Caution Ahead! How You Can Tell Real Crowdfunding Campaigns from Scams

A couple from New Jersey ran a GoFundMe campaign for a homeless man and made a lot of money with a tearjerker story. They later, allegedly, took the lion’s share of the funds collected and then the law enforcement authorities got involved. This is a timely reminder of a need to be really cautious while sending funds to crowdfunding requests. Is it really better to donate money to traditional charities?

Online crowdfunding platforms let anyone without rigorous background checks to organise personal funding initiatives to benefit others or themselves. Though instances of fraud are low, these could happen. A crowdfund campaign for money is to college fees or pay medical bills or even raise funeral expenses or help people cope with job layoffs or to recover from the horrors of domestic violence. Frankly, it can be a lot of things.

A Pew Research Centre study in 2016 found 50% respondents donating from $11 to $50 for a crowdfunding campaign. About 63% contributors confirm helping friends or acquaintances. During the festive season, people usually open their wallets. Be careful about crowdfunding campaigns, if the person is unknown. Also giving money to an established charitable organization, where your money could further help more people, is worth considering.

Crowdfunding helps in giving

Crowdfunding platforms enable painless and personal fundraising campaigns using the website’s online tools and promotion through social media platforms such as Facebook.  Online donations could use a debit/credit card or Paypal account. Crowdfunding is popular so that funders can assist fellow humans directly. If a neighbour has cancer, a GoFundMe page can easily be started. People love to help directly unlike funds to charities, which pool funds to assist different people or finance disease research.

Of course, crowdfunding has drawbacks as gifts to individuals are certainly not tax-deductible. Besides, all crowdfunding websites take a percentage of donations. The biggest personal fundraising website GoFundMe, charges fees at 2.9% of the fund amount raised, in addition to 30 cents of every donation made. If 150 contributors shelled out $20 each, GoFundMe would earn $132 of the $3,000 donated, or more than 4%. Facebook charges 2.6 % processing fee, plus 30 cents for each single donation, for campaigns made by individuals but charges no fee for fund drives by recognised charitable agencies.

Could it be a scam?

It’s usually very difficult to verify if a crowdfunding endeavor is genuine. Though fake campaigns are not very common, there were some reported cases termed as crowd-thieving. While most crowdfunding platforms verify the campaign organizers, the small print says that you are donating after understanding all risks involved. Even if backed by some money-back guarantee, such as GoFundMe, evidence of the crime must be avilable, showing that the donors were misled, or funds raised for someone was never delivered. While scam charities also exist, non-profits have a lot of oversights, and are relatively easy to verify.

Essential Background Checks

Charities must be registered with appropriate State authorities in which funds are raised, and they document all contribution spends, with audit reports and tax returns. National and local non-profits, are evaluated by credible watchdogs like BBB Wise Charity Watch, Giving Allianceand Charity Navigator. Campaigns do take in much more than the stated targets.  A campaign may promise to donate excess funds to charity, but who is to check this? Crowdfunding may be diverting funds away from charities that assist a large number of people or entire causes and benefitting only individuals. Philanthrophic efforts may get steered in the wrong direction. What about 70 million people starving in Africa? Possibly building a road, or a school, or a sewer is a better solution. Donating to individuals may not be an ideal solution.

Some Suggestions

Would you give $25 to a homeless person you see on the street or to a shelter which houses many homeless people. Before you expose your gullible self, what should you do before donating to a campaign?

1) Give money to those you know. Contributing to those campaigning activities which seek to help your friends or family increases the chances that your money is used for the intended purpose.

2) Do not be first in line. The people who back campaigns initially at the begenning are friends, family members or relatives who stand to benefit from the crowdfunding activity. This sets the precident for how valid or ‘true’ the cause is, for all the other potential funders to look at. In short, they validate the legitimacy of the campaign. So if you do not know the fundrasier at all, best to avoid them and donate to some other cause.

3) Consider donations to third parties campaigns. Campaigns established on behalf of third parties rather than by the benefitting individual enable an extra oversight layer.

4) Avoid giving money to already funded campaigns. If a campaign managed to reach it’s targetted fundraising goal, it is best to assume that they do not need additional funds and you could donate elsewhere.

5) Read public comments. Crowdfunding platforms allow donors to comment on campaign aspects. Find out what the feedback is.