You want to be confident that your charitable dollars are going to trustworthy organizations and being used wisely. But how can you really tell? One easy way to keep tabs: call the organization and directly ask how they put charitable donations to work.
"Donors should never hesitate to pick up the phone and get their questions answered," encourages Sandra Miniutti, former CFO of Charity Navigator, the largest independent charity evaluator in the United States. "The best charities are happy to have conversations with their donors."
When it comes to evaluating your favorite causes, always try to consider the following:
Find out how much of every dollar you give goes directly to programs and services.
Charity Navigator suggests that organizations should be putting at least 75% of every donation directly towards their charitable work. It’s a good rule of thumb, but it's also important to look at those numbers in context.
"Donors need to understand that charities have to withhold some money to raise the next dollar so they can pay the electric bill," Miniutti notes. Charities with small budgets often spend a larger percentage of donations on administrative costs, while organizations that depend heavily on volunteers typically have lower overhead.
Review the charity's annual report.
Many charities publish annual reports that generally are available on their websites. These reports should describe where the charity is focusing their philanthropic efforts and highlight some of their accomplishments over the past year. But try to read them with a discerning eye.
"They can be marketing tools, so look for concrete information about the organization's impact," suggests Miniutti. The charity should spell out recent accomplishments such as the number of individuals it served in the past year, programs launched, or legislative victories it has worked toward.
Ask for a copy of the charity's Form 990.
Charities are required to provide the public with their last three years of tax filings. "How quickly they give them to you is a great indication as to their transparency," Miniutti notes.
These forms will quickly confirm how much of the organization's budget goes to programs. You also can use the form to check CEO compensation. CEOs of large charities typically make in the neighborhood of $150,000 annually, according to Miniutti.
Make sure your charity is registered with the IRS.
Charities with revenue exceeding $25,000 a year must register with the IRS and often must also report their finances to state and/or local tax departments. You can verify your charity's nonprofit status by confirming that it’s listed as a tax-exempt organization on the Exempt Organizations Select Check page at IRS.gov.
Take advantage of outside resources.
Charity watchdog websites can provide easy one-stop access to key data and reports on most charities. Two of the more well-known of these sites are: