What Churches Need to Know About a New Donation Scam
The following information is kindly provided by Mike Batts, managing partner of Batts, Morrison, Wales & Lee.
A very kind but anxious fellow named Tom calls your finance office and informs your team that he just realized he accidentally submitted a donation to your organization in the amount of $5,000. He meant for it to be $50. He pleads for an immediate refund of the difference, since he is on a fixed income and a $5,000 charge to his account would create a terrible hardship for him. Your team wants to help the poor chap immediately. You check the records for your online gifts and sure enough, there it is: an online ACH gift from Tom, a new donor, in the amount of $5,000. You quickly come to Tom’s rescue and issue a refund through the ACH system to him in the amount of $4,950. Now that you’ve saved the day, you can move on to more mundane things.
But two days later, you get a notice from your bank that the original $5,000 gift from Tom was rejected due to insufficient funds in his account. So, his original gift of $5,000 is debited from your organization’s account as a chargeback. You try to call Tom and the number is no longer a working number. After you think about it for a couple of minutes, the reality begins to sink in…you got scammed. You issued a refund for $4,950 of a $5,000 contribution you never actually received.
The scenario described above is happening with increasing frequency to nonprofit organizations across the United States.
Fraudsters attempt to steal funds by taking advantage of the lag time associated with bank processing of payments from deposit accounts (that is, the time between the date the transaction was made and the date it clears the banking system).
What to do
Refund requests for contributions made should ring alarm bells.
It is true that if a donor accidentally gave more than he/she intended, a nonprofit organization may have a moral duty (if not a legal one) to rectify the situation—but only if it was genuinely an accident and only if the organization ensures that it is not the victim of a scam in the process.
The organization should never issue a refund for an allegedly erroneous contribution until the organization ensures that the funds originally given have fully cleared the banking system and are settled. Simple awareness and adhering to such a policy can prevent an organization from being flimflammed.