​Fleecing the Crowd

Despite crowdfunding's good intentions, some campaigns may be raising money for fraud.

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​What started as a feel-good story has turned into accusations of fraud. An October 2017 story about a homeless veteran who gave his last $20 to a couple whose car had run out of gas prompted the couple to launch a crowdfunding campaign that raised $400,000 to help the man. The problem is he didn't receive the money.

In November 2018, prosecutors in Burlington County, N.J., charged the couple, Katelyn McClure and Mark D'Amico, and the homeless man, Johnny Bobbitt Jr., with fraud, USA Today reports. Prosecutors say the couple made up the story and had actually met Bobbitt at a casino the month before they launched the campaign. McClure and D'Amico allegedly used the money raised from about 14,000 donations to buy luxury items and for casino trips. Although Bobbitt did not receive the money, prosecutors say he willingly participated in the alleged scheme. GoFundMe has refunded donations to everyone who contributed to the fund.

Lessons Learned

GoFundMe is one of several crowdfunding platforms that have emerged in recent years, alongside Indiegogo, Kickstarter, and Patreon. The crowdfunding industry is growing rapidly. Statistics research portal Statista estimates that more than 5 million crowdfunding campaigns raised close to $4 billion in donations worldwide in 2017.

GoFundMe has raised about $5 billion since 2005, with more than 2 million campaigns and 50 million donors. The platform primarily serves personal projects and donation pages, or other campaigns that otherwise don't fit the more common commercial model of companies such as Kickstarter. Funding requests cover a wide range of needs, from community sports groups to disaster relief to education and medical care.

With so many campaigns, fraudulent activity is not surprising, although GoFundMe's website claims that fraud occurs in less than one-tenth of one percent of its campaigns. Indeed, although crowdsourced funding opportunities have removed many structural roadblocks for people to access capital quickly and conveniently, they also have lowered the barrier to entry for many old scams.

What can crowdfunding companies do to reduce the threat of fraud? One solution is establishing and consistently applying standards for evaluating funding campaigns for fraud before they are allowed to collect donations.

GoFundMe's website has some warnings about fraudulent activity and lists several categories that it won't allow, such as hate speech. However, the company's terms of service effectively disclaim any responsibility for control over the conduct or information provided by a campaign organizer. Moreover, GoFundMe does not appear to significantly vet campaigns, which is the most obvious and potentially effective method of deterring the kind of fraud in this story. Even some form of random spot-checking would help. By comparison, Kickstarter has a vetting process before allowing campaigns to go live on its website.

Several types and sources of information about a campaign and its creators may raise red flags for both crowdfunding companies and potential donors. Internal auditors should consider several measures aimed at identifying fraudulent activity:

  • Search the web and social media platforms for information about the campaign creators and the project to assess the creators' background and track record. Red flags include a new page, many recent followers, and pages with only a few posts or comments, especially by the same few people.
  • Find out how long the group's website has existed and learn the history of the group's accomplishments. If the campaign is similar to past campaigns, or is posted on several crowdfunding platforms, this is another red flag.
  • Beware of campaigns posted just after a tragedy, seemingly heroic events, or natural disasters. The classic example of this is the large number of people who have been prosecuted for raising money for illnesses such as cancer treatments when they were not ill. Examine how the organizer will distribute and account for the money donated. If the campaign is ongoing, the creators should be giving regular updates to donors. The fact that the campaign may have links to broader regional, national, or global campaigns — such as those that appear after tornadoes, floods, hurricanes, and earthquakes — does not necessarily protect against fraud. Actually, such campaigns can be hotbeds for fraud.
  • Always be skeptical. Visit websites devoted to crowdsourcing fraud, such as FoolProofMe.org and Crowdcrux.com. Be especially diligent in researching a campaign about an individual supporting a "worthy cause."
Art Stewart
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About the Author

 

 

Art StewartArt Stewart<p>​Art Stewart is an independent management consultant with more than 35 years of experience in internal audit, financial management, performance measurement, governance, and strategic policy planning.​​​</p>https://iaonline.theiia.org/authors/Pages/Art-Stewart.aspx

 

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