How to check out a nonprofit

Charity money jar

Stock photo

via Moak: How to check out a nonprofit, clarionledger.com

Generosity is a long-established tradition among the American people. Since the earliest days of our republic, Americans have given generously to help our fellow man. And although our system of nonprofits is far from perfect, there’s not a single aspect of our society that hasn’t benefited from the charitable sector. Gifts from donors large and small every day help disaster victims, fight poverty, disease, illiteracy and hunger, help raise standards of living and further political and social causes. And here in Mississippi, we are consistently rated as being among the most generous in giving to charitable causes.

According to the National Center for Charitable Statistics, nearly 1.6 million charities account for more than 5 percent of the nation’s Gross Domestic Product, with donors giving $1.74 trillion. But it’s become apparent in recent decades that there are a lot of folks out there looking to get rich from all that generosity by stealing, lying or swindling. There are also those who squander donated dollars because of poor management, lack of control or oversight, those who might have started out with great intentions, but have since forgotten their original mission, or those whose causes are victims of their organizations’ own successes because they’ve grown too fast.

This year, we’ve seen a spectacular example in the Wounded Warrior Project about which I’ve written a couple of times earlier this year. But those are just the big ones that gets the headlines. For every WWP, there are a hundred smaller organizations that have failed in their stewardship of the precious resources entrusted to them by earnest donors.

So, how do you know whether a charity is worth your time and money? The Internet has given us unprecedented access to resources that can be used to check out a charity. But there’s a gap because many of the organizations on which they report are larger, national charities. For smaller fundraising efforts in local communities, there might not be an organization at all – and zero accountability. In such cases, you have no real way to know whether that $20 bill you dropped in the jar next to the cash register is going to pay bills for that sick child or to fund a gambling trip to Vegas. (I’m not being cynical here; while giving to such causes is a noble and generous effort — and many people consider it an acceptable risk of doing the right thing — the lack of a system of accountability can increase the risk of the money being misspent.)

When considering gifts to organized charities, many experts in the field of nonprofit fiscal accountability advocate an approach that is based on several factors. For instance the BBB Wise Giving Alliance (at www.give.org) urges donors to consider the following four factors. (These are just a summary; the full WGA standards are athttp://go.bbb.org/28Q9IlQ):

1. Governance. Consider the board of directors, if there is one. How often do they meet? (Is it often enough so the directors know what’s going on?) How many are there? (The Wise Giving Alliance suggests five as a minimum number, but it should certainly be more than the founder and a couple of his or her close friends.) Do they get paid? (Very few should be paid by the organization, and especially not the chairman or treasurer.) Do they have a good conflict-of-interest policy? (Such policies should keep board members from participating in or influencing decisions that might benefit themselves or their companies.)

2. Measuring Effectiveness. The Wise Giving Alliance contends the organization should undergo a periodic process to ensure the organization is doing its mission, and to summarize that information in a report at a minimum, every two years.

3. Finances. The Wise Giving Alliance standards require that at least 65 percent of the total expenses should be spent on providing program activities, and no more than 35 percent should be spent on fundraising. The organization should avoid accumulating large stashes of funds, have regular financial audits, and ensure budgets and financial reports are detailed and understandable. Many people assume the higher the percentage spent on programs the better, and that’s certainly a laudable goal. But a charity should also make sure it’s not starving itself of needed infrastructure and resources, just to increase that percentage and look better to potential donors. (See this article on the Nonprofit Starvation Cycle, from Stanford Social Innovation.)

4. Solicitations and Informational Materials. When fundraising and informing the public, the organization should clearly list programs, provide annual reports, take care of donor privacy concerns, clearly disclose how the charity benefits from the sale of products and services and promptly address complaints.

Here are a few (free) resources to help get you started checking out your charity of choice. There are many other options, some of which require you to pay a fee or a “donation” before giving you the information you need:

Secretary of state. All charities soliciting in Mississippi are required to register with the secretary of state’s office. Clicking the link at http://1.usa.gov/28QKPmA will open a search box, in which you can input the name of the charity and get financial information from the charity’s filings.

Give.org. This site is run by the BBB Wise Giving Alliance, mentioned above. It has ratings on many charities soliciting across the nation and maintains the 20 “Standards for Charitable Accountability”.

Charity Navigator. This organization evaluates more than 8,000 charities against three “Dimensions of Intelligent Giving” – Financial Health, Accountability and Transparency and Results Reporting, using information compiled from the organization’s IRS Form 990 tax returns. Results are plotted on a grid, to give you an easy-to-understand visual.

Guidestar. This organization compiles and publishes the IRS Form 990 Tax returns. Basic information (including info supplied by the organization) is available without a login, but you can access the full 990 tax returns with a free sign-up.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s