The emotional and financial benefits of charitable giving (including tax deductions) are well-documented, but the money and goods you give mean very little unless they produce tangible results. Unfortunately, not all charities serve the public good efficiently. Some even make national news for less-than-noble activities, such as misused funds, overpaid CEOs, and ineffective programs. Potential donors should do thorough research prior to giving their hard-earned dollars to a charity that may be under-performing or ripe for scandal.
Thankfully, it’s easier now than ever before to find a good charity. Today’s donors typically demand more transparency than was previously expected, and charities have responded by more rigorously evaluating the efficacy of their programs. Plus, third-party ratings organizations such as Charity Navigator provide meaningful and jargon-free insight into individual charities, and help interpreting tax forms so donors can shop around. With a little know-how, you can find an organization that earns your confidence and the confidence of the community.
Qualities of the Best Charities
The first thing you should do is spend some time thinking about the type of cause you’d like to support and the community you’d like to positively impact. Once you’ve selected a handful of charities that pique your interest, do some due diligence. Any charity you choose to donate time or money to should have these qualities.
1. A 75/25 Ratio of Fund Allocation
Of course, you want to make sure a significant portion of your donations go to those you directly want to help. However, it’s important to remember that well-maintained fundraising and administration are hallmarks of effective and longstanding charities.
I once worked for a charity that claimed it spent 99% of its funds on programs and services – unfortunately, it was an administrative disaster, and has since fallen apart. Experts agree that healthy charities spend between 75% and 85% of their funds on programs and services, and the remainder on fundraising and administration.
2. Alignment of Mission and Programs
A high-quality charity can draw a straight line from its mission statement all the way down to its daily tasks. Unfortunately, many organizations are founded by well-intentioned visionaries who have little knowledge about how to actually accomplish their mission statements. This is especially true of start-up nonprofits and some of the smaller faith-based organizations.
Some charities capture the hearts of potential donors by casting popular mission statements like, “Fulfilling the dreams of children with chronic or terminal illnesses,” or “Enriching our community through art therapy.” These are praiseworthy goals, but unless they’re followed by strong, well-organized programs, they’re going to matter very little to the community.
A high-quality charity can easily describe how it fulfills its mission. For example, many charities exist to relieve the suffering caused by cancer, and many of these have similar-sounding missions. However, a high-quality charity can tell you the specifics. Perhaps it provides monetary relief to patients who can’t work, play therapy to the children of cancer survivors, or bereavement services to loved ones for one year after a cancer-related death.
A lower-quality charity cannot provide similar examples. Sometimes, their programs may leave you scratching your head as to how they actually fulfill their missions – for example, a charity that subsidizes annual trips to Disneyland for the children of cancer patients is nice, but probably doesn’t do much to relieve long-term suffering.
3. Rigorous Evaluation Reports
Good charities recognize that it is in their clients’ best interest to continually test their programs for effectiveness, ideally through the services of a third-party evaluator. Unfortunately, this isn’t necessarily an industry norm. Many charities do not evaluate their services at all, and others merely disregard negative results. In a famous example, the widespread and popular program Drug Abuse Resistance Education (D.A.R.E.) continued to enjoy support from private donations and federal subsidies, even though evaluations demonstrated that its programs were not effective.
To avoid a similar outcome with the charity you select, request third-party facts and figures that demonstrate it is fulfilling its mission in the community. The metrics used to find these facts and figures depend on the charity.
For example, an organization that addresses hunger should measure food security among participants. One that provides tutoring for underprivileged kids should show how programming improves standardized test scores. Regardless of the charity and its particular metrics, you should ask to see evidence that its goals are being accomplished.
As a donor, you should have a good understanding of how your prospective charity makes decisions and uses its funds. Its IRS Form 990 should contain pertinent information about board member composition, salaries of key employees, and external auditing.
It’s important to remember that the IRS considers nonprofit salaries reasonable as long as they are in line with their equivalents in the for-profit world – you can find a good overview of expected salaries by sector and industry on the website Glassdoor. When you look at the composition of the board, it should have a majority of independent members – not solely staff or their family members.
Think of your charitable giving as a type of voting system. Let your well-informed voice be heard by giving your resources to organizations that demonstrate their value through financial transparency and effective programming. Individuals and communities served by charities deserve the highest level of service – donate your time and money to the organizations that can best provide it.
How do you typically evaluate the quality of the organizations you support?