If you’re like most people, you’re asked for money so often that you’ve become numb to it. Most of the time, you simply ignore the requests and instead give back at a time and place of your choosing.
When you are ready to give, you must have confidence that the receiving organizations will put your funds to good use. Unfortunately, lots of charities can’t be said to do that — or even come close. Others, of course, have much better reputations
How to distinguish the two? Follow these five guidelines to evaluate charities for honesty and good stewardship while avoiding sketchy organizations that might not have your best interests in mind.
1. Look Up Their Rating and Key Metrics With Reputable Charity Rating Organizations
Don’t take the charity’s word for it. Check their work — and their claims — using reputable resources like Donors Choose, Charity Watch, and Charity Navigator.
These organizations help donors evaluate charitable organizations on important measures of financial stewardship, efficiency, fundraising activities, leadership compensation, and more. While these ratings are not perfect and may become less useful following changes in leadership or organizational structure, they can provide helpful benchmarks for further research.
2. Check Your State Nonprofit Registration Database
States use nonprofit registries to track charitable organizations active within their borders. These registries do not contain comprehensive information about tracked organizations’ activities and should not be taken as endorsements of their activities. However, like charity rating databases, they offer important clues about how charities operate and how well they care for donor funds.
3. Review the Charity’s Tax Filing (Form 990)
Most reputable charities are structured as tax-exempt nonprofits, meaning they must spend everything they earn after expenses and can’t retain excess funds to compensate shareholders. Their reward for forgoing profit is exemption from most federal and state taxes.
Nevertheless, even tax-exempt nonprofits must file tax returns with the IRS, in large part so that the government can confirm that they’re holding up their end of the bargain. This return, known as Form 990, contains a great deal of information about each charity’s financial position, fundraising activities, funding sources, executive pay, and more. Charity rating organizations use Form 990s to evaluate charities, but it’s best to go straight to the source and see for yourself.
4. Look for Professional Fundraisers and Other Potential Red Flags
Use Form 990 and other public resources to identify possible red flags that caution against your support. For example, charities that rely on professional fundraisers tend to have higher fundraising costs than those that don’t. Likewise, charities with unusually high executive pay or administrative overhead may not be operating as efficiently as they could.
5. Learn About the Charity’s Philosophy, Objectives, and Past Recipients of Support
A charity’s financial performance should certainly factor into your decision to give or not, but it’s not the end of the conversation. Any charity you support should be aligned with your personal values and philanthropic goals. However, this is something that may not be apparent from a quick look at the organization’s website. The resources described above — and others — may be helpful.
Give Wisely
You don’t have unlimited resources. Moreover, you have the right to expect any funds you see fit to give away to be put to good use.
Hopefully, you have more confidence after reading this in your ability to identify honest, reputable charities that will do right by your contributions. Over time, you may develop a “go-to” list of charities that you trust and choose to rotate your giving among them, reducing the “decision fatigue” that can come when you’re not quite sure who’s most deserving.
Or maybe you’ll continue to use the resources at your disposal to identify new, exciting charities likely to steward your funds well. It’s your money, and so the choice is yours.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin