratings deter-mine whether organizations manage funds responsibly. Smith says overhead costs should not exceed 20 percent without a viable explanation. Federal guidelines flag overhead costs of 25 percent and over. 

While Internet research is essential, Tom Uhler, founder and principal of Uhler and Vertich Financial Planners LLC, says the best way to understand an organization’s impact within the community is to become acquainted with the people behind it. 

Consider joining the organization’s board or volunteering time, or simply ask questions, Uhler suggests. “Ask for their long-term and short-term goals and find out if they have a functioning board of directors.” Chances are the more impassioned and involved the members are, the more the charity is something to believe in. 

Creating a dialogue with fellow business associates can also help in selecting credible causes to assist. Michael Schroeder, president and chief investment officer of Wasmer, Schroeder & Co., says his firm engages employees, stakeholders, vendors and suppliers in its decision-making process.

Establishing a goal of which types of causes to donate to per year—be it education, animals or environmental—can make it easier for companies to handle random solicitations. 

If corporations are approached by telemarketers or similar sellers on behalf of an organization, experts say employees should ask for its website and headquarters so research can be done before choosing to give. 

It’s important, Uhler says, to resist the urge to give into a pitch that promises a lavish prize in return for a donation. 

“Businesses have the opportunity to make a difference in the world,” he says. “[Donating] is just one of the ways to give back to the community. Don’t do it with the idea of personal gain.” GB

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