The Best Questions to Ask a Charity

CNN Money lists the best questions to ask a charity (with the suggested answers) as follows:

• Does the IRS recognize you as a charity? (Yes)
• How long have you been around? (Five years or more.)
• What % of my donation will go to charitable works? (75% or more.)
• Do you have a year's worth of working capital? (Yes.)
• Are you slashing services this year? (No.)

Money says that if the charity answers all the questions as they've indicated, then "you may have a winner." Hmmmmmm.

Here's my take on each of these:

1. I want my charities to be recognized by the IRS. If they aren't, that leaves a lot of questions about whether or not they are really a charity.

2. I think five years is a fair number (you want to see if they have at least a decent amount of staying power), but I'd give to a charity that had fewer than five years of life if it was addressing an issue I felt passionate about.

3. I like 75% or more as well going to actually doing the work. The higher this number is, the better.

4. Not sure why a charity needs a year of working capital (sounds like they've taken past donations and saved them versus using them). Also not sure how many charities fit this criteria or how you'd find it out (if the person you're talking to doesn't know or can't/won't tell you.) This is a non-issue for me personally.

5. Aren't most charities cutting at least SOME services this year? I'd guess that a huge majority are. Again, I'll pass on this question.

Looking at #4 and #5, I'm wondering if more than a handful of charities would even pass this test.

Personally, here's what I look for:

1. An organization that's doing a charitable work I believe in.

2. They do it efficiently (75% or more going to the actual work).

3. They are recognized by the IRS as a non-profit organization.

That's it. Nothing more, nothing less.

How about you? What are your criteria for giving to a charity?

Comments

[Bob's Occasional Musings]

As a church administrator, I get calls all the time from different charities. My first response is to ask them to send me some sort of annual report that includes their budget and as you mentioned, how much of the money goes to the actually charity work and how much goes to administrative costs and fund-raising. After about 5 minutes of run-around, they usually hang-up.

I also found that just because a "charity" has a website, it doesn't make them legit. If they can't produce the requested paperwork, I can't produce any money.

[Wilson Hsieh]

Charity Navigator (http://www.charitynavigator.org) is a great place to evaluate charities.

#4 is important because charities are businesses. You might not want to donate to one that in lean times might go under.

[Jesse]

Guidstar is another one that posts the financials of selected local non-profits. I was amazed at some of the financials of some of the non-profits in our town!

http://www2.guidestar.org/

[Melissa@frugalandthriving]

Hi, interesting post.

I agree with you that it's good to give to charities that do work that you believe in - no point giving to a cause you are ethically opposed to. I'm surprised that this was left out of the CNN criteria. While I believe in giving unconditionally I do think it is important to give to efficient charities so that money goes to where it is needed and not into admin costs.

[LotharBot]

Different types of charities should be evaluated differently, according to what they're for. I work in a museum with about $120 million in assets ($40 million valuation of our artifacts.) Our balance sheet, cash flow, and working capital will look very different from a food bank. What counts as a "charitable work" for us will be different from a food bank. And so on.

What I would ask is:

1) Does the IRS recognize you as a charity?
2) What charitable services do you provide, and what percentage of your income goes to each of those services? (Make sure the charity is providing a service you actually think is important, and not services you find morally objectionable!)
3) How does your financial situation compare to other charities of the same type? (Operating capital, CEO salary, projected shortfalls, percentage of total income that goes to charitable services, etc. Read an annual report if you can.)
4) How do you plan to change your services this year, including cut or added services?

[Param]

I have a question about IRS stamp of approval - is that necessary only to ensure tax deduction of your contributions? Or is there another angle?

There is an orphanage near our house & we contribute to them. They are surely not approved by the equivalent of IRS here, but they spend almost 100% of contributions on the real need, do not overpay the administrative staff, spend nothing on marketing or other fund-raising expenses and at the end do a terrific job they are supposed to.
I do miss the tax deduction I could have received if I had contributed elsewhere, but the satisfaction of money well utilized is much much higher...

[FMF]

Param --

I think there are two reasons for this:

1. To be able to deduct the contribution.

2. It gives some sort of legitimacy to the organization -- it's been through the process and been approved by the government as a charitable organization.