Personal Finance

On #GivingTuesday, check into that crowdfunding campaign before you donate

Key Points
  • Almost 7 in 10 consumers who have contributed to a crowdfunding campaign have given to one raising money for someone in need.
  • But a recent case highlights the risks: Prosecutors allege three people perpetuated a scam that collected more than $400,000 in donations on GoFundMe.
  • Experts say consumers should scrutinize the campaign and consider its effectiveness in the broader context of their charitable giving.
A picture of Katelyn McClure, right, Mark D'Amico, center, and Johnny Bobbitt Jr. is displayed during a news conference in Mt. Holly, N.J., Thursday, Nov. 15, 2018. Authorities say a New Jersey couple and a homeless man, Bobbitt Jr., made up a "feel good" story about the man helping them so they could raise money through an online fundraiser.
Seth Wenig | AP

If a crowdfunding campaign is part of your charitable plans for #GivingTuesday or later in the holiday season, take care to make sure your act of kindness doesn't have unintended consequences.

More than 1 in 5 consumers (22 percent) have pitched in for at least one such project, which raises money toward a common aim via small contributions from a large number of people, according to a 2016 report from Pew Research Center. Of those contributors, 68 percent have given to a campaign to help a person in need.

But, as with other kinds of giving, it's smart to scrutinize the cause before you pull out your wallet.

Earlier this month, prosecutors charged a New Jersey couple and a homeless man with second-degree theft by deception, alleging they worked together to perpetuate a scam that raised more than $400,000 on GoFundMe. Last year, the couple — Mark D'Amico and Kate McClure — created a "Pay It Forward" campaign to benefit Johnny Bobbitt Jr., claiming Bobbitt had given McClure his last $20 to help her get home after her car ran out of gas.

"The entire campaign was predicated on a lie," Burlington County Prosecutor Scott Coffina told reporters at a news conference, according to NBC.

GoFundMe told CNBC that donors to that "Pay It Forward" campaign will receive a full refund under the site's refund policy. Spokesman Bobby Whithorne said such misuse is rare — accounting for less than one-tenth of 1 percent of all campaigns — but that "one fraudulent campaign is one too many."

"We have a zero tolerance policy for fraudulent behavior," Whithorne said. "If fraud occurs, donors get refunded and we work with law enforcement officials to recover the money."

Charitable giving
Charitable giving

Still, the case is "a perfect example of what can go wrong with crowdfunding," said Stephanie Kalivas, an analyst with nonprofit evaluator Charity Watch. "There's a lot of inherent risks and weaknesses."

Here's what to consider before you give.

Start close to home

It can be tough for crowdfunding sites and contributors to ferret out bad actors, Kalivas said, and a lack of transparency about how campaigners use money can mean fraud goes unrecognized. The safest individual campaigns are ones where you know the people involved, she said — to feel more confident that the beneficiary's need is legitimate, and that the organizer (if someone other than the person in need) is trustworthy to pass along those collected funds.

Absent a personal connection, scrutinize the campaign for details such as how the organizer knows the beneficiary, and details of how the money will be used, she said. Peruse the comments: That's often where visitors will raise concerns.

Check the tax status

Only charitable gifts made directly to a 501(c)(3) nonprofit qualify for a tax deduction, said Annette Nellen, a tax professor at San Jose State University. If that's important to you, look for details on the platform and campaign indicating that the recipient is a qualifying charity (and a reputable one, at that).

Most campaigns benefiting a person in need — say, a relative in need of help with medical bills or a friend rebuilding after a natural disaster — are considered personal gifts, which aren't deductible, she said.

"You're not donating to a charity, you're donating to an individual," Nellen said.

Assess your aims

For every social-media-trending campaign to help one person, there are plenty of similar stories that don't get much attention.

A 2017 study in the journal Social Science & Medicine reviewed 200 GoFund Me campaigns from 2016 raising funds for medical expenses — and found 9 in 10 didn't meet their goal. Researchers found that social media savvy and marketing skills helped in driving a successful campaign.

That's another point in favor of giving directly to a recognized charity that has a proven track record of working with a particular cause, especially after events such as the California fires, Kalivas said.

"They have ways to make sure the funds you give are going to be used fairly amongst the victims," she said.

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