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A Donor’s Guide to Avoiding “America’s Worst Charities”

Posted by Kate von Richthofen on Jul 17, 2013 4:12:02 PM

Donor Blog PhotoBy Kate von Richthofen, strategic development and partnerships senior manager

On June 6, 2013, the Tampa Bay Times released “America’s Worst Charities,” an article that drew attention to the 50 worst charities in the country, as defined by those giving the lowest percentages of their revenue to the causes they “support.” The story topped newsfeeds for several weeks, because individual donors, such as you and me, took personal offense to how the charities on this list were using (or not using) our money in support of the causes each claim to champion. We also cannot deny that we are ashamed to admit that we, as donors, are largely responsible for letting them get away with it. The onus is on us to adequately research where our donations are going and select the charities that we see as making the best use of our hard-earned money.

So what can we do as donors to ensure that our donations are going to worthy organizations? One word: research. At the absolute very least, a donor should pull up the Web site and run an Internet search on any organization he or she intends to give money to. Five short minutes is all that is needed to look for possible red or yellow flags. Too many flags may indicate that your money would most likely be better invested in an alternate charity.

Here are some questions to ask or things you should do to learn more about the charity of your choice:

  • Is this the charity you are looking for? Many organizations have similar names. Pull up the charity’s Web site and confirm.
  • Do a general Web search for any potential scandals that have lingered on in the press. Ongoing scandals are a clear red flag.
  • Refer to www.GuideStar.org to view the charity’s IRS Form 990.
    • Check the chief executive compensation amount. Does it seem reasonable for the scope of activities and budget size?
    • Review the governance section and how it responds to IRS questions about specific policies and procedures.
    • Determine if the Form has been professionally and adequately completed.
  • Review the mission statement and how it is being fulfilled (what are the programs?)
  • Have you ever used the charity’s services or contacted the organization for any reason?
    • Were you positively impressed by the professionalism and the treatment you received?
    • Were your questions answered satisfactorily?
  • If you have donated to this organization in the past, did you receive a timely thank-you note? This simple detail can speak volumes to the professionalism of the charity.
  • If the charity contacted you with a donation request, were you comfortable with the manner of solicitation?
    • Red flags:
      • Are you constantly bombarded with requests from the organization?
      • Are you giving out of guilt?
  • Who sits on its board of directors?
    • Yellow flag:
      • Fewer than four board members or all of them being related. Required number of board members is regulated by state law, with some states requiring only 1-3 board members, however BoardSource and sector best practices recommend a larger, diversified board.
      • Board composition should reflect the community the organization serves and have varied professional expertise (i.e., legal and financial experts, local community leaders, various ethnic perspectives, etc.). The BoardSource Governance Index 2012 found that the average size of nonprofit boards is between 16-17 members.
  • Are board members compensated and if so, is it reasonable?
  • Does the charity post an annual report/financial statements on its Web site?
  • Does the charity conduct an audit? This is particularly important for charities with annual income exceeding $500,000.
  • Inspect the financials:
    • Does the charity indicate fundraising expenses? Some soliciting organizations have $0 for fundraising expenses, which is a red flag.
    • Review the overhead costs. If these seems unreasonably high, determine why that is the case.

In summary, taking just a few short minutes to review an organization’s practices will help you not only become a more informed donor, but will ensure that your generous donation is actually being used in support of the causes important to you.

Topics: Board Best Practices, New Trends & Resources

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