Where Does Your Donation Go When You Give to Charity?

When you give to a charity do you know where your donation is going?

Giving to a charity is something a lot of people make the decision to do each year. Unfortunately, some of these organizations hide behind the disguise of kindness to create jobs with large paychecks. Even worse, there are some charities established for the only purpose to deceive and scam people out of their money.

Each year numerous charities are set up to improve people’s lives and the communities they live in. However, not all of them are exactly transparent on how they operate and where the donations received end up being spent. Just because an organization calls itself a charity, this doesn’t automatically mean all the donations they receive end up going to help the cause being represented. There are costs to run charities and this is understandable. However, there are many charitable organizations that give only the minimum amount required to maintain their charity status.

If you make charitable donations, you will likely want to believe what you give is going to a good cause. Because there are so many charitable organizations, how do you know if your donations will go where they should? How do you avoid being scammed by a charity that is less than honest?

It can be challenging to pick charitable organizations you feel comfortable donating your money, time, or belongings. But there are ways to avoid being scammed by a charity with a good background check and remaining aware of the warning signs that something doesn’t seem right.

What is a charity?

First, it’s important to define a charity. The reason for this is because some people believe that an organization defining itself as a non-profit would also be a charity. This is not always the case. The truth is that all charities are non-profits but not all non-profits are charities.

The difference between just a non-profit and an actual charity that is not for profit is in their goals. A non-profit just by itself is established on the principle that no net profit from donations will benefit any individual. The non-profit is set up generally to the benefit of shared interests. There are many businesses set up as non-profit to benefit their members. Homeowner associations and clubs are other good examples of non-profits that could be established.

A true charity is set up for the goals of improving communities and quality of life. They are established as a way for people to give back and help others. This could be by helping monetarily, with volunteering time and giving items away to others that need them. Charities are typically started for philanthropic reasons.

A charities tax status sets a real charity apart from other non-profits.

One of the big distinctions between an actual charity and just a non-profit is its tax-exempt status. Although non-profits can also have some tax advantages, charities and private foundations receive the 501(c)(3) status. This allows donations to these organizations to be tax-deductible to their donors.

The tax status for a truly charitable foundation is one of the reasons they are set up this way. Furthermore, it can also be a big reason why a less than honest organization decides to call itself a charity. Setting up an actual business that can be disguised as a charity is something people do try and get away with and sometimes, they do accomplish this.

How do you protect yourself from a charity scam?

Not all charities are established to exactly swindle people out of their donations. There are some truly good organizations that do the work they portray. However, there are also charitable causes that fall in the middle of not exactly ripping people off but not using all the donations they receive or at least an acceptable majority of those donations for the cause they represent.

Researching a charity before giving is extremely important.

Don’t just see an emotional commercial on television and call a telephone number or visit a website to donate to a charity. The problem is you never know where the money or the belongings you are donating will be going without researching the legitimacy of a charity. They are not all created equally.

What percentage of donations does the charity end up with?

One of the significant things most people like to know with a charity is what percentage of donations find their way to the purpose of the organization. Executive compensation at large charities are something to particularly investigate. For me, millions of dollars paid to executives employed by a charitable organization aren’t something I look at favorably. If I give $100 to a charity foundation, I like to know if most of it goes to the actual charity.

What percentage of donations actually ends up with the charity that you donate to?

I understand non-profits have administrative costs and often they can’t get everyone to volunteer the time to make a charity work. Sometimes people do need to be employed and they don’t work for free. However, paying millions of dollars to the equivalent of a CEO for a charity isn’t a practice that I want to support. To me, a charitable organization should not be paying that kind of money to one person. Most of these people are already wealthy and could be taking much less while volunteering more of their time.

Is the charity in disguise as more of a business?

I believe there are quite a few charities formed each year and several that already exist for the purpose of receiving favorable tax treatment. They might be non-profit but that doesn’t mean they do not want to bring in the most money they can. This is frequently for the purpose of supporting ridiculous salaries that might be paid to executives that work with a charity.

One example of a company that likes to portray itself as a charity, but is not even close, is one of the largest thrift stores across America. You can likely easily guess the one I am talking about. They are not as “Good” as they portray themselves. It is reported that only about one eighth of their profit goes to the job programs they market as part of their charity work.

Just go into one of the “Good” stores and start pricing some of the things they sell today and you will see a lot of it is not exactly what you would consider a thrift store price. It is reported the CEO of “Good” makes millions each year. This charity is not the only one to have a high compensation for the CEO. This list on charitywatch.org lists the top 25 charity compensation packages.

