According to TODAY, the average American donates roughly $2,500 a year to charitable organizations. In 2010, that amounted to roughly $211.77 billion. But when it comes time to give, you need to make sure that you’re gifting your donation to a reputable source. Phony charities and fraudulent relief organizations are becoming all too common, especially online. What’s more, these organizations are becoming increasingly more sophisticated. Forget about Nigerian princes and long-lost relatives, today’s charity scams are so well executed, even celebrities have fallen into the trap.
Just last year, media darling Khloe Kardashian’s former husband, Lamar Odom, was accused of running a fraudulent charity, Cathy’s Kids, in order to support cancer research. According to reports by ESPN's "Outside the Lines", none of the money raised ($2.2 million) was given to organizations targeting the disease (it was instead reportedly used to fund two ‘elite’ youth basketball teams). On a related note, Khloe’s sister, Kim Kardashian, has been accused of profiting off a charitable association. And that’s just the Kardashian clan… big names like Lady Gaga, Wyclef Jean and Madonna have also been accused of taking a piece of charitable proceeds for personal gain.
Whether these celebrities acted inappropriately - or rather quite legitimately helped raise awareness and funds through their name - is up for debate. The wise consumer understands that celebrity endorsements are often just that - paid relationships that are designed to support both parties. In other words, a portion of your donation could end up lining the pockets of your favorite celeb.
However, the bigger issue is legitimacy of charitable organizations in general. Before you hand over your hard-earned cash, you need to perform your due diligence. The following are 5 ways you can do just that…
5 ways to check up on the accountability of a charitable organization
- Make sure the organization is a registered entity
Most states and provinces have registration and licensing rules that charities are required to abide by. In order to obtain tax-exempt status from the IRS (in the U.S.) or the CRA (in Canada), an organization must file certain documents to prove their charitable operating procedure. The IRS provides information on these organizations via their Exempt Organizations Select Check tool; the CRA via their Charities Listings.
- Check in with charity watchdogs
Begin your background check on a consumer or charity watchdog site, like Charity Navigator or GuideStar. These websites list important information for most registered nonprofits, including website addresses, tax forms and financial records. It also doesn’t hurt to contact the Better Business Bureau for an additional reference. The BBB rates organizations on 20 standards of accountability, including the transparency of a charity’s financial reporting.
- Get a good look at an organization’s finances
Once you’ve done a little digging on the organization, the next step involves number crunching. Contact the organization and ask for a copy of their Form 990 (U.S.) or Form T3010 (Canada). This is a document that outlines the charity’s annual tax return to the IRS or CRA. It will also contain information on the organization’s governance structure and administrative expenses. Warning flags should go up if ever an organization refuses to give you a copy of this or similar information; by law, all charities are required to provide financial and governance details to the public.
- Understand the charity’s impact
Charities should be able to give you a clear rundown of their objectives and outcomes. When researching a charity, ask a representative about the challenges they face, the goals they’re working towards, and any accomplishments that they’ve achieved to date. A legitimate charity will be able to provide you with detailed information on the services and programs that they offer.
- Watch out for high-pressure donation-request pitches
Be skeptical of pushy sales tactics and so-called “survivor stories”. Be wary of individuals representing themselves as surviving victims, especially if they’re soliciting your information via email or on the phone. Never feel obligated to give on the spot. Take your time to research the charity and only give when you’re confident that your money will be put to good use.
Discover the good
Should you assume that most charitable organizations are corrupt? Hardly. More often than not, philanthropic organizations (and the celebrities who endorse them) are working for a very good cause and putting as much of the proceeds as they can towards making a lasting impact. As the donor, it’s up to you to weigh the good from the less-than-good offerings. At the end of the day, due diligence has to trump emotional - and celebrity-attachment.
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