As the holiday season revs into high gear, charities go all out in their fundraising efforts—and so do scam artists who create sham charities to steal money or private information from well-meaning donors.

Fraudulent charities routinely show up among the IRS’ “dirty dozen” list of tax scams. In fact, just two months ago, the IRS issued a consumer alert about possible fake charity scams emerging in the wake of severe flooding in South Carolina and neighboring states.

“Their schemes include contacting people by phone, social media, email or in person and pretending to be from a charity that helps disaster victims,” the agency warned.

Even without being fraudulent, some charities routinely spend more of their donors’ dollars on administrative and fundraising costs than on programs that benefit people in need. 

“You could be funding fundraising,” says Daniel Borochoff, president of CharityWatch, a watchdog group. 

Check Out That Charity

Before you donate, it’s always a good idea to check out a charity with one of the three major watchdogs: In addition to CharityWatch, these include the Better Business Bureau’s Wise Giving Alliance and Charity Navigator. All three evaluate charities and provide easy-to-understand ratings.

In addition, whether the solicitation comes on the phone or online, watch out for these red flags: 

  • Frequent phone solicitations. “Typically, that’s a for-profit telemarketing firm making that call and they’ve been known to keep a significant portion of your contribution,” says Sandra Miniutti, vice president of marketing and chief financial officer for Charity Navigator. “There are even cases when the for-profit firms keep everything plus a payment from the charity.” Miniutti specifically targets charities that tug on the heartstrings—those purporting to help veterans, fire fighters and police, and sick children. “We recommend politely hanging up and doing your research,” she advises. “Give money to a charity only if it checks out.”
  • Funding the wrong activities. “Look for a description of a charity’s programs and how much was spent on that activity,” says Borochoff. “It may not be impressive if you know how much [money overall] was spent in a recent year.” Each of the watchdog organizations includes a charity’s spending in its rating. To get the approval of the Wise Giving Alliance, for example, organizations must spend at least 65 percent of their donations on charitable program activities, and fundraising costs can’t exceed 35 percent; CharityWatch downgrades charities that spend more than 30 percent on fundraising.
  • Friends and family on the board of directors. Charities have to report how many members are on their board of directors and how many of those directors are independent. That information is readily available on Form 990, the tax return charities file annually with the IRS; you can find it on the charity’s website, and it’s worth checking out. The Cancer Fund of America and three affiliates, charged earlier this year with defrauding consumers of more than $187 million, was a nest of nepotism: founder James Reynolds Sr. employed his ex-wife, his son, and dozens of members of their extended family. “That’s a really big clue,” says Borochoff, who says CharityWatch consistently gave Cancer Fund of America an F rating since 1987.
  • Playing the name game. Some phony charities use names, seals, and logos that look or sound like those of respected, legitimate organizations. This is especially prevalent among organizations using the words “veterans” or “military families” to gain your trust. For example, the Intrepid Fallen Heroes Fund spends 92 percent of its annual budget on programs and garners an A+ rating from CharityWatch; the National Veterans Services Fund, on the other hand, allocates less than 10 percent of its annual budget to programs, helping to give the organization a solid F rating

Dig into the facts before you dig into your wallet. Scam artists follow the headlines and “instant charities” can spring up overnight—then disappear just as quickly, with your money. Other charities don’t put the majority of their money where their mission is. Use your head before you open your heart to ensure your donor dollars have the most effect.