The “Good” store is just one example of a non-profit charity that seems to disguise itself as a business. Therefore, it is important to research the money going in and out of a charitable organization.

Is the charity just a complete scam?

Most charities do have good intentions of helping people and communities with the organizations they create. However, there are plenty of people that form a charity or claim to be a charity with the intent of just plain scamming people out of their money and time. These scammers tend to show up more often following some type of natural disaster.

According to The National Center for Disaster Fraud, there were more than 400 complaints of fraud following hurricanes Harvey and Irma. Each time there is some type of disaster the scammers look for ways to take advantage of kind people looking to help. Although it might seem challenging to spot a less than honest charity, there are signs to look for and research once again is the key to discovering any problems with the legitimacy of an organization.

What are the warning signs of a complete charity scam?

Fortunately, with less than honest charities or organizations trying to portray themselves as one, there are generally warning signs of possible issues. Probably one of the most obvious signals with something not being quite right with a charity is if they only accept cash payment donations. A charitable organization that only wants cash, wire transfers, or gift cards is likely doing something that is not legitimate. Thieves like these types of payments because they are much more challenging to trace.

A charitable organization that only wants cash, wire transfers, or gift cards is likely doing something that is not legitimate.

Pressuring people to donate is also a bad sign with a charity that might have some potential problems. A good charity does not pressure people into giving. A charitable organization should be friendly and accept a donation if you decide to give one while respecting your decision when you do not provide a contribution.

If something does not appear to be quite right with a charity that approaches you for a donation, do not be pressured into giving them anything. This is particularly the case if they want money and only in cash. As a good rule only make payments to a charity with a check or credit card. These are often safer forms of payment and they have protections in place while being able to trace the history of where the money ends up. A charity that does not accept checks or credit cards is a bad sign. Legitimate organizations will have several forms of payment that can be accepted and not just cash. 

High-pressure tactics into donating to a charity and with only a cash payment are not the only strategies charity scammers use to take money from generous people. Some charity frauds will make their organization name close to one that is legitimate to lure in unsuspecting people. These people then donate to a charity believing it is another organization.

How do you research the background of a charity you are thinking about helping?

With today’s technology looking into the background of a charitable organization has become much easier with the use of the internet. It’s simple to find quite a bit of information and there are additional resources available to report charity scammers in their tracks before they can take advantage of people.

Some of the more popular websites for researching charities include:

Many of the popular websites available for researching charities have financial information on them to see exactly how much of their donations are being used for their represented cause. Some sites will rate a charity and point out ones that are known to have problems. This research is important because it can reveal how transparent a charitable organization is willing to be. If the information seems to be missing or not available, it might not be a good sign.

In addition to the websites listed above, it is a good idea to research a charity through your state’s Consumer Protection Office and the Better Business Bureau before donating.

What if you suspect a charitable organization is a fraud?

If you encounter an organization claiming to be a charity and they appear to be less than honest, it is important to report this information. With the high number of scammers in the world today, the only way to even begin to win the battle with them is by reporting their crimes. These people most often play the game of deception by the numbers. Although a phone call from a questionable charity can be simple to just brush off, if it doesn’t seem right, report it. Far too often questionable charities operate way too long before they are put out of business because no one takes the time to report a problem. Fraudsters know this and use the time to their advantage.

You can report charity scams to your state consumer protection office and the Federal Trade Commission. If you suspect a dishonest charity is operating due to a natural disaster, it is important to contact the National Center for Disaster Fraud. Because so many charity scams seem to appear following a natural disaster, it is important to get as many of the possible problems investigated quickly to put them out of business.

Final Word

Giving to a charity can be a rewarding experience. Donating time, money, or a combination of these can help worthwhile causes that truly have an impact on people’s lives and their communities. Unfortunately, some charities are established under disguise when they are likely more of a business looking to enrich their executives and take advantage of the tax reporting requirements. The result is only a small amount of their financial donations end up helping the organization represented.

Charities are not only formed under concealment for the sole purpose of acting as a business with favorable tax reporting, some non-profit charitable organizations are started for the primary purpose of knowingly scamming people out of their generous donations. There are also other fraudsters that try and portray themselves as a legitimate charity when no non-profit might even exist.

Research and checking into the background of a charity is important. You want to ensure your donations end up in the hands of the people and communities they are formed to benefit. You don’t want to be supporting the scammers and fraudsters that prey on the goodness of people wanting to help.

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