7 March 2022

How to keep Ukraine donations safe from fraudsters

As donors around the world seek to help besieged Ukrainians amidst Russia's invasion, the spirit of generosity creates a fertile environment for fraudsters.

Taking the time to research charities can help donors make certain that their donations are being used for the intended purpose.

"There's a process for ascertaining that, and it's not that complicated," said David Zweighaft, CPA/CFF, a partner with RSZ Forensic Associates and a member of the AICPA Forensic & Valuation Services (FVS) Section. "It takes a little bit of effort. You have to ask yourself the questions. Who is this? How long have they been around? Who are they affiliated with? Are they registered? And from that, you can obtain a certain level of comfort that it is a legitimate organization."

The first step is determining whether the charity is a Sec. 501(c)(3) not-for-profit organization. The IRS's exempt organizations list can assist with that. More information also may be available in the state where the charity is organized at the state government's business registry website or the state attorney general's webpage for trusts and charities.

The GuideStar and Charity Navigator websites offer additional information. GuideStar provides access to recent IRS Form 990, Return of Organization Exempt From Income Tax, filings, which can be used to gauge how much a not-for-profit spends on programs.

"That will give you some idea of the scope of the organization's operations," said Ted Batson, CPA, J.D., a partner, tax counsel, and tax practice leader at CapinCrouse LLP. "If you're looking at the 990, you can look at Part IX to see what their program expenses are compared to other expenses, so you can see if they put a lot of money toward programs versus putting a lot of money toward their administrative or fundraising expenses."

Charity Navigator and other organizations rate charities on a number of criteria, but if you're researching this carefully, it's worth a careful check of their methodology to make sure you know what the ratings are based on.

Evaluating a solicitation

Potential donors should be wary of solicitations from anyone purporting to be a charitable organization. Experts advise that money should never be donated over the phone, links in email solicitations should not be clicked, and high-pressure tactics seeking to get you to pay immediately are a sign of danger.

"It is a huge red flag," said Rumbi Petrozzello, CPA/CFF, senior director of consulting at Seramount, and a member of the AICPA FVS Section. "We want to do good, and this is what people are preying on. Right now, it's an emergency, it's a stressful situation, but just tell them that you will go to the site and make that donation. If it is important to that person and they're for real, they should allow you to do that."

Other tips include:

  • Make sure you're visiting the correct website when donating. Again, GuideStar and Charity Navigator can help. Rather than clicking on a link, you would be wise to go to a reputable site to get the URL and then type it in manually.
  • Avoid sites whose URLs don't start with "https" and show a "lock" icon next to the URL. Neither the "https" or the lock icon guarantees that a site is safe, but if they're not present, your communication is not secure.
  • Don't pay with cash or a debit card. A credit card provides more security.

Zweighaft cautions that fraudsters are not willing to stop with one victim. Rather, they'll ask the person to refer friends and family, and then prey on them as well. So don't make a referral unless you've done your homework on an organization. And if a friend recommends a charity to you, ask them what they've done to verify its credentials.

"If you become aware of a charitable group that you have any reason to believe is not legitimate, definitely call the attorney general's office and report them," Zweighaft said.

Getting closer to the source may have tax implications

Donating to organizations in countries neighboring Ukraine might give donors a chance to make an impact immediately, but the tax implications need to be considered, Batson said.

"Other organizations may be at work on the ground assisting [in neighboring countries with Ukrainian refugees]," he said. "They may not be the first things you would think about because they may not have a known presence in Ukraine and they may be the ones that are best able to help because they are local to Poland, Hungary, or other adjacent countries."

But as only donations to U.S.-based charities are tax-deductible in the United States, a U.S. donor who gives directly to a non-U.S. charity will be making a nondeductible contribution. This could make a big difference to an individual who is itemizing deductions.

"If I'm expecting to claim [the donation] as an itemized tax deduction, I have to give to a U.S. organization," Batson said.

Ultimately, a little research can go a long way in making sure a donation goes to a legitimate charity and is used appropriately. That's true regardless of whether the donor is seeking to help people in Ukraine or in any other situation.

"Pause and take a breath and take the time to make sure you're doing things correctly because, if you send your money somewhere and it's not going where you want it to go, then it's even worse than if you did nothing," Petrozzello said. "Taking that moment to pause and verify will make all the difference."

Association Resources

Charitable giving toolkit

How to have philanthropic conversations with your clients

Charitable Giving Techniques

Philanthropy techniques for your wealthier clients

Guide to Financial and Estate Planning, Vol. 1

Guide to Financial and Estate Planning, Vol. 3

— To comment on this article or to suggest an idea for another article, contact Ken Tysiac at Kenneth.Tysiac@aicpa-cima.com.