May 15, 2015
Nonprofits have a long history of driving progress through their altruism and innovative fundraising techniques. Their hard work has helped to house the homeless and feed the hungry, but as contributions via credit card continue to become the norm, fraudulent activity threatens to undercut these charitable efforts.
Each year, nonprofits groups struggle with the consequences of credit card fraud. Our new infographic shows that the median loss charities suffer is $85,000.
Criminals use several common techniques that could damage a nonprofit:
There are certain formulas that are used to mathematically assign credit card numbers. Card tumblers leverage these rules to their advantage. Once they have acquired a credit card number, they test out different variations, often on charity websites, for validity. After the tumbler has found a working number, they use the information at online marketplaces that don't require the card's name or security code.
Online Auction Fraud
Online auctions have just recently become a popular fundraising option for nonprofits, but already they have proven incredibly effective. Unfortunately, their digital format opens up hosting charities to fraud. The holder of a stolen credit card will sometimes use these auctions to buy items anonymously. If nonprofits haven't properly prepared themselves, the charity could be responsible for paying chargeback fees for the unauthorized purchase.
One of the more sophisticated techniques employed by fraudsters is the creation of a clone charity. Essentially, the person behind the fake organization will create an exact online copy of a legitimate charity. He or she will set up fake accounts and use genuine fundraising techniques to solicit false donations. The sheer massiveness of the Internet makes it easy for clone organizations to bury themselves online, so nonprofits need to establish clear measures to protect themselves from internal and external fraud.
Not all credit card fraud occurs online. Sometimes fraudsters will pose as a legitimate donor who's willing to make a big donation. In order for your organization to obtain the amount, however, the imposter contributor will request that you wire half of the amount in advance to another charity, which is actually a personal bank account. The fraudster will usually finalize the transaction, but only with a stolen card number. While your nonprofit still gets the donation, you've also just partaken in money laundering. It's best to flag any questionable contributions.