The 5 Essential Things You Need to Know Before Making Charitable Donations
Whether you’re looking to spread some goodwill this holiday or to be more charitable in general, make sure that you know these things about a non-profit before making a charitable donation.
Thanks to all the holiday spirit (and, well, the impending end-of-year tax deadline), December is the month when people are the most likely to make charitable donations. (One-third of the entire year’s online donations are made in December, according to Network for Good, a Web-based giving service.) Alas, a hectic holiday schedule may leave you little time to research charities. To help you determine which nonprofit to go with, we asked leading philanthropic experts to come up with a set of straightforward— and, yes, quick—criteria for separating the best from the rest.
1. Make Sure That You Understand the Charity’s Mission.
On websites and in literature for nonprofits, vague, lofty rhetoric abounds. Groups might pledge to “aid the impoverished nationwide” or “eradicate disease.” And that’s fine, as long as that ambitious language is accompanied by real-world specifics.
“Legitimate charities typically give detailed program descriptions on their websites,” according to Bennett Weiner, the chief operating officer of the Better Business Bureau Wise Giving Alliance, a monitoring and standards-setting organization for charities. That means you should expect to find the following information clearly delineated: how each of the nonprofit’s initiatives is run; what benchmarks have been achieved by those programs in the past; how many people are served by the initiatives; and how a potential client qualifies to receive a service.
If such nitty-gritty information is absent, contact the group’s program manager. She should be able to provide you with those facts and figures. If she can’t, consider it a red flag and donate your money elsewhere.
2. Verify the Group’s Nonprofit Status.
You want a charity that has been granted a 501(c)(3) designation by the Internal Revenue Service. Why? This means that the donations that the group receives are used for charitable purposes; that your gifts to the organization are tax-deductible; that the group makes financial information public; and that strict rules govern how much it can spend to lobby the government. It’s simple to determine if a group is a 501(c)(3): Go to GuideStar.org, a nonprofit database, and enter the name. Bear in mind that just because a website ends in .org doesn’t mean that the group is a legitimate nonprofit. If the organization isn’t a 501(c)(3), move on, because your donation might not be tax-deductible.
3. Inquire About the Charity’s Spending Ratio.
When you donate, you want your money to make a difference—not pay for office furniture for the charity’s director. A rule of thumb: The most efficient organizations spend at least 75 percent of their budgets on programs and services (this is referred to as the “spending ratio”), with the remainder going toward administration and fund-raising costs, says Debra Snider, the vice president of operations for GuideStar.org, an informational database of nonprofit organizations. Obviously, the higher the spending ratio, the better, since it illustrates the charity’s productivity.
You can easily find this information by looking at a nonprofit’s financial analysis on CharityNavigator.org. (The site updates charities’ financial data annually, and some accountability figures are updated monthly, so don’t worry that you’re not getting the most up-to-date information.) If you have further questions about how the group spends its money, contact it directly and ask to see the most recent annual report. Often it’s available on the organization’s website.
But what if the non-profit you’re interested in doesn’t meet the 75 percent spending ratio? Experts say the group might still be worth considering if it’s undergoing capital improvements, such as building a new office; if it’s a start-up, whose expenses are typically higher; or if it’s located in a big city, where administrative costs can eat up a bigger chunk of the overall budget. So you need to exercise judgment in these cases.
4. Look for Accountability and Transparency Practices.
Well-run charities should be open about their management, with a CEO and a governing board that includes people who aren't part of the charity to allow for objective analysis. The Better Business Bureau Wise Giving Alliance and CharityNavigator.org evaluate charities on this criterion, presenting the information in easy-to-read checklists.
Most groups mention any religious associations in their mission statements but may be less forthcoming about political affiliations or any positions they’ve taken on legislation. If you’re concerned, look at the charity’s annual report, which should disclose how much money, if any, goes toward lobbying or political action.
5. Ask About Results.
Most responsible midsize to large organizations use either self- or third-party assessments to evaluate their efficiency and effectiveness. (You can contact the charity to request the most recent one.) Take a jobs program, for example. You want to know not only that the group found positions for 100 people but also that one year later a realistic percentage—say, 50 percent—were still employed. And what if you’re interested in donating to a brand-new charity with bold ideas but not much of a track record? Elizabeth Gore, the former vice president of Global Partnerships for the United Nations Foundation, a nonprofit that works with the United Nations, suggests that you take a leap and send a check, as long as the group meets the other criteria on these pages. After all, she says, “some of those charities’ innovations could lead to revolutionary, long-term change.”