Diaster After a Distaser: Hallmarks of Disaster Relief Fraud

March 2011

IN THIS ISSUE

— Preying on Compassion: How Fraudsters Exploit Tragedy for Financial Gain
— How to Avoid Disaster-Related Charitable Fraud

GREETINGS!

Welcome to the March edition of our newsletter! In this issue, as the world comes together to help Japan following the earthquake, tsunami and subsequent nuclear reactor failure, we’ll examine key indicators of fraudulent disaster-related charitable solicitations, and how to verify a charity’s background.

PREYING ON COMPASSION: HOW FRAUDSTERS EXPLOIT TRAGEDY FOR FINANCIAL GAIN

The trifecta of tragedy in Japan, arriving in such rapid succession, is nothing short of stunning in its magnitude. But unfortunately, both the United States and the world has no shortage of recent disasters that are similar enough to draw lessons about vetting charitable organizations. Whether discussing the Indian Ocean tsunami of 2004 or Hurricane Katrina the following year, each devastation offered cunning manipulators a chance to profit from the compassion of others, and to siphon resources from those who needed them most.

The fraud-related toll of Hurricane Katrina has come into full view more than five years after that tragedy. Organized shortly after the tragedy in late 2005, the U.S. Justice Department’s Hurricane Katrina Task Force was formed “to deter, detect, and prosecute instances of fraud related to the Hurricane Katrina disaster.” By the time its fifth annual report was issued in September 2010, 1,360 people had been charged in federal courts with fraud-related crimes concerning Hurricane Katrina or the two other hurricanes to arrive during that time, Rita and Wilma. many of the frauds concerned attempts to falsely claim eligibility for assistance, as with the recent conviction of a San Diego woman who claimed to have lost homes as a result of Hurricane Katrina and received aid from both the federal government and American Red Cross under false pretenses.

HOW TO AVOID DISASTER-RELATED CHARITABLE FRAUD

Although the latest task force report did not break out what percentage of prosecutions or convictions were related to charitable fraud, it did acknowledge the efforts by the U.S. Postal Service Inspector General’s office in this regard. Vigilance about contributing to charities in the wake of tragedy should include checking a group’s status with The Better Business Bureau and – if it’s large enough, as many charities are — reviewing its Form 990 filings, often available on sites like GuideStar. If considering a large individual donation, bequest from an estate or corporate contribution, it is best to hire a Certified Fraud Examiner to review public records on the organization or its principals, as well as conducting interviews with past employees or donors and – to the extent possible publicly – review the group’s books and records, like audited financial statements.

Millions have been lost to scammers in the fog of sympathy following a humanitarian disaster, but by proceeding carefully and with the right guidance, you and your organization can make sure financial assistance is received by those who actually need in their hour of desperation.