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How Do You Know Your Favorite Charity Isn't A Scam?

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NEW YORK (MainStreet ) -– Making charitable donations can be philanthropically rewarding, but only if your money actually reaches those who need it.

Earlier this year, the Federal Trade Commission noted that about $187 million in donations went to a group of four cancer charities that were nothing but a slush fund for one family. The FTC says that 97% of donations were used by family members to pay for cars, gym memberships, luxury cruises, college tuition and high-salary jobs for other family members. The Cancer Fund of America and Cancer Support Services in Knoxville, Tenn.; The Breast Cancer Society in Mesa, Ariz.; and the Children’s Cancer Fund of America in Powell, Tenn. not only bilked donors out of millions, but binged on money that other charitable organizations could have put to good use.

Equally unfortunate was that, according to Friedman LLP partner Amish Mehta, a quick look at the IRS database of charitable organizations. the charities' Form 990 submissions or charity clearinghouse websites would have told donors just how suspicious those charities were. Mehta points out

that the New York State Attorney General's office considers administrative costs equalling 35% of total donations or less ideal for a charitable organization, though Mehta says that cost for operating expenses should more ideally be capped at 30% to 20%.

“That topic [charity fraud] continues to come up,” Mehta says. “Some of the fraud stuff that has gone on is because of a lack of oversight by donors. They haven't done their homework and they haven't done their due diligence.”

Shomari Hearn, a certified financial planner and vice president at Palisades Hudson Financial Group in Fort Lauderdale, Fla. notes that online resources including Guidestar and Charity Navigator can help potential donors determine home much of their gift is going to the cause and how much goes toward administrative costs. Those sites draw much of their information from the charities' 990 forms and explain what your donation pays for in fairly simple terms. From there, a little help from the IRS and a bit of legwork can help determine whether or not a charity meets your needs.

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