Beware COVID-19 Charitable Donation Fraud
Beware COVID-19 Charitable Donation Fraud: As we all struggle through the COVID-19 health crisis, there is little doubt that in due course Americans will open their wallets to help those in need. We are a very charitable society and give billions of dollars each year to a wide range of charitable organizations. After the last major national crisis, the 9/11 terror attacks, the outpouring of donations was enormous.
Unfortunately, as we learned the hard way, a crisis also provides an opportunity for crooks and fraudsters. Last time, the fraud was so bad it led to the first major revision of the New York Not-for-Profit Corporation Law in 40 years. IRS regulations were also tightened. The goal was to increase transparency and accountability and reinforce the fiduciary obligations of nonprofit directors.
This time around, charitable people can be a bit smarter. There are several websites you can access to determine whether a person or group soliciting a donation is indeed a registered and legitimate 501(c)(3) charitable organization. These include:
New York State Charities Bureau https://www.charitiesnys.com/home.html
Charity Navigator https://www.charitynavigator.org/
Great Nonprofits https://greatnonprofits.org/
The IRS: www.irs.gov/charities-non-profits/tax-exempt-organization-search
The Charities Bureau is a division of the Attorney General’s office. Any charity that solicits contributions in New York State is required to register with the Charities Bureau (religious organizations are exempt). The Charities Bureau website has a search engine for its registered charities. Frequently, much additional information is available, such as the organization’s tax returns, Certificate of Incorporation and Bylaws. Tax returns usually include information on revenues, expenses, and some salaries. The other websites mentioned may also provide these documents, which are public documents.
Some charities hire professional fundraisers. In New York, professional fundraisers must register with the Charities Bureau, and must also file their contracts with their charity clients. An informed consumer can question whether a professional fundraiser is properly registered. A donor may also prefer to avoid professional fundraisers. In December, 2019, the Attorney General released a report on the activity of professional fundraisers in New York in 2018. The report stated: “Of the more than $1.3 billion raised through campaigns conducted by professional fundraisers, charities netted over $984 million, or 73% of the proceeds, while professional fundraisers’ fees and expenses totaled $369 million, or 27%.”
New York also regulates what are referred to as a “commercial co-venturers.” This is where a product or service is marketed or advertised with a claim that “$XX from each purchase will be donated to charity” or something similar. Commercial co-venturers and their contracts must also be registered and filed with the Charities Bureau.
Please be safe during the COVID-19 crisis, and also be smart with your donations.
This is not intended to be legal advice. You should contact an attorney regarding your specific situation.
Gary Schuster is a Partner with the firm and practices Business Law, and Arts & Entertainment. He can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.