At year-end deduction time, beware of shady charities

The nearly 5,000 Facebook fans of NJ Horse Angels got a rude surprise more than a year ago.

The Phillipsburg, N.J., charity, which purported to rescue slaughterhouse-bound horses, was shut down by state authorities in September 2010 for misuse of funds. The nonprofit's operators were found to have devoted about 40 percent of the $145,000 they raised - often by soliciting donors on Facebook - to personal shopping sprees, meals, and weekends in Atlantic City.

"Not all charitable organizations are completely forthcoming with potential donors about how their donation dollars will be spent," said Thomas Calcagni, director of the New Jersey Division of Consumer Affairs, which sued NJ Horse Angels' trustees.

The case was settled in March, and the trustees forked over more than $57,000 to legitimate horse rescues and disbanded the charity. They also were slapped with $23,000 in investigative costs and $500,000 in suspended penalties that will be triggered if the trustees violate the settlement terms.

This month, as holiday cheer or calculations of locking in income-tax deductions at year's end again spur donors to crack open their wallets, Calcagni and nonprofit-watchdog groups urge potential donors to do so with care.

"Some [scam artists] capitalize on the spirit of giving during the holiday season, others capitalize on natural disasters," Calcagni said. "But the rules are the same in terms of what consumers should be aware of."

First, Calcagni urges donors to stay informed. Charities registered with New Jersey authorities are listed on the Division of Consumer Affairs website, www.njconsumeraffairs.com.

Pennsylvania charity officials could not be reached. Information on filing complaints about charities in Pennsylvania is available at www.attorneygeneral.gov.

Calcagni also recommends that donors consult Charity Navigator, a nonprofit organization whose website rates charities based on their financial health, accountability, and transparency. Navigator is based in Glen Rock, N.J., and its website is www.charitynavigator.org.

"With literally more than a million charities in America, it's so important that donors make sure that they're directing their money to the most effective organization," said Sandra Miniutti, chief financial officer and vice president of marketing at Charity Navigator.

The Better Business Bureau recommends donors look for charities that designate at least 65 percent of their expenses to program activities and no more than 35 percent to fund-raising.

To avoid being scammed, Calcagni tells consumers to look for red flags. An e-mail urging people to wire money to a foreign country is an obvious one. An organization promising gifts in exchange for donations is another.

It is not always easy to spot the red flags. Sometimes con artists manage to breach donors' wariness and reach their cash.

About 60 percent of complaints against charities investigated by New Jersey's Division of Consumer Affairs so far this year alleged misrepresentation of how the donations were used, according to a spokesman. The agency gets 100 to 125 inquiries about charities per day.

Emily Owens, assistant professor of policy analysis and management at Cornell University, has studied the characteristics of fraud victims. She has found that "weak ties" increase people's willingness to trust unfamiliar organizations.

"Weak ties [is] a sociological term that basically means that you don't know a person directly but share a common link with them," Owens said.

She studied convicted New York Ponzi schemer Bernie L. Madoff's investors, a large number of whom were Jewish Americans, like Madoff, but who did not know him personally. She researched the prevalence of Jewish culture in the geographic areas that were the biggest sources of the money Madoff received.

She found that people who lived farther from the East Coast were even more likely to invest with him. The "weak ties" proved more influential on donors than strong ties. She says the same mind-set applies to charitable donors. Owens says this is dangerous.

"In terms of policy implications, people should always be suspicious of solicitations from charities they have never heard of," Owens said. "Even if the charity appeals to a religious or cultural connection, this should not be a substitute for objective information from places like . . . the Better Business Bureau."

In New Jersey, calls concerning charities can be made to the consumer hotline, 973-504-6200. In Pennsylvania, consumers can call the Attorney General's Office at 717-787-3391.