Is it unlawful to give money to a needy person who asks in the street or knocks on the door?

What you heard is incorrect. Rather, whoever gives charity with a pure intention to a deserving person, and then it becomes apparent that the recipient was not needy, will still be rewarded. Al-Bukhari narrated that a man gave charity to a thief, a harlot, and a rich person, and his charity was accepted. He was told: "As for your charity to the thief, perhaps he will refrain from his theft; as for the harlot, perhaps she will refrain from her fornication; and as for the rich person, perhaps he will take heed and spend from what Allah has given him." This indicates that a good intention makes charity acceptable even if it does not reach the intended, correct recipient, and that judgment is based on the apparent until proven otherwise.