How to Vet a Charity
There are countless non-profit organizations in the United States supporting a variety of causes. We recommend several methods for learning more about a given charity before you provide monetary support.
Hopefully, you’re the giving type.
As we’ve discussed before, we think giving is important for all of us to do.
In addition to the moral basis, giving just makes us better people all around.
With all of that said, if you’ve ever given much thought to the best way to make charitable gifts you know it can be a little more complicated than just writing a check.
There are many ways the IRS incentivizes giving through various tax deductions, some of which are most efficiently done through donating shares of stock, Qualified Charitable Distributions (QCDs), or Donor Advised Funds (DAFs).
And that’s just the tax side of giving.
There’s also a certain level of due diligence we should all observe before redirecting a portion of our hard-earned money to a person, group, or organization simply because they say they’re supporting a good cause.
Nationwide, millions of dollars are lost each year to scammers who deliberately mislead well-meaning donors in an effort to stuff their own greedy pockets.
And while these bad apples represent a relatively small percentage of the total amount of money given annually to charity, it does require us to be vigilant as we make choices about which charities to support.
There are also plenty of charities that aren’t the best stewards of their resources and some that are started with the best of intentions but are led by people who lack the skills to effectively use donations wisely.
On the surface, it can be difficult to identify which charities are having a real impact and which ones will leave you disappointed in how your gifts are used.
In this post, we’ll provide 6 “best practices” you can use to help ensure the money you donate to charity is being used effectively for the cause you’re trying to support.
1) Internet Search
Since you’re reading this on the web, this first option to vet a charity should come naturally to you.
A basic internet search can yield a wealth of information about the charity you’re evaluating.
In addition to basic news about the charity, odds are they’ll have a website of their own listing important information about the organization.
Here are a few things to look for as you browse their site:
- What’s their mission? Is it clearly stated and prominently posted on their site?
- What’s their history? Do they have a long track record of supporting the same cause? Have they waivered on their mission over the years?
- Read about their leadership and board of directors. Are these roles separated to provide balanced leadership and diverse points of view? Do individual leaders have a track record of supporting this organization or cause?
- Does the charity have an annual report available? Not all states require charities to produce an annual report, but not having one could be a cause for concern.
You should also check and see if the charity has a presence on social media. In many cases, it’s easier for organizations to post pictures and information to a platform like Facebook instead of updating their website frequently.
Social media can also provide a better picture of who the organization’s supporters are and what their thoughts are on things the charity is doing.
2) Volunteer First
Another great way to vet a charity is through volunteering.
For many, this is how a connection with the charity is made in the first place.
While you’re browsing their website, take a look at their events calendar or see if they have a volunteer page so you can request information about helping out.
This is certainly a higher time commitment than a web search, but you’ll also learn a lot more this way.
By volunteering, you will get face-to-face time with other volunteers, organizational leadership, and perhaps even the beneficiaries the charity is focused on supporting.
While volunteering, try to gain an understanding of the various challenges the organization may face politically, logistically, and financially.
Ask other volunteers how long they’ve been affiliated with the charity and if they’ve noticed any specific needs the charity has.
Inquire about successes and failures they’ve seen the charity experience over the years and how the leadership handled those periods.
Finally, if you have the opportunity, ask beneficiaries of the organization how it has impacted them specifically. This may provide the clearest information of all about the charity’s impact while also making it more personal for you.
3) Talk to Other Donors
Frequently, we’ve found that the causes we’re most interested in supporting are also causes that our friends are drawn to.
One of our closest friends has served on the board of an organization we’ve supported for years. While we’re not actively serving in leadership, this gives us a lot of insight into what’s going on currently at this organization.
In fact, she’s one of the primary reasons we were linked to this charity in the first place. Having a friend who was already well-connected provided us with a lot of confidence that our giving would have a significant impact.
You may be surprised to find others in your social circle have plenty of information to offer about various charities, both good and bad.
4) Ask the Charity How It Uses Monetary Gifts
Nearly every reputable charity I’ve ever come into contact with has plenty of information to offer potential donors about how their gifts will be utilized.
