When you make a charitable donation, it’s because you want that money to go to, well, charity — not buying a new car for the head of the foundation. But some charities are better than others at putting your money to good use, which is why it’s a good idea to evaluate charities before you give.
MAKE SURE THE CHARITY IS LEGITIMATE
All non-profits have to register with the IRS and provide annual financial information on a Form 990, which should be available for download from the organization's website, along with its annual report. This information will also give you some insight into how each charity is spending its resources.
REVIEW THE NUMBERS
Luckily, you don’t have to do this on your own. There are a number of websites designed to help you.
- The Better Business Bureau's Wise Giving Alliance accredits charities based on 20 standards.
- Charity Navigator rates charities based on financial health, accountability and transparency.
- CharityWatch also publishes ratings as well as news stories and analyst's notes about the charities it evaluates.
KNOW THE LINGO
Reputable charities usually provide a percentage breakdown of how much goes to actual programs compared to other costs. But the numbers can sometimes be misleading. When a charity says, "90 percent of every dollar donated goes to programs," that doesn't necessarily mean that 90 percent of its budget is spent on the cause and just 10 percent is spent on overhead costs and fundraising. If the charity generates income in addition to donations (from investments, for example, or from in-kind donations) cash donations may represent just a fraction of its annual revenue. To get a truer picture, look for wording like, "90 percent of every dollar spent goes to programs." Generally speaking, CharityWatch considers a charity to be "highly efficient" when it spends at least 75 percent of its budget on charitable programs (and less than 25 percent on overhead expenses and fundraising).
Generally speaking, CharityWatch considers a charity to be “highly efficient” when it spends at least 75 percent of its budget on charitable programs.
What exactly should you be looking for? If you're like most people, you simply want to know that the money you donate will be will be used to support the organization's mission rather than cover excessive administrative costs or CEO extravagances.