How to Check Out a Charity

Well over a million charities operate in the U.S. alone, and some do much more good work than others. To make sure your contributions go to the groups that accomplish the most, start by consulting watchdogs like Charity Navigator, the American Institute for Philanthropy, and the Better Business Bureau’s Wise Giving Alliance. These outfits rate charities based on factors like how they spend money, protect donor privacy, and pay their employees. Charity Navigator even offers lists such as “10 Highly Rated Charities with Low-Paid CEOs” and “10 Highly Rated Charities Relying on Private Contributions” to help you narrow your search for a worthy cause.

Look at the IRS Form 990 of any charity you’re considering. It provides information on the group’s mission, programs, and finances. GuideStar offers these forms on 1.8 million tax-exempt organizations for free. Finally, check with your state’s attorney general’s office. Every nonprofit that solicits money has to register with its state. 

Prefer giving to a local organization? Contact your area’s Better Business Bureau to see whether it has evaluated the charity you want to support.

Check out the fiscal health of any charity that interests you. Look for its annual report, which should summarize its programs, governance, and finances. You may find the report on the charity’s website but if not, ask to be sent a copy. 

The bulk of the money a charity collects should go toward programs, with no more than about 25 percent allocated for administrative costs like fundraising and salaries. “However, if your favorite charity happens to slip below that [75/25] ratio one year, don’t just drop it from your giving portfolio,” says Sandra Miniutti, vice president of marketing for Charity Navigator. Ask what’s going on and how the organization plans to improve its efficiency. Numbers don’t always tell the whole story.

Any charity to which you donate should be happy to tell you what it’s trying to achieve, how this goal will be accomplished, and what it has done so far. It should also be willing to say who leads the organization and how it’s run. You can double-check some of this information by looking at Form 990’s Statement of Program Service Accomplishment, where the charity reports its largest programs and funding allocated to them. You can also visit greatnonprofits.org, where donors and volunteers write reviews and share information about charities and other nonprofits.

An amateurish-looking website or a lack of detail can be a tipoff that a charity is questionable. Other things to watch out for include lookalike names and overly boastful claims, says Bennett Weiner, chief operating officer of the Wise ­Giving Alliance.