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As a charitable donor, you face a dilemma. When it
comes to helping others, you have the best of intentions. You want
to do good deeds, and having been successful in your own life,
you're willing to make a personal sacrifice for the greater good.
You know that the vast majority of charities do the best they can
with the financial and labor resources they have, and so you feel
relatively confident that good things will result from your
donation.
On the other hand, you're not naive. You're probably aware of
various scandals involving charities and misappropriation of funds
and other fraudulent behavior. While you may not be on a crusade to
root out corruption in the nonprofit sector, you definitely don't
want to waste your money on a bad organization that won't get the
job done.
Luckily, there are a number of ways you can keep tabs on your
favorite charity. Without too much effort, you can easily get a
great deal of vital information about a charity's operations and
finances. However, if you really want to make a difference in your
community, you can dig even deeper not only to uncover the inner
workings of your favorite charity, but also to play an active role
in helping it achieve its goals.
Charities and public information
Thanks to the Internet, a great deal of information is available
from your home computer. Checking to see whether an organization
actually qualifies as a charity is as easy as taking a look at IRS
Publication 78. Once you've confirmed your charity's status, you can
get a great deal of information from looking at the annual
information return it must file with the IRS every year. Form 990
includes data on how a charity receives and spends money, with
details on its highest-paid employees and outside contractors for
services, as well as a breakdown of expenses that can tell you how
much of your money is spent for charitable purposes versus
administrative and operating expenses.
As fellow Fool Mary Dalrymple discusses, there are a number of ways
to get this information. Whether it's through an outside website
like GuideStar or by contacting the charity directly, you can get
the information you need.
Getting inside your charity
The information you can get from public sources is probably
sufficient for typical donors who are satisfied with writing a
modest check to a charity's general fund. However, if you're
planning to make a large donation and want to take a more active
role in how your money will be spent, there's no substitute for
rolling up your sleeves and becoming familiar with the inner
workings of your charity.
You should expect your expression of interest in a charity to be
well-received by the organization's directors and staff. In the
non-profit world, money is a precious commodity, and charities know
that they have to do as much as they can to raise much-needed funds
for their operations. Yet you'll also find that most of the people
who work for charities have a firm belief in the mission behind what
they're doing. Many charitable employees could choose to work in the
private sector and receive much better salaries and benefits, but
they choose to dedicate their careers to doing work that lets them
give back to their communities. They'll usually be pleased at your
desire to know more about what they do.
At the same time, seeing your charity from the inside gives you a
valuable perspective on its future. While most publicly available
information focuses on the past, seeing your charity's strategic
plans for the coming years will give you a much better idea of how
viable your charity is and what it will take for it to be successful
far into the future.
For example, during the late 1990s, the boom in the stock market led
to a significant rise in donations. Investors sitting on large gains
in their stock portfolio made charitable gifts of stock to reduce
their capital gains taxes. As a consequence, many charities started
to make ambitious plans under the assumption that these higher
donation levels would be permanent. Unfortunately, when the stock
market fell sharply, many of these new donors were unable to
continue supporting their charities. In addition, since many
charities had endowments that had significant stock holdings, they
were also faced with portfolio losses that hindered their ability to
use endowment funds to support their operational budgets. Those
charities that had failed to plan for this downturn faced crises
that forced many of them to close their doors permanently and led
others to take drastic action, such as liquidating endowments that
had originally been slated for long-term support.
By taking an active role in your charity, you can help it avoid
calamities like these. For instance, if you see that the charity's
directors and staff have an overly optimistic view of the
sustainability of increased donations or investment gains in its
endowment fund, you can use your knowledge of financial affairs to
persuade them to be more conservative in planning for the future.
You can act as a representative of the many donors who want the
charity to act in a fiscally responsible manner with their
donations, and you can make it clear that your continuing support is
contingent on the charity's ability to manage its operations in the
most efficient way possible. At the same time, as an active
participant, you'll gain insight into the mechanics of how a charity
gets work done, which may change your views about how necessary
certain administrative expenses are to the efficient running of the
charity.
With the information and tools available to help you, you can go
beyond just writing a donation check. By taking a close look at your
favorite charity and understanding how it operates, you can