The New York Times recently reported that one person established 76 fraudulent charitable organizations, all with the same address: a post office box in Staten Island. All of the organizations were approved as public charities by the Internal Revenue Service, and all the organizations had names similar to the names of prominent public charities. One of the frauds was the American Cancer Society of Michigan, for example. And, yes, this “Michigan” organization also had a Staten Island PO Box.
In our work with donors and family foundations, we often ask, “What due diligence was done on a past gift?” Frequently, the response we get is, “We checked Pub 78.” For you younger folks, IRS Publication 78 was once a gigantic book published by the IRS every year that listed every public charity in the U.S.
Today, instead of Pub 78, there’s an online Tax Exempt Organization Search database (sometimes called Select Check). There, you can easily check an organization’s public charity status, or find out which organizations have had their status revoked. (A nonprofit may have an exemption letter to show you, but the status may have been revoked due to a lack of reporting.)
Checking public charity status is not enough. We’ve known for years that the charitable section of the IRS was woefully underfunded. As this incident reveals, it is unable to do the most basic vetting necessary to ferret out frauds requesting public charity status. Don’t get caught, like the Charities Aid Foundation of America, which sent more than $3,000 to several of these fraudulent organizations.
If you have a board member or a family member who wants to send $1,000 to an organization you’ve never heard of, go ahead and look it up in Select Check. But making a personal visit is obviously the best way to ferret out imposters. If that isn’t possible, consider the following actions that can help uncover fraud:
Ask for a list of board members, with affiliations.
Ask to see the latest certified financial audit.
Check the organization’s website.
Ask for a copy of a random policy that any legitimate nonprofit would have: DEI, conflict of interest, etc. Any legit organization should be able to provide these items within 24 hours. If not, there may be an issue.
One important caveat: Small neighborhood organizations may not have all these items and may not be able to quickly respond. But they, too, may be deserving of support. What to do? Ask for a visit.
Don’t be sloppy. A little due diligence will help you avoid fraudulent nonprofits and keep you out of the headlines.