Spilling Chari-Tea: How To Determine If A Charity Isn’t Using Money The Right Way

When you make a charitable donation, how can you be sure your money is being put to good use? Here’s how you can have faith in your contribution.

October 4, 2018
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The holiday season is right around the corner, and in addition to presents for friends and family, it’s a time when many of us contribute to different nonprofits and organizations that are important to us. In 2016, Americans donated more than $390 billion to charities across the country, according to Giving USA. Perhaps you’ve made a donation or two in your lifetime.

Fundraisers like Giving Tuesday, for instance, encourage people to donate to a charity of their choice. Giving Tuesday takes place on the first Tuesday in December and piggybacks off of the Black Friday and Cyber Monday spending spree events. In 2017, Giving Tuesday raised $274 million from 150 countries around the world.

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It’s true that giving back can make you feel good. In fact, a study published in Nature Communications found that being generous can actually make you a happier person. But do you know where your money is going? Charities rely on monetary donations from the public to help provide services, programs, basic items, and more to people and animals alike. It’s all for a good cause—until it’s not.

Before you whip out your checkbook, here is what you need to know to ensure that your donation is being used properly.

First Steps

Sites like Charity Navigator and GuideStar can help prospective donors identify and learn more about an organization before making a monetary donation. These websites take a deep dive into different charities’ records, reviewing pertinent financial information and other relevant data.

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“Charities exist because someone saw a problem they felt wasn’t getting solved,” says Suzanne Coffman, editorial director at GuideStar USA. “Donors give to charity because they want to help solve problems or make the world better.”

Sara Nason, head of consumer innovation and engagement at Charity Navigator, said their website is the “nation’s largest and most-utilized evaluator of charities.” Collectively, Charity Navigator has data on 1.8 million organizations to help donors make an informed decision.

The website ranks organizations based on financial health, accountability, and transparency. They pull information from the charity’s website and also review and publish the details of the organization’s 990 form. By law, U.S.-based tax-exempt organizations must file a 990 form with the Internal Revenue Service (IRS) once a year. This form serves as a way for the IRS and the general public to learn more about how a charity operates.

“We see something in the news and say, ‘Oh my gosh, there’s a charity mentioned in the story and I want to donate to them.’ We always recommend doing your research” says Nason. “Giving is an emotional and immediate reaction. Inputting research can be a difficult step, but it’s something we believe everyone should be doing to make sure their money is being donated where it is needed most.”

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Nason says there are several ways to go about selecting and donating to a reputable charity.

First, she says you should identify with a cause that’s important to you. Think through the impact you want your donation to have. For example, if you want to donate to an organization that is trying to cure cancer, a larger organization that has institutional funding is probably going to be closer to curing cancer. If you want to support people who have cancer, a local organization that assists those who are being treated for cancer may be your best bet.

Do your homework.

Next, you should check out the charity’s credentials. Whether you don’t know where you want to give or you have an organization in mind, vet your options first.

Look the charity up on an investigative website like Charity Navigator. The site has a “search” and “discover” function to help users learn more about specific charities. Type in a cause or charity name to pull up a company history. Charity Navigator uses a ranking system from zero to four, with four being assigned to the highest-ranking charities.

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Nason recommends selecting a charity that’s been rated three or more stars. You can also visit the charity’s website for yourself. She recommends evaluating these factors: Administrative expenses and program and fundraising costs.

“Asking all of those questions will give you a good understanding of how the charity operates and will help you take the next step to decide if you want to donate or not,” says Nason.

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Typically, the fundraising expenses should not exceed 10 percent of the overall budget, and administrative expenses should be less than 15 percent. The majority of the organization’s operating revenue—roughly 65 percent—should be largely focused on funding programs and related expenses that do the most good, according to Nason.

“It is a red flag if an organization is spending most of its money on fundraising and administrative costs and very little on programs,” says Coffman. “By very little, I mean five or 10 percent.”

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She says that overhead can be a hangup for some donors, though. Overhead is a charity’s fundraising expenses plus administrative expenses.

“The argument is if you want these programs to succeed, you have to put the right people behind it to help the program succeed. It’s so important to have organizations that pay their staff an appropriate amount for the sector and are not sticking it to the people who are helping the mission and pushing the mission forward. Look for a good balance between the program expenses.”

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Coffman says one of the biggest red flags is when an organization becomes pushy about getting your donation.

“Some charities will push you for a donation over the phone without providing much information about their mission,” says Coffman. “Reputable charities willingly give you info about their mission and program so that you understand both of them so you can see if they align with your values … They understand you need time to think it over.”

For this reason, Coffman and GuideStar do not advise that people make donations over the phone or via email.

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“It’s too easy for someone to act like they are a charity when they aren’t,” says Coffman. “You should also be cautious when clicking through an email sent by a charity. It’s too easy to spoof emails these days.”

Coffman suggests that donors should go directly to the charity’s website to safely make a contribution.

Get in touch with the charity.

The next step? Get in touch with the charity you choose. Send them an email, reach out on social media, or pick up the phone—whatever you do, Nason recommends having a conversation. “You want to talk with them about what their accomplishments, goals, and challenges are,” she says. “This will give you insight in knowing where the organization stands, where it plans to go, how it’s trying to accomplish that.”

If the organization does not want to have that conversation with you or seems hesitant or unable to provide the information you’re after, consider donating your dollars somewhere else.

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“That’s [a sign] of an organization that hasn’t put money toward figuring out what their goals are,” says Nason. “If you want your dollar to go the furthest, choose an organization that does have goals and has accomplished things previously. Look for an organization that has a track record that shows your money will go to the right place.”

Coffman echoes Nason’s comments and says the mission of an organization’s programs should be abundantly clear.

“If they are making vague claims and not providing concrete examples of how they are using donors’ money, that can be a warning sign,” says Coffman. She recommends looking for facts like the number of beds a shelter is providing or specific information about programs; for example, if a charity runs an on-the-job training program, how many people have come through it successfully and retained employment or been promoted?

Coming Full Circle

Figure out how to give your donation. Typically the best way to give is directly—that is, through the organization itself.

“Donating through the charity’s website is the number one way to go,” says Nason.

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Before submitting your payment, double check the organization’s website to see if they have a donor privacy policy. This type of protocol protects a donor from having their information sold or misused.

After you’ve given, make sure to follow up at a later date to inquire about how your donation has been put to work. Nason recommends doing so anywhere between six months to a year after your initial donation.

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“Call the organization up and get a progress report on how things are going,” Nason says. “Some things to ask are, ‘How close they are to their goals?’ and ‘What do they still need?’ This information will help you to reflect on whether or not you want to invest in them for the long haul.”

If you’ve decided to keep giving, Nason says to consider the option of a recurring donation. This can be set up directly through the charity on a monthly or yearly basis. If you do this, make sure to reevaluate the organization every so often to “make sure it still aligns with your values,” Nason advises.

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“It’s a broader conversation about making sure that the money goes to the right place and the people who need help are getting help,” says Nason. “At the end of the day, Americans are incredibly generous. Giving to charities is an incredibly community-based process. Individuals who care have the unique opportunity to support organizations that can make real change.”

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