smart spending

How to check out your charity

Piggy banks on grass with blue sky
Highlights
  • Investigating a charitable organization requires time and effort.
  • Look at the organization's board of directors; a list of its members can be found in the Form 990.
  • At least 60 percent of an organization's funds should go to its programs or services

No doubt about it -- Americans are generous. Seventy percent to 80 percent of us contribute to at least one charity each year, says the American Association of Fundraising Counsel.

However, if you've ever found it difficult to figure out exactly how the organizations that solicit support are using your funds, you're not alone. Seventy percent of the people surveyed by the Council of Better Business Bureau's Wise Giving Alliance said it was hard to know if a charity is legitimate and operates ethically.

With a bit of legwork, you can determine which charities are most likely to use your contributions prudently. As a starting point, you'll want to verify that an organization actually is a charitable group. Not all nonprofit groups are charities. Many trade and lobbying organizations, for instance, are nonprofit groups, but not charities. While you can support these groups, your donations are not tax-deductible.

990 proof

To find out if a group is a charity, you'll want to see its Form 990. The charity files a Form 990 with the federal government. This financial report provides information on the organization's tax status and programs, and shows how it is using its funds.

Charities are required to provide Form 990 when requested, although they can charge a reasonable fee for it, says Daniel Borochoff, president of the Chicago-based American Institute of Philanthropy.

One exception: Churches, synagogues and other places of worship generally do not need to file Form 990.

Don't be misled by organizations providing what's known as a "tax ID number." These numbers do not show that an organization is a charity; they're simply IRS-required employer identification numbers. Michael Nilsen, public affairs manager with the Association of Fundraising Professionals in Alexandria, Va., says he would be suspicious of any group whose members tried to use its tax ID number to gain your support.

Also take a discriminating look at the organizations' marketing materials.

"Watch out for appeals that make you cry vs. think, or if they go on about the problem, but don't tell you what the charity is doing," says Bennett Weiner, chief operating officer with the Wise Giving Alliance. Solicitations for contributions should accurately convey the work the charity is doing.

Checking the numbers

How can you tell how effectively a group uses its resources? Again, Form 990 can help, as it shows how much the group spent on programs, administration and fundraising activities.

However, the forms can be overwhelming. Those submitted by national charities often run dozens of pages, and the charities typically have more than one.

advertisement

Borochoff recommends asking for the organization's combined audited financial statement, which includes financial information on all of an organization's entities. Many states require audits from charities that receive more than $100,000 in donations.

However, charities are not required to release audits. If that's the case, you can get one from your state; typically you would contact the secretary of state or attorney general. However, this is likely to be an involved process. In addition, you may want to re-think your support of an organization that won't provide a financial statement. Reputable charities should encourage your interest in them.

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.06%  0.22 4.28%
15 year fixed 3.17%  0.07 3.24%
5/1 ARM 3.52%  0.11 3.41%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.36% --0.00 4.36%
50K FICO-based HELOC 4.06% --0.00 4.06%
100K FICO-based HELOC 3.91% --0.00 3.91%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.79%  0.10 2.69%
48 month used car loan 2.98%  0.06 2.92%
60 month new car loan 3.23%  0.04 3.19%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.94%  0.01 0.93%
2 Year CD 1.13% --0.00 1.13%
5 Year CD 1.76%  0.00 1.76%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.77%  0.06 15.71%
Cash Back Cards 16.44%  0.03 16.41%
Low Interest Cards 10.96%  0.10 10.86%
 
Next
advertisement
FRUGAL NEWSLETTER

Discover new ways to cut costs and save more every day. Reduce your spending, not life’s pleasures. Delivered weekly.

advertisement
Partner Center
advertisement

Connect with us