Choosing the Right Charities

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In this slow economy, we all want our dollar to go further and mean more. This is certainly true when it comes to our charitable giving.  How can we be sure that we are selecting charities that are effectively administered, accountable and fiscally responsible?  Here are a few items to consider when choosing charities to contribute to:

  • Verify the organization’s tax-exempt status and ensure the organization is in good standing.  The IRS and the California Attorney General’s office allow you to review this information on their websites.
  • Review the most recent financial statements and tax returns for the nonprofit.  The annual reports and forms contain important financial information and also address the various programs and activities the exempt organization engaged in for the year. Also available on the annual returns is the overhead expense ratio measure to confirm how much of each donation is spent on programs as opposed to administrative and fundraising costs.  Keep in mind, however, that low overhead does not automatically mean an organization is effectively accomplishing its mission, nor does it necessarily confirm great organizational efficiency.
  • Consider the diversity of the funding sources.  Does the nonprofit receive donations from a variety of sources?  Examples of various funding sources are private donors, program-related loans, program-related investments, and government funding.
  • Review the organization’s investment and conflict-of-interest policies. The exempt organization’s annual reports and financial statements often specify who manages the organization’s funds and investments. You can check the investment-manager’s track record through several sources such as http://www.morningstar.com and http://www.institutionalinvestor.com.  If the investment manager(s) sits on the board of directors or is an officer then a conflict-of-interest policy will be important and should be in place.
  • Review the nonprofit’s mission statement. Do the programs and services match up with the organization’s mission and your philanthropic agenda?
  • Visit the organization and meet the leadership and staff. How experienced are leadership and staff relative to the programs and services they provide? What work do they outsource? Do they have strategic plans for the future? How are they being implemented?  These indicate an organization that is going forward and conscientious of how best to utilize the donations they receive.

In summary, you should contribute to organizations that align with your philanthropic agenda and that are responsible both to the communities they benefit and the individuals who donate.  The suggestions noted above can assist you in selecting which nonprofits you choose to contribute to.

Content for this article was sourced from Journal of Accountancy, February 2012, “Help Clients Choose the Right Charities”.  Please visit http://www.journalofaccountancy.com or contact our office for more information.

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