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(c)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.