least 60 percent of an organization's funds should go to its programs or services.
This is a guideline, however, rather than a strict calculation. Different groups
will have varying administrative costs. Art museums, for example, typically have
overhead costs in the range of 30 percent to 40 percent. That's because they need to install
sophisticated climate control systems, hire security guards and the like. In contrast,
food shelves often can put 90 percent of their funds to their programs.
among similar groups, several factors can drive up a particular organization's
administrative and fundraising costs. New organizations need to spend more money
getting out their message. Often groups that support issues such as abortion or gay
rights also spend more on fundraising, as they are less likely to receive
significant corporate backing.
Many donors want their contributions
to support specific programs. If that's the case, include instructions with your
check. A well-run organization will honor them.
in mind that charities, like for-profit organizations, have administrative costs.
"It's fine to give restrictive gifts that are just for use in specific programs.
But, if everyone did it, the money would be wasted because the charity couldn't
operate," says Nilsen.
Once you've reviewed the financial statements, it's helpful
to look at several other elements of an organization. Good governance -- that
is, the way in which the charity is run -- is one.
look at the organization's board of directors; a list of its members can be found
in the Form 990. Logical constituents should be represented on the board. For
instance, a group dedicated to helping people with a specific disease should have
on its board individuals with the illness, or their family members.
also want to check whether the organization is doing substantial business with
firms that are owned or operated by board members or their relatives. For instance,
is a food shelf purchasing milk from a dairy firm owned by a board member?
transactions may be legal as long as they're reported and not excessive, says
Borochoff. However, the arrangements can drive the work of the organization. That
is, the charity may take on programs that benefit the board member's business
more than the mission of the charity.
You may want to ask
whether the organization uses a professional fundraising firm; that is, a company
whose employees contact potential donors. From the charity's point of view, these
can be worthwhile. A small nonprofit without the staff to engage in large-scale
fundraising may view any funds that come its way from such an arrangement as
"found" money. Say the fundraising firm raises $100,000 and keeps 80
percent, or $80,000. That's still $20,000 that the charity wouldn't otherwise
However, the arrangements prompt people to question
the legitimacy of all charities, says Nilsen. In fact, his organization prohibits
charities from compensating firms based on a percent of the funds collected.
Clearly, investigating a charitable organization requires
time and effort. Reputable charities will accommodate reasonable requests for
information and give you time to make an informed decision.
work will be rewarded. "We always encourage people to be informed donors,
and look at it as investing in philanthropy. The payoff is social good,"
says Suzanne Coffman, director of communications with Philanthropic
Research Inc., in Williamsburg, Va., which runs the GuideStar project. Guidestar provides information on more than 1.5 million U.S. nonprofit organizations.