Typically, they do this to reassure donors that gifts are used wisely and aren’t cannibalized with high administrative costs.
The allocation of funds will depend greatly on the cause you’re supporting.
For example, the United Way acts as a sort of charitable clearing house, connecting donors to myriad organizations that ultimately receive the funds.
A pie chart illustrating the distribution of money would be much more colorful for the United Way than for something like a scholarship fund (which one would assume only distributes money for education expenses) with a singular focus.
A good charity should be able to keep administrative costs below 15% of monetary donations, though it can vary greatly depending on the charity and how they categorize “administrative” costs. (You didn’t think clever accountants only worked in the for-profit sector, did you?)
In the research I did for this post, I saw some sources that claimed the average percentage of donations used for administrative costs is around 36%.
That seems high to me, but again, I think it depends on what the charity is doing and how they classify their costs.
5) Ask for the Results
Asking the charity you are evaluating to brag about its results should be one of the easiest ways to learn about an organization.
Hopefully, you’ll find them eager to share and they’ll have plenty of stories to offer. If they don’t, this could be a cause for concern unless they are very new.
As you hear these success stories, reflect on the charity’s mission and how well the examples they provide align with it.
- Are they meeting the need they set out to meet or have they compromised anything for the sake of having some good PR?
- Do they remain connected with the people or groups they’ve served?
- Are the people or groups they’re serving developing unhealthy dependence on the organization or is there a plan for graduating beneficiaries from support?
Another positive side effect of success stories is the way they can personalize the good work your favored charity is doing.
It can be tempting to view financial gifts as a sort of sunk cost, providing no real benefit to the giver, but this isn’t true at all. One use of money that brings many people the highest level of joy is giving.
In this way, there’s a great utility for each dollar “consumed” which makes giving a very worthwhile use of money. The more you can attach a person to a cause, the more meaningful it’s going to be for you.
6) Guard against getting scammed
It’s a real shame that we need to cover this, but we do.
Annually in the United States, millions of dollars are lost to scammers posing to be affiliated with a charitable organization or otherwise collecting money for a good cause.
Here are a few resources you can use to avoid being victimized by these crooks as you evaluate charities yourself:
- Ask for form 990. Form 990 is a document that tax-exempt organizations must file with the IRS each year. If your charity doesn’t have one, it’s a major red flag that they’re not doing things the way they should.
- Don’t send money via wire transfer. This too is a red flag as many scammers use this payment method to not only steal donations but potentially clean out the remainder of the donor’s accounts.
- Use online resources. The websites and organizations below provide useful tools for vetting charities. I’ve not used all of these, so this is not an endorsement; just information for you to consider.
How We Give
To us, giving is exceptionally personal.
There’s no right or wrong way to give assuming you’re doing it for the right reasons and not under the compulsion of others.
For the sake of normalizing this concept though, I wanted to share how Lisa and I approach giving in our family.
We regularly give anywhere from 12%-17% of our gross income to charity each year, but we’ve never donated money to more than three organizations in a single year.
We opt for making larger gifts to fewer organizations as opposed to giving to a variety of charitable causes and groups.
The primary reason for this is that we feel a high degree of responsibility for giving thoughtfully. We want to know a lot about a charity and how they’re operated before we are comfortable making any donations.
Come to think of it, we know the people who run these organizations on a personal level.
Practically speaking, this is much easier to do with a few organizations as opposed to many more.
It would be very troubling for us to learn that our gifts were being misused and might even create trust issues for donating to other charities in the future.
We also feel like we’re making more of an impact by focusing our giving toward one or two causes as opposed to making smaller gifts in a lot of different places.
Finally, we encourage our kids to serve as volunteers for the organizations we support and we tell them that mom and dad give money to these charities because they’re important to us.
The hope is our kids will pick up a desire early in life to help others which will make them better people.
Again, this isn’t about the “right” way to give, just the right way for you. Our primary hope is that this encourages you to be a giver if you aren’t already and to remove any psychological barriers that might be keeping you from being a good neighbor.
