Charity Fraud and Charitable Donations

For more information on charity fraud and scams relating to charitable donations, select the source and summary below:

Informational Publications and Websites: 

1. Federal Trade Commission - Charity Scams.

If you’re thinking about giving to a charity, do your research to avoid fraudsters who try to take advantage of your generosity. Here are tips to help make sure that your charitable contributions actually go to the cause you support. Learn the signs of a charity scam and get tips for researching a charity. Get tips to help ensure your charitable contributions are put to good use. Figure out the specific causes Rip-off artists focus on such as disasters and causes with emotional appeal. Learn how to donate to legitimate charities that support service members and their families. Figure out what questions to ask telemarketers claiming to call on behalf of local police and firefighters.  Finally, before you make your donation, check out the charity with government recommended tools and sites that allow potential contributors to research specific charities.

2. Florida Department of Agriculture and Consumer Services - Charity Scams

Charity scams take advantage of people’s generosity by pretending to be a real charity in order to take your money. Fraudulent individuals may solicit donations in different ways- by telephone, over the internet, and in person. Frequently, bogus charities will exploit a recent natural disaster or tragedy, promising to use the donations to aid victims. It is important not to judge a charity solely on an impressive sounding name. Many organizations have names similar to well-known charities and organizations. All charities soliciting within the state of Florida (excluding religious, educational, political and governmental agencies) are required to register and file financial information with the Florida Department of Agriculture and Consumer Services. Before donating, you should request written literature and a copy of the charity’s financial report. If a charity does not provide you with the information you request, you may want to think twice about donating.

3. - Charity Scams

        You want to help people in need, but you want to be sure that your charitable donation isn’t simply going into a crook’s pocket. Tips to protect your donation include: checking out unfamiliar charities, asking for written information, being aware of sound-alikes, asking about the caller’s relation to the charity, and being cautious of requests to support police, firefighters, or after natural or other disasters.

4. Charity Navigator - Protecting Yourself from Online Charity Scams

        Your decision to make a donation is generous, but you need to be vigilant if you plan to make that donation online. Scammers are looking to steal not just your money, but also your personal information. This site provides steps to protect yourself and ensure that your money gets to the causes you wish to support. It also provides tips for giving in times of crisis, a guide to donating your car, a discussion of the tax benefits of giving, as well as tips for older donors.

Scholarly Articles, Research, and Analysis:

1. David L. Wilkinson, Donor Intent and the Failure of the Honor System, 25 Utah B.J. 12 (July/August 2012).

An article discussing the problem of the widespread and growing disregard for donor intent by recipient charities.  Wilkinson discusses the difficulty in ensuring that a gift to a charity for a specific purpose is used for that purpose and not to support the general operations of that charity.  Consideration of the “cy pres” doctrine, which allows a charity to change the original purpose of the gift with court approval, follows.  Next, the author discusses the temptation to avoid the obligation to petition the court for a change in a gift’s purpose due to the time-consuming court process and the unlikeliness of any repercussions for failing to petition the court.  Finally, Wilkinson makes recommendations as to which professionals will be helpful in ensuring that the donor’s intent that a gift be used for a particular purpose is honored.

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2. Kelly McNabb, What "Being A Watchdog" Really Means: Removing the Attorney General from the Supervision of Charitable Trusts, 96 Minn. L. Rev. 1795 (2012).

The Great Recession that followed the 2008 financial crisis has caused significant hardships to many realms of American society, not only economically, but also politically, psychologically, and socially. The charitable sector is no exception. For example, universities grappling with depleted endowments have sold assets, including charitable trusts, which once seemed off-limits or untouchable. Perhaps not surprisingly, these sales have generated litigation brought by protesters questioning their legality. These cases highlight the inconsistencies among regulatory approaches taken by attorneys general, who traditionally monitor the governance of charitable trusts to ensure compliance with the donors' intents.

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3. Michael A. Shipp, Charitable Giving: Are Fraudsters in Your Pockets? New Jersey Lawyer, Vol. 2011, Issue 1, pp. 39-44 (February 2011).

