The lion’s share of charitable contributions every year are made between October and Dec. 31, so the last three months of the year present a window of opportunity for you to make sure your favored charities are spending your money the right way. Last month we looked at gifting from your IRA; this month, in the second of two parts, we look at evaluating the charities themselves.
A recent study by the Aspen Network of Development Entrepreneurs, the Metanoia Fund and the Rockefeller and William and Flora Hewlett foundations found surprisingly few donors really looked into how effectively a nonprofit organization performed. In addition, older donors tended to rely more upon information from the organization being considered, rather than seek out more independent research.
A major donation should always include a comprehensive due diligence process, one that may include actually visiting facilities and meeting with development staff and the board of directors. For the more typical kinds of charitable gifts, however, doing some basic research before you give is relatively easy, takes just a few minutes and is especially important if you are considering a charity that is new to you.
First, be absolutely sure that the organization itself is legitimate. In South Carolina, your first step should be to log on to the website of the Secretary of State where you can find a searchable database of charities. The State Division of Charities has strict reporting regulations for organizations that represent themselves as legitimate non-profits within South Carolina.
Second, find out how much of your money is really supporting good works, and what share is eaten up by administrative and fund-raising expenses. Is the organization effective in reaching its target mission? Does it have the wherewithal to maintain itself in tough times? We have found Charity Navigator, an independent evaluator of nonprofits, to be a valuable resource for answering these questions. Charity Navigator evaluates more than 5,000 nonprofits, and assigns each a score derived from both organizational efficiency and organizational capacity.
Efficient charities spend less to raise more. The majority of their money goes to the recipients, their fundraising efforts are appropriate to the scope of their programs and their administrative costs are within reason. Organizational capacity is a measure of a charity’s ability to sustain its programs, and continue to do so in a variety of economic or business circumstances.
Charity Navigator has developed a complex system of metrics that takes into consideration differences in nonprofits and their particular missions; the results allow you to evaluate a particular nonprofit, as well as compare charities with the same general objectives, or serving the same target group. You can search by charity name, size, location, mission, rating, and keywords and get a full financial review — as well as a star score. There are also a series of Top 10 lists that can help you identify those charities that are worthy (or not so worthy) of your support, no matter how deserving the cause they promote may be.
Some of the more revealing lists include “10 Charities with the Most Consecutive 4-Star Ratings,” “10 Highly-Rated Charities with Low-Paid CEOs,” “10 Highly-Paid CEO at Low-Rated Charities,” “10 Charities in Deep Financial Trouble” and “10 Charities Overpaying Their For-profit Fundraisers”.
So when you get that call or letter, or when you see a heart-rending commercial on TV, do your research before sending your check.
Steven Weber is the senior investment advisor and Gloria Harris Director of Client Services for The Bedminster Group, providing investment management, estate, and financial planning services. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. The opinions expressed are solely those of the authors and do not necessarily reflect those from any other source.
