Fraudulent charities in the wake of disaster


By Jacob Parks, J.D., CFE

 

 s2w-charity-fraud.jpg    
Catherine Lane/istockphoto 
The sudden and vivid destruction caused by tornadoes, tsunamis, man-made catastrophes and other crises compels us to contribute to the people affected. There is a particular urgency in responding to disasters because the victims often lack the supplies or help they need to survive. As a result, donors often choose to contribute as soon as possible to a charitable organization that pledges to help the disaster victims. 


But fraudsters swarm to take advantage of highly publicized emergencies, and many bogus charities that pop up under the guise of helping victims are just pocketing the donations. Worse, some organizations described as charities actually function solely to fund organized criminal groups. Disaster relief fraud is a cyclical problem because the success of fraudsters who run charity schemes encourages them to repeat the crime over and over for different disasters. It is sickening to realize that our attempt to help someone was pilfered, and it can also hurt the reputation of an organization that inadvertently donates money to a criminal.

Fraud involving disaster relief might be among the most immoral of financial crimes, but it happens so often that we should not be surprised or unprepared. There are many actions that individuals and organizations can take to help give them confidence their donations will not be misused.

DO THE HOMEWORK

The nature of disasters does not leave as much time for performing due diligence checks as most situations — the victims need relief right away. Even so, donors can do some research on an organization in a short amount of time using the following methods:
  • Search a charity evaluation site for the organization, such as Charity Navigator or GiveWell. These sites use several factors, such as transparency and how funds are used, to rate charities. Additionally, you can find the charity’s authorized contact information to compare to what solicitors have sent you.
  • Check to see if the organization is tax exempt or has had its exempt status revoked using this IRS site (or check with the applicable tax authority).
  • Simply running an online search for “scam” and the name of the charity might bring up revealing results. Charity scams typically involve mass solicitations, and whistleblowers often identify potential scams online. 
  • If responding to a solicitation, call the charity using its official contact information to ensure that it is the true solicitor.
  • Check to see if the charity is registered with a state government agency (most states require registration with the State Attorney General’s office or similar agency).

DONATE THOUGHTFULLY

Ideally, donors should pick their own charities after researching them, as opposed to donating to whoever contacts them first. However, we are often asked to donate spontaneously by street canvassers, door-to-door solicitors and in other situations. There is certainly value in spreading word of a worthy cause in-person, but donors should use discretion in donating. The best way to handle these situations is to hear the person out, then make a pledge to donate after having time to perform independent research.

BEWARE OF CHARITIES WITH LITTLE TO NO HISTORY

Suppose you come across a charity and find no negative history, or not much history at all for that matter. Even if a new charity is legitimate, it's questionable that it has the infrastructure to effectively move the donations to the area or people in need. Every charity has to start somewhere, but disaster relief organizations are especially vulnerable to fraud and mismanagement. Finding another organization with a strong history that will suitably pursue the cause is a safer option. If no alternative exists, ask the charity’s representatives for details on their logistics for providing aid to the victims of a disaster.

HAVE AN EFFICIENT IDENTIFICATION PROCESS

Disaster relief organizations often operate at or near the disaster sites, where there is a system of procuring and distributing resources. These scenes can be somewhat chaotic. Unfortunately, con artists are pervasive near disaster sites because there is a trust that everyone else is there to help. After Hurricane Sandy tore through the New Jersey shore, for instance, con man David Scott Ruddy convinced shelter volunteers for several weeks that he was a FEMA representative. He was not, and by convincing people that his role was to help, he allegedly bilked victims out of at least $50,000 in relief funds.

When volunteering or working with a disaster relief organization, it is helpful to have an identification verification process. Many organizations use photo ID cards or badges for workers authorized to handle supplies and other valuable assets. The recurring theme of on-site disaster-relief scams is a person claiming to have governmental authority without any actual association with the government. Don’t be afraid to question authority; most of these schemes can be avoided by verifying a person’s credentials.

LOOK FOR RED FLAGS IN CHARITABLE SOLICITATIONS

Regard charitable solicitations with a healthy skepticism, especially ones from organizations that you have never had contact with or heard of. Many charity scams send out mass emails, social media posts, letters and phone calls to attract donors shortly after a disaster occurs. It is suspicious for a charity to:
  • Request donations in the form of a wire transfer or cash.
  • Convey incorrect details in the solicitation, such as thanking the recipient for a donation that he never made.
  • Use high-pressure tactics, such as pressing for immediate donations over the phone or requesting an overnight delivery service for payment.
  • Have a name that closely resembles a recognized charity.
  • Fail or hesitate to provide information about organizational leadership, contact information or other identification.
  • Operate a social media account (e.g., Twitter) with little or no activity prior to a disaster.
  • Operate a social media account with multiple handles on the same site.
  • Fail to provide receipts for tax-deduction purposes.
  • Request payments to the solicitor as opposed to the beneficiary.
Donating to disaster relief is a noble effort that often requires some expediency, but we must still exercise basic caution to prevent fraudsters from stealing resources from those in need.

Jacob Parks, J.D., CFE, is an ACFE research specialist. 

Read more insight and discuss this article in the ACFE's LinkedIn group.

The Association of Certified Fraud Examiners assumes sole copyright of any article published on www.Fraud-Magazine.com or www.ACFE.com. ACFE follows a policy of exclusive publication. Permission of the publisher is required before an article can be copied or reproduced. Requests for reprinting an article in any form must be emailed to FraudMagazine@ACFE.com.
  



Related Articles

Extinguishing an arson fraud

Case study of an insurance fraud involving arson

Working smart with new clients

Article for CFEs to understand and attend to clients’ volatile feelings as well as their losses, especially in the first days after signs of a potential or confirmed fraud emerge.

Cooking the books with fuel fraud

False-statement frauds have plagued a complex federal program that mandates production of renewable fuel to reduce consumption of gasoline and diesel fuel and reliance on foreign oil.

Click here to Login and leave a comment...

Reviews
 
By Rajesh Kumar Saxena
Excellent article
 
By Mobin
 
By Jacob Parks