Charities need financial donations to survive, and the competition to secure those donations can sometimes be fierce. Well-intentioned prospective donors may be caught in the middle of that competition, receiving solicitations from a seemingly endless array of charities without ever knowing how to choose the one that's most worthy of their donations.
Vetting a charity is important, as donors want to know their money is being used in the best way possible. The following tips can help prospective donors find their way through the sea of charitable organization solicitations they receive this year.
• Do the math. Watchdog organizations that monitor charities to ensure they are using donations to meet the goals set forth in their mission statements generally advise that charities devote a substantial percentage of their budgets to programs. For example, Charities Review Council, a Minnesota-based organization that profiles charities, recommends that charities use at least 65 percent of their budgets for their programs, with no more than 35 percent of the organizational budget going toward administration and fundraising costs. Other watchdog organizations set the bar even higher, but prospective donors vetting a charity can request to see the organization's tax documents (many organizations now post such filings on their websites), examining them to make sure the charity is using at least 65 percent of its budget to finance programs designed to fulfill its mission statement.
• Ask for proof. In addition to examining financial documents, ask a charity to show proof that it's doing what it set out to do. Charities should be able to provide this information immediately. Those that can't may be struggling to meet their missions, which should be a red flag for prospective donors who want their donation dollars to go far.
• Examine assets. When perusing a charity's financial documents, men and women vetting charities that file their tax returns with the United States Internal Revenue Services can look on Form 990 to determine if the charity finished the financial year with positive or negative assets. (If vetting a Canadian charity, call the charity and ask for the equivalent form.) Charities that are routinely ending years with negative assets may not be worthy of a donation, as they might be incapable of meeting their mission statement due to mismanagement or legal troubles.
• Seek independent evaluations. Not every charity is forthcoming about their missions or successes and failures, especially when soliciting donors. Independent evaluations may be mandatory depending on where the charity is based, and these evaluations are often conducted by auditing firms trusted with determining the organization's financial health. If the audit is unavailable, look for evaluations from other independent sources, such as Charity Navigator (www.charitynavigator.org), a nonprofit organization that rates charities based on a host of factors, including financial health, accountability and transparency, and results reporting.
Vetting charities is important for donors who want to ensure their donations go toward making a favorite charity's mission statement a reality.