smart spending

How to check out your charity

At 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.

Even 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.

However, keep 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.

Beyond the numbers

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.

For starters, 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.

You'll 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?

Such 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 get.

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.

Take your time

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.

Your 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.

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