How to Investigate a Charity

A few weeks ago, I put out a call on Twitter and on Facebook for detailed posts that people would like to see. I got enough great responses that I’m going to fill the entire month of July – one post per day – addressing these ideas.

Via a private message, Colleen said “I have been thinking about donating to [Charity X]. How do I know if they’re legitimate or not and if they put the money to good use?”

Obviously, I edited out the specific charity that Colleen mentioned, as it’s not particularly a charity I wish to promote publicly (as I discussed with Colleen, the specific charity she mentioned does some work that I don’t agree with). Instead, I’ll discuss how to research a charity from a more neutral standpoint.

What You Need to Know
There are several key questions you should have the answer to before donating a significant amount to any charity.

What is the charity’s stated mission? Why do they claim to exist? This is a fundamental point. If they claim to exist for a reason you don’t wholly and deeply agree with, you should focus your money and energy on other charities.

Is this organization actually a charity? You need to know if the organization is a certified 501(c)(3) nonprofit organization. This means that they’re held to certain legal standards, including some restrictions on how they spend their money and how much information about their inner workings they have to share, as well as their tax status (which affects whether you can deduct any donations you make from your own income taxes).

Who runs the organization? Is there a president? A board of directors? A chairman? Who are these people? Are they legitimate folks or people of dubious background?

Do they disclose their financial information? The more open a charity is about their internal finances, the more legitimate it tends to be. An annual report (with independent auditors) is a must and it should include things such as a highly detailed budget and explanation of where all of the money goes. Ideally, they also should make available some of their IRS filings, such as Form 990.

What does your donated dollar translate into? If you give them a dollar, how many cents of that dollar go to various uses? How much goes to the actual cause? How much goes for adminstrative costs, promotional costs, and so on? Obviously, some of your money will need to go to keep the doors open, but most of your money should be going to the cause itself. It’s also worth noting how exactly the money used for the cause is used. Who are the actual beneficiaries? Where are the actual beneficiaries?

How to Find It
You can find most of this information from the comfort of your web browser.

For starters, visit the web site of the charity. There, you should be able to find such information as the mission of the charity, the most recent annual report from the charity, and information about the management of the charity (who’s in charge, in other words).

Next, study that annual report. It should include a very detailed budget explaining where every dime of their money goes and what proportion of it goes into the cause itself. Again, you shouldn’t expect 100% of the money to go to the cause, but a high percentage is expected. You’ll also want to make sure that the budget is audited (check for information about the auditor).

After that, check up on the people involved. At the very least, do a few Google searches on the chairman of the organization and the board members just to see what you turn up. If they have a Wikipedia entry, be sure to read it over. Also, Google the stated auditor of the charity, and you may even want to the auditor to make sure that they actually did audit the organization’s books.

Finally, stop by Charity Navigator. Charity Navigator is a wonderful tool that provides a wealth of information about many charities, particularly larger ones. They analyze charities in comparison to other charities of the same type and offer ratings that show how these charities use their money and resources compared to similar charities. Don’t sweat it if the charity you’re looking for isn’t there, as many smaller charities are not listed. However, most large charities are listed. Some charities have glowing reports, while others give off dire warnings.

Together, these tactics and tools should give you a pretty clear picture of the charity you’re considering donating to.

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