Charitable giving: The dos and the don’ts

In these harsh economic times, charities and the donors who support their causes are feeling the limitations of giving power. As a result, more are looking for ways to maximize the impact of their contributions to the causes they care about most.

Doing so could be more difficult than it seems, though, as stories about charity fraud and inefficient organizations are becoming more widespread. As a result, many feel it is difficult to know which nonprofit groups are worth donating to and which will simply waste your money through “administrative costs,” unworthy causes, poor management and dubious accounting. 

For patrons, the possibility of giving to a scam or misleading organization could mitigate the desire to contribute altogether. 

Websites that evaluate various charity groups such as Charity Navigator, GuideStar, CharityWatch and The American Institute of Philanthropy have taken the lead in giving donors a comprehensive look at the best practices to maximize their contribution. 

Using metrics on fundraising methods, tax status, employee salaries and overall efficiency, these watchdog organizations are increasing the transparency that the public expects from the nonprofits they support. 

So before you part with your money, here’s a list of dos and don’ts the watchdogs recommend:

Do:

• Request annual reports from the nonprofit organization, including the breakdown of spending and budget. According to Amy Coates Madsen, program director for Standards for Excellence, potential donors are entitled to documentation of how the organization is spending its money.

• Look into the management of the organization. Coates Madsen emphasized the importance of donors agreeing with the mission statement and management within the nonprofit. Asking questions about the future of the organization can be a litmus test for the competence of its leadership.

• Verify tax-exempt documentation.

• Examine the relationship of the nonprofit to fundraising companies. Many fundraising companies take up resources meant to benefit those within the nonprofit. As a rule of thumb, the nonprofit should spend less than 35 cents to raise each dollar it collects.

• Contribute time in addition to financial support if you are very passionate about the cause. For many nonprofit organizations, manpower is the resource they need most. As Coates Madsen points out, this serves a duel purpose: “A great way to get make sure your money is really being spent in a good way is to get involved. ”

Don’t:

• Draw connections between nonprofits that sound similar in name or even have the same words in their names.

• Assume that just because a nonprofit has paid staff that it is inefficient — many require full-time staff members to function.

• Trust celebrity endorsements. As Daniel Borochoff, president and founder of CharityWatch, points out, many are paid for, and celebrities might do them only for image enhancement. Even recommendations from friends and family should be taken with a grain of salt, as it’s possible for them to have been misled.