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ASU Lodestar Center Blog

Due diligence before you donate

Americans donate nearly $300 billion annually to more than 1.2 million charities and religious groups, according to Giving USA. Most donors believe that they are giving to worthwhile causes, but few conduct the necessary research to determine how effectively an organization uses donations to accomplish its mission. People who wouldn't dream of investing money without performing the necessary due diligence may blindly give money to organizations that use the majority of donations for executive salaries, fundraising and advertising. This is why due diligence is so important before making a donation.

Here are a few tips for vetting a nonprofit before you give:

Align your goals

The first step in choosing a charity is thinking about what you would like to accomplish. If the scope of your aspiration is local, find charities that are based in your neighborhood or city. If you're most concerned about national and global issues, like worldwide hunger or cancer, look for nonprofits that are equipped for such a large challenge. Remember that you can't always judge a big organization by its publicity, since that may just reflect a large advertising budget. Also, be on the lookout for questionable charities that have a name that closely resembles the name of a well-known, legitimate charity; some sound-alike charities are scams.

Do your research

You can learn more about a charity by visiting its website, requesting information and studying its annual report. Check out the organization's mission statement and the makeup of its board of directors. If you're interested in a local charity, you can call or visit its offices to find out about the organization's goals. Once you've targeted a charitable organization that is aligned with your interests, it's time to find out how it spends its donations. The organization's IRS Form 990, which must be filed by all organizations that claim tax-exempt nonprofit status, can usually be found with a Google search.

You can also register with GuideStar to access the 990 for almost any charity. Form 990 will show you a breakdown of an organization's revenue sources and expenses. Excessive salaries or fundraising expenses should raise a red flag. According to CharityWatch, less than 40 percent of a charity's revenue should be spent on administration fundraising, with the most efficient organizations spending less than 25 percent. An organization's 990 will provide quantifiable information that should help you judge its worthiness.


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Gauge the impact

You may feel at this point that you have enough information to decide if the charity you're interested in deserves your donation, but many donors have started to look deeper and consider the effectiveness of a charity's programs. Unlike the numbers on a Form 990, a charity's success rate is much harder to measure. Several new services are available to help monitor a charity's effectiveness. These include GiveWell, a nonprofit that researches and evaluates charities and publishes its findings on its website, and the Better Business Bureau Wise Giving Alliance, which uses financial and governance standards to evaluate national charities.

Some charitable organizations are performing self-evaluations and making the findings public. This can benefit the organization as much as it helps donors. In 2007, the Wall Street Journal reported on a Tennessee nonprofit called Youth Villages that works with troubled youth and their families: The organization spent $30,000 on an evaluation of its work and discovered that the practice of separating youths from their families for one to two years was less effective than providing therapy for the entire family and allowing the youth to return home after four to five months. Youth Villages subsequently changed its program and began to monitor its results on a monthly basis. By reacting to an unfavorable evaluation and improving its program, the nonprofit demonstrated its commitment to its cause.

Make your donation

When you decide on a worthwhile charity that aligns with your charitable goals, give as much as you can. If you can only afford a small donation, consider making donations throughout the year. When you donate wisely, your gift has the potential to make a real difference in someone's life.

Mandy Fricke is the community manager for Georgetown University in Washington D.C. Nursing@Georgetown, a master in nursing degree program, as well as a contributor to the Nursing License Map. In her spare time, she enjoys traveling, reading, and yoga.


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