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Tips For Choosing a Responsible Charity

By Edited Jun 22, 2016 2 2

Choosing a responsible charity is not an easy task! We have all seen the truly tragic developments in Haiti caused by an earthquake. Previous years have seen tsunamis, Hurricane Katrina, fires, floods and other natural disasters all around the world. Americans are known the world over for their ability to rise up during a crisis and donate time and money to help the less fortunate. Like millions of others, you might have watched the Hope for Haiti Now marathon on television and decided to donate to this worthy cause. For others, maybe it was the Red Cross, Salvation Army, United Way or Unicef. How do you decide? Which charity is truly charitable? Are there tools to analyze and make informed decisions about non-profits and charities? Presented below are some guidelines and simple tips to help you make the right decision for choosing a responsible charity and making sure your hard-earned money is truly being used for a worthy cause.

Two Simple and Important Questions to Ask a Phone Solicitor:

It's dinner time and the phone rings. You know the drill. A person on the other end collecting for an organization you may or may not be familiar with. Don't be fooled or pressured or made to feel guilty. Take control and show that you are an informed person. You might be astonished at what you find!

First question: Are you a professional fund-raiser? Surprisingly, most charities use outside fundraising organizations with sometimes less than stellar results. These outside companies are ordered by law to disclose that they are a paid fundraising organization. Keep them honest. The ratio of external versus internal fund-raising solicitations is large.

Second question: What percentage of my donation actually goes to the charity you are raising money for? You can almost see them squirming on the other end. Again, law dictates that the honest answer must be disclosed. Many times they will try to change the subject or begin to answer with a vague "Oh, they get a lot of it". Do not let them get away with a vague or non-answer. Demand a percentage. Remind them it is a legal obligation and tell them that if they wish to continue the conversation that it had better be disclosed. In many instances, the actual charity receives less than 10% of donated funds. Sometimes they lose money because they pay a fee for the outside company to perform the fund-raising, and don't recoup enough to cover this cost. Most states have sites that show what charities use outside sources. If you ever view such a site, you would probably be shocked at how poorly these outside sources perform.

What is the next step in choosing a responsible charity? Suppose you understand how much of your money is going to charity and who is collecting it. How is your money being used? Is it going towards the mission you think it is? What exactly is the organization's mission? With very few exceptions, most charities are required to file a form 990 with the Internal Revenue Service. This informational return will tell you everything you need to know to make an informed decision. Since charities are required by law to provide a 990 for anyone who asks, most of them simply post them on their website. Don't hesitate to call and ask for a copy, though. Just because an organization is income tax exempt, they still have to meet federal guidelines to stay that way.

What to Look for on Form 990:

Read about the charity's mission. You will find the mission statement on the first page. From there, it is important to see how much money is going towards the actual Program they claim to be operating. These Program Expenses will be clearly broken down in the Functional Expenses section. Here they show the Program Expense, General and Administrative Expense and Fund-raising Expense. At the bottom of the section will be the totals. Simply divide the Program Expense by Total Expenses and you will get a percentage of what is spent towards the Program. The Better Business Bureau's charity benchmarks wants this figure to be at least 65%. Again, you will be shocked at what some charities get away with. Some will use only 20 or 30 percent of their resources towards the actual program mission. Instead, they collect the money and use it on high salaried administration or fund-raising.

While you are viewing expenses, you should calculate the Fund-Raising Expense. Again, the Better Business Bureau never wants this to be higher than 35%. A good figure to look for is 10% or less.

You can also see the salaries of the Top Five Highest Paid Officials. Does this look right to you? Judge the total assets of the company and ask yourself if this seems fair. It is extremely doubtful that a small, local charity needs to compensate an officer with a $100,000 plus salary. The compensation should always be in-line with what the compensation would be for a similar position in a for-profit company.

Take the time to look at the liabilities of the company. Try to determine why and where they owe money. Do they have enough current assets to cover the current liabilities? You do not want to give money to any organization that is about to go bankrupt due to mismanagement. Look for an established organization that is well run.

There are many other useful figures on a 990 that require a bit more depth of understanding and some basic accounting skills, but these basics above will let you get a real feel for how the charity functions. The Better Business Bureau link above will show you other important benchmarks that a charity must meet to be certified by the organization. This site is also useful to report a charity for any reason.

There are many outstanding charities that provide real benefit and help in a crisis. Unfortunately, there are as many fly-by-night companies that only want to play off of the public's sympathy and take the money and run. With very little effort, you can educate yourself and learn the best methods for choosing a responsible charity. Spread the word about what to look for in a charity. Your friend, co-workers and relatives will be thankful if they can understand how their money is being used as well. After all, it is YOUR money!!



Nov 10, 2010 4:06pm
Great advice. There are too many questionable charities out there to donate money blindly.
Nov 10, 2010 9:18pm
I'm always sceptical. Checking where the money goes is important. To many people today have their hand in the till.
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