There are any number of things that prompt people to make charitable contributions.  Unfortunately, there are fraudsters who prey upon our charitable instincts and use our generosity to line their own pockets.  This article provides suggestions that will help you donate to good causes while protecting yourself from fraud and deception.  Suggestions discussed include researching a charitable organization to determine whether the group is in compliance with the law, avoiding cash donations, and asking the right questions such as what percentage of a contribution will be used for administrative costs.  The article also provides examples of, and tips for avoiding, some of the more common fraudulent schemes.  Finally, the article discusses situations in which the chance of fraud is high, such as in the event of natural disasters when time is of the essence in providing aid to affected areas and with the development of new methods of charitable giving such as texting donations.  The simple steps set forth in this article will allow us to donate with wisdom and caution while not allowing fear of fraud from deterring us from helping those in need.

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4. John K. Eason, Motive, Duty, and the Management of Restricted Charitable Gifts, 45 Wake Forest L. Rev. 123 (2010).

Restricted charitable gifts present increasingly difficult problems of compliance for the charitable recipient as time passes from the date of the gift.  A restricted charitable gift is a contribution of money or property to charity with respect to which the donor specifies certain terms and conditions that govern the administration and application of the gifted assets. Over time, the donor’s restrictions may prove difficult for the recipient organization’s management to implement.  Those restrictions might also fall out of line with society’s view of acceptable charitable donations.  The law provides a mechanism for addressing this seeming impasse.  That mechanism exists in the trust doctrine known as cy pres.  Part I of this article explains current cy pres doctrine and the circumstances to which it applies.  Part II then focuses on the role played by charitable management in stewarding donor-restricted gifts.  Following this discussion, Part III introduces a new way of evaluating donor intent, the resulting gift restrictions, and the entitlement of both to perpetual adherence.  As explained in Parts IV through VII, this evaluation flows from meaningfully different conception of donor intent in the context of restricted charitable gifts and cy pres doctrine.

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5. Evelyn Brody, From the Dead Hand to the Living Dead: The Conundrum of Charitable-Donor Standing, 41 Ga. L. Rev. 1183, 1186-87 (2007)

For hundreds of years, scholars and practitioners have debated the central position of donor intent in Anglo-American law-the right of the “dead hand” to govern from the grave the use of a charitable donation into the indefinite future, even into perpetuity. The topic of this Article is not, however, that normative position, but rather the seemingly more mundane question of whether the donor can enforce his or her intent in court. As Professor Rob Atkinson cautions: “Standing questions are ‘who’ rather than ‘what’ questions . . . Technically speaking, [a denial of standing] is merely a determination that the claim, however meritorious, should be asserted by someone else.” Consider the following four scenarios:

Case 1: D gives $100,000 to C University to establish a fund to support library operations.

Case 2: D gives $100,000 to C University to establish a fund to support library operations. C agrees that D may bring suit to specifically enforce the restricted gift.

Case 3: D gives $100,000 to C University to establish a fund to support library operations. C agrees that D and D's descendants may bring suit to specifically enforce the restricted gift.

Case 4: D gives $100,000 to C University to establish a fund to support library operations, but that if C University does not carry out the purposes of the gift, the gift shifts to H University.

This Article considers whether these four cases provide D with the same rights to enforce the charity's performance of the gift, and, if not, whether they should be the same.

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6. Marion R. Fremont-Smith, The Search for Greater Accountability of Nonprofit Organizations: Recent Legal Developments and Proposals for Change, 76 Fordham L. Rev. 609 (2007).

This essay contains a survey of the most recently adopted changes and pending proposals for change in both state and federal law applicable to nonprofit charitable organizations. It focuses on developments in substantive state laws expanding the rights of donors and the doctrines of cy pres and deviation. It also describes August 2006 amendments to the Internal Revenue Code and other proposals by the staff of the Senate Finance Committee and by the Joint Committee on Taxation since 2004 that remain under consideration in Congress, together with responses to them from the nonprofit community and interested scholars and practitioners.

