Most churches that make online giving available to members and others have experienced general revenue increases of between 1% and 6% in the past several years. That’s a good thing.
Recently, however, churches are increasingly being scammed by individuals who take advantage of those same “e-commerce” mechanisms.
A previously unknown donor, let’s call him Tom Wilson, makes an online contribution of $5,000. The next morning, he calls the church and says, “I just realized I made a terrible mistake. I thought I was donating $50 to the church, and I accidentally donated $5,000. I really need to have the money refunded as soon as possible, or a whole bunch of checks I’ve written are going to bounce.”
The church treasurer is contacted and goes online to verify the $5,000 contribution. Sure enough, there is one posted from Tom Wilson; so the treasurer honors the refund request and posts a $4,950 refund, which goes directly from the church’s bank account to Tom’s bank account.
Two days later, when the online donor service processes the actual funds transfer to the church’s account, the sending bank denies the transfer due to insufficient funds. The $5,000 donation is now a “chargeback,” and the funds are unavailable to the church. Not only that, but transaction fees are paid on both incoming and refunded money, which could be up to 3% each way, or another $300 lost. Calls to the “donor” are met with a familiar sounding voice: “The number you have dialed is not in service at this time. If you feel you have reached this recording in error … .”
The church paid the refund and transaction fees with its own money before the funds transfer was denied, and Tom the criminal pocketed $4,950. If Tom manages to do that successfully just once each business day for a year, it represents more than $1.2 million in lost money to churches and other charities that fall victim to his scam.
First, the church needs to adopt – and adhere to – a donation policy that generally disfavors refunds of any kind. This is consistent with IRS rules that anticipate deductible donations are an irrevocable transfer from donor to charity (any right of revocation renders the donation nondeductible). As with all but capital giving donations (such as a building fund), donors should understand that they have no expectation of obtaining a refund unless a genuine accident has occurred, and that the church has the absolute right to use the funds in any manner that furthers its exempt purposes – which means the money might not actually be used as the donor intended.
Of course, a church that consistently used what should be restricted money for other purposes would soon see a giving decline, which is why donors’ earmarks should be honored more often than not. (If the church later abandons a capital project and wants to use the funds for another purpose, identifiable donors must first be offered a return of their contribution, which would be taxable if a deduction had previously been taken; or asked for permission to use the funds in another manner.)
Second, church treasurers – or others who manage the church’s online giving – should know that it usually takes a minimum of two to three banking days for online donations to clear and post to the church’s account. Immediate refunds, the essence of this scam, should never be issued. Even if the church were inclined to issue a refund to a known or unknown donor, the donor should expect to be “inconvenienced” for a few days while the church waits to make sure the original donation processes as expected – the same as it should with deposited donor checks.
A church victimized in this manner must report the loss to law enforcement. It could be a simple fraud, or it could actually represent a broader money laundering scheme – a crime that rarely, if ever, involves churches. Under some newer insurance policies, the loss might even be covered as a type of “cybercrime.”
For more information on this and other policies and procedures, contact the CSBC HR and church compliance ministry at 559-256-0858 or firstname.lastname@example.org.