Donation Season | How To Properly Vet A Charity

Donation Season

The Christmas Season is the time for giving, the time of year when we recognize and are thankful for our good fortunes.  This is the season where we realize there’s a great deal of the worlds population who are indeed, less fortunate than we are.  It’s the giving season, a time when your life seems inconsequential when its compared to the struggles other people have.  This is our call to give, and help make a difference in the lives of the less fortunate, but navigating the maze of who to give to, that can be our utmost challenge?  More importantly, if you do donate, how do you know your cash will actually reach those who need it most, and not fund some bureaucratic hierarchy who has to hire people, for the sole purpose of distributing cash?

Charities experience a significant increase in giving during the Holiday Season, maybe it’s the Christmas spirit, maybe it’s a potential tax benefit, either way, it’s shows the recognition we have that we are indeed, fortunate.  The challenge many of us face, is making sure the money we give, positively impacts the individuals, families, or institutions which it is intended to.  So, in the spirit of the giving season, here are some measures we can take to make sure our donations are delivered to those who need it most:

For starters, make sure to investigate the charity by reading its form 990 , this will provide you with the most up to date expenses filed by the organization.  According to the IRS Disclosure regulations a tax exempt organization must make its 3 most recently filed 990 forms available for public inspection.  As part of your giving criteria, you want to donate to a charity who maintains at least a 3 to 1 revenue to fundraising ratio.  This means for every $1 spent on fundraising, the charity should be bringing in $3 in revenue.  Treat the charity like a publicly traded company you were looking to invest in.  Would you invest your capital in a company whose expenses are twice its revenue, surely not!   Investigate the charities mission statement, administrative costs, fundraising costs, executive compensation, and these will all help paint the charities financial picture.  Is this financial picture one of strength or weakness?  Use the form 990 religiously to evaluate any 501c3!   Here is the site that will help you analyze a charities form 990, and oh yea, its free!  As an example, here is what I found for the Special Olympics of Tennessee.

There are 2 companies who have cornered the market when it comes to analyzing charity balance sheets.  Both companies do an exceptional job of providing unbiased analyses of most, if not all, registered charities.  These companies aggregate the data from the Form 990 into an easy to read, easy to understand format.  Both companies work on a fee-based business model, and in some cases receive grants and individual contributions.  Founded in 1994, Guidestar refers to itself as the search engine for non-profit information.  Their search is easy to use and very straightforward.  They make the report for the charity you search for, easily accessible and simple to purchase (go figure, they are in the business to make a profit).  I have to say though, their report is really slick, but it isn’t cheap, this one will run you about $125!  I guess if you are making a rather large charitable donation, you want to ensure the charity is valid, so 125 bucks makes for a good insurance policy!  Guidestar also offers an unlimited subscription service at a cost of $250 per month for the premium level, or $1500-$2000 annual fee for the premium-pro level, this must be for the super-givers, myself excluded!

Charity Navigator, this site was founded in 2001, and has received a litany of accolades from the likes of Time Magazine, Readers Digest, and BusinessWeek, just to name a few. Charity Navigator particularly won my praises for it’s superior search capabilities and exceptional filtering system.  Oh, and I really dig the quick search for all the 4 star charities, nice touch Charity Navigator!  Makes our job of finding a quality vetted charity much easier, all we have to is donate.  By the way, in case you are wondering, there are 2098 of these 4 star charities.

So there you have it, I hope this helps narrow your search for a great charity to lend a hand..or a buck to!  There are thousands of charities, but I am assuming, like everything else, not all of them are on the up and up.  So be careful with your donated dollars, and at least check out their form 990!

Merry Christmas to all!!

Disclaimer:  Critical Financial receives no financial remuneration from either Guidestar or Charity Navigator, our objective is simply to provide a broad overview of the charity analysis market, and help our readers make educated choices when donating to a charity.

Oh by the way, special thanks go out to those bloggers who chose to include a post of mine for their carnival: blogging break carnival