The latest entry in the list of my favorite scams is the fake charity. You set one of these up and you can make all kinds of money by preying on the well-meaning, the elderly, and various religious types out there. The genius of this scam is that the charity isn’t REALLY fake and can legally keep ripping off well-meaning people as long as it occasionally doles out a little cash here and there. How little? Try maybe a few percentage points of the millions they bring in. How do these work, you ask? And how can I set up one?
Well I’m glad you asked. Normally I don’t like describing these kinds of things as I don’t want this blog to end up being a training text for more criminals . . . except the ‘how to do it’ guides for setting up fake charities are all over the internet. Many states even have entire websites explaining how to set up a ‘charity’ so go figure. Anyway, here’s how you run a fake charity scam:
First you have to pick a really good name, dripping with a combination of pathos and desperation. Maybe go with ‘Afghan war orphan mercy international’ or ‘Juvenile diabetes final wish foundation.’ You know, something that really strums the heartstrings. It has to be good because you are going to basically depend on the name to hook the gullible rubes while the pictures of pathetic kids in a third world country reel them in. You should also try to work in a cute picture or logo, too. If you want some ideas, just look at Kids Wish Network, recently named the worst ‘charity’ in America.
OK, now that you have a great name and hopefully a really nice logo you have to spend a couple of hundred bucks incorporating as a 501(c)(3) nonprofit and filing the state and federal paperwork to become a legal charity. Not too challenging but sometimes it takes months for the paperwork to get approved. Sorry, but those of you looking to do this over the weekend and make some quick cash are out of luck.
Once you get the initial paperwork done you must then register your charity in the states where you are going to operate. Sometimes the states charge a nominal fee to register so look around. Maybe you just want to focus on your state and a couple of the surrounding states first. You know, to start small and get really good at the ripoff thing before taking it nationwide.
The next step is where the really good scam part comes in. You set up a real corporation called ABC Promotions, Inc. that your fake charity then hires to handle its marketing and advertising. ABC then, of course, hires you to be its CEO. Then you set up another real corporation – run by you naturally – to contract with your charity to handle its management duties. Which of course then agrees to hire you personally and pay you a lot of money to consult with it. Same goes with your accounting firm (run by you), your call center (also run by you but it’s a lousy job so you probably outsource it to your kid sister to do the actual work managing all those snotty college kids answering the phones), and anything else necessary to soak up all the donations as ‘overhead.’
Look at the way the fake charity ‘Cancer Fund of America’ does it. Over the last ten years it raked in “donations” to the tune of $98 million dollars. That’s serious money, people. But it only paid out .9% of the “donations” as direct aid to charitable causes. Yes, that means it paid $80.9 to itself and its consultants, subsidiaries, founder, etc. There is no way at all that a “charity” bringing in $98 million needs to pay out almost all of that as overhead. It’s headquarters must be made out of pure gold. In fact, recently investigative reporters for the Tampa Bay Times and the Center for Investigative Reporting developed a list of the top 50 worst fake charities. These top 50 devoted on average less than 4% of donations gathered in the last ten years on their causes. Six spent zero. Thirty-nine have been disciplined by state regulators, some as often as seven times. Read their report by clicking here. At least read their article on fake charities as money-making machines by clicking here.
The ‘Kids Wish Network’ I mentioned up above has doled out less than three cents for every dollar contributed over the last ten years. $110 million donated by people thinking they were helping sick kids has gone into their own pockets. Another $4.8 million has gone to the founder and his consulting firms. It’s rather shameless that on their own website they claim 100% of donations to “Kids Wish Network’s Guardian Angel Fund will go directly to supporting our kids through our services and programs.” I sense some lawyerly dissemination there. Do they mean the donations go directly to the kids, or that they go to their companies which operate the charity and ‘support’ kids? That second interpretation is MUCH different from suggesting the money goes straight to the kids and I suspect it’s what is actually going on.
The strange thing is that apparently watchdog groups think a legitimate charity should spend about 35% of donations on direct aid. If you’re good enough to really pick a great name, throw together a great website with a link for donations, and then get some great pictures of sick or hungry kids (remember Sally Struthers and the Child Fund?) you can operate a legal money-making machine on a grand scale. If you keep your overhead low you should have no problems tossing a few dollars here and there to real charitable causes to get close to the 35% guideline and stay off the bad list. I mean, hey – if you bring in $200,000 this year you can spare $50,000 if it goes to a soup kitchen or something. Of course running one of these fake charities really depends on your ability to stomach all that ripping off of well-meaning people who think they are trying to help some dying three-year old kid in Africa. But if you can do that then you are in business.