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7. John K. Eason, Private Motive and Perpetual Conditions in Charitable Naming Gifts: When Good Names Go Bad, 38 U. Cal. Davis L. Rev. 375 (2005)

This Article explores the problems that often result from a charitable naming opportunity contribution. A charitable naming opportunity contribution exists when a donor transfers money or property to a charitable organization upon terms that result in an individual's name being associated in some way with the organization, its institutions, activities, or facilities. Implementing such arrangements can become problematic as circumstances change over time. Matters considered here include the meaning of “charity” as affected by a donor's personal desire to perpetuate a name. This Article also highlights the quite varied doctrinal analyses that may apply when deviation from the precise terms of a charitable naming arrangement is suggested. The enduring nature of naming agreements, imprecise donor-charity dealings, malleable equitable doctrines, and the vagaries facilitated through reverence to donor intent are shown to contribute to this variability. Specific examples are employed to demonstrate relevant points. This Article ultimately presents suggestions for dealing with both existing and future charitable naming arrangements where some deviation from the original charitable naming scheme is suggested.

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8. Augusta Meacham, To Call or Not to Call? An Analysis of Current Charitable Telemarketing Regulations, 12 CommLaw 61 (2004).

Some charitable organizations have taken advantage of the telemarketing industry by using for-profit telemarketing companies to solicit monetary contributions from a larger pool of potential contributors.  However, many contributors are often outraged to learn that only a small portion of their donations actually reached the intended charity, and an even smaller portion reached the individuals the charity purports to serve.  This comment explores the concern with for-profit telemarketing companies, which retain large portions of the contributions they solicit, working on behalf of charitable organizations.  Next, this comment explores the unique protections afforded to charitable organizations under the First Amendment, the Congressional delegation of power within the USA PATRIOT Act, and the Supreme Court’s response to percentage-based regulations, which limit the percentage of contributions that telemarketing companies may retain.  Finally, this comment analyzes the constitutionality of the national “do-not-call” list and lays the legal framework for the conclusion that for-profit organizations should be restricted from unsolicited telemarketing by the national database.

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9. Michael M. Schmidt, Modern Tomb Raiders: Nonprofit Organizations' Impermissible Use of Restricted Funds, 31 Colo. Law. 57 (2002).

Following the September 11 tragedy, many nonprofits have faced general operating fund deficits. Some charities have considered using their restricted funds. This article explains the common law and statutory limitations on taking or borrowing from accounts arising from restricted donations.

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10. Mary Grace Blasko et. al., Standing to Sue in the Charitable Sector, 28 U.S.F. L. Rev. 37 (1993)

This article examines the peculiar and important issue of private parties’ standing to initiate litigation against charitable organizations for mismanagement, fraud, or corruption. In theory, the state attorneys general, as guardians of the public interest, supervise charities and enforce their legal responsibilities.  Therefore, the courts have traditionally seen state attorneys general as the appropriate parties to bring suit to enforce fiduciary duties which charitable entities owe the public.  Lack of money, coupled with the obligation to discharge the other important duties of the attorney general’s office, contributes to inadequate staffing for the purpose of supervising charities.  In the absence of clear statutory authority, courts rely primarily on an extremely broad application of the “special interest” doctrine (as well as more limited use of derivative actions) when assessing whether a plaintiff deserves to granted standing.  This article presents an examination of the doctrine’s evolution and its current application, in order to provide an accurate method for analyzing judicial action on the question of the standing of private litigants in the charitable sector.

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11. Leslie G. Espinoza, Straining the Quality of Mercy: Abandoning the Quest for Informed Charitable Giving, 64 S. Cal. L. Rev. 605 (1991)

This article begins with a discussion of the consequences of the Legislative movement towards limiting the percentage of charitable funds that could be used towards expenditures in the 1960s-1980s followed by a brief discussion of the balance the United States Supreme Court has attempted to achieve between protecting potential contributors while simultaneously recognizing the rights of individual charities that have high costs for good reasons.  Next, Espinoza examines the judicial rejection of fund-raising cost-limitation statutes and addresses the Supreme Court’s approach to charitable solicitation and mandatory fund-raising cost disclosure statutes. Finally, the article discusses the historical context that gave rise to the regulation of charitable fundraising with Espinoza arguing that this history of fund-raising regulation demonstrates that fund-raising limits were consciously promoted by established charities to restrict diversity and competitiveness within the charitable community.  In closing, Espinoza urges that the states should be given the flexibility to encourage a new era of regulation of charitable giving based upon informed donor choice.

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