I once frequented a pet-supply store where, on the counter next to the cash register, there was a forlorn-looking canister labeled, “Donation for homeless cat and dog.” While I don’t deny that animal rescues are deserving charities, I couldn’t help but think that a random dirty jar on a countertop is not a very effective way to solicit cash.
In the wake of the earthquake in Haiti, people are opening their hearts and their wallets to help victims rebuild their lives. But for every reputable and established charity, there is one that’s mismanaged, financially insolvent, and possibly fraudulent. Before making a donation to any organization, learn how to evaluate a charity’s fitness, making sure that the most money goes where it’s needed.
Investigate the State of Financial Affairs
An organization’s finances are perhaps the best indication of its health. Give only to charities that have a 501©3 designation with the IRS, meaning that they are registered nonprofit and tax-exempt companies and that your donations are tax-deductible. Legitimate charities will have their paperwork in order, and that paperwork is available to anyone who wishes to see it. Charities are also required to provide copies of their most recent Form 990, the IRS paperwork that shows their donation income, administrative and overhead expenses, and program budgets. Visit a site like GuideStar to read up on any charity and check out the state of its finances. Experts recommend donating only to those organizations that keep their overhead costs (including rent, salaries, fundraising, and advertising) to 25 percent or less of their total expenditures. Also check to see what the CEO of the charity is paid, making sure to look at the number in the right context. Most nonprofit CEOs earn about $150,000 per year. A donation to an organization that employs a higher-paid CEO can be a good investment, as long as the organization meets its goals.
Transparency is important in the nonprofit world, and legitimate charities are more than happy to provide potential donors with any information they require. If an organization equivocates or is less than forthcoming with its financial or tax information, that may be an indication that it is not legitimate or have financial problems to hide.
Go with Those Who Know
If you’re responding to a particular crisis or issue, be sure to donate to an organization with an established history of success, rather than brand-new charities that pop up after a disaster. Sites like Charity Navigator and the American Institute of Philanthropy have ratings lists and can help people make informed giving decisions by revealing which charities have the on-the-ground infrastructure and the capabilities to deliver on their promises. Many new organizations simply don’t have the manpower or the experience to effect change, even if they are well intentioned. Charities that have a track record of working in a specific country and accomplishing specific goals usually have a better chance of spending your money in a meaningful way.
In the case of the Haitian earthquake, organizations like Partners in Health or the Red Cross already have the staff and relationships necessary to help victims, and can do more good with less money than organizations established right after the disaster can. Also, both of these nonprofits have specific goals and areas of expertise, rather than broad or ill-defined aims. Be specific about what you want to support. For everyday giving, for example, consider donating to an organization that provides music training in inner-city schools, instead of supporting a generic arts charity. Rather than giving to a homeless coalition, donate to an organization that provides interview suits for women in shelters. By assisting a charity with a specific mission, you’ll have a better idea of exactly how your money is being spent.
Any charity should also be able to briefly and clearly tell you exactly what it is, exactly what it does, and why it’s necessary. If a representative of a charity can’t be any more specific than “we support AIDS victims” or “we help children,” be wary.
Look for Red Flags
Many nonprofit organizations do important work and deserve your donations, but that doesn’t mean you have to hand out your money to everyone who asks. Avoid giving to anyone asking for money door-to-door or over the phone. These solicitors keep anywhere from twenty-five to ninety-five cents of every dollar collected, and there’s often no way to know exactly where your money is going. If a charity is important to you, seek out its Web site and give to it directly. Likewise, telethons and other for-profit fundraisers often skim huge administrative fees or donate only the net proceeds. Cut out the middleman and donate directly to the charity itself. (This includes solicitations that come at the supermarket checkout.)
Unless you’ve agreed to be on their mailing list, legitimate charities don’t generally solicit via email, so email requests are likely spam. Although online giving is usually the fastest and easiest way to get money to a deserving charity, make sure that you visit its real Web site, not a look-alike meant to trick those with more generosity than Web savvy. Many people also attempt to defraud donors by setting up organizations that mimic the name of a legitimate charity; the “Society of the Red Cross,” for example, is not the same as the Red Cross. If any site asks you for your Social Security Number or birth date, stop the transaction immediately.
You’re under no obligation to donate to organizations that send unsolicited merchandise like address labels, key chains, calendars, or stickers, and you should report any company that tries to bully you to the Better Business Bureau. Besides, do you really want to donate to any charity that wastes a bunch of money on promotional items and solicitation?
When we’re dealing with our own financial headaches, it’s easy to put off charitable giving by saying, “What good would my ten bucks do? It’s just a drop in the bucket.” But to a reputable and honest charity, every little bit does make a difference. Smart givers know that it doesn’t matter how much you give; what’s important is giving wisely.
Updated on February 18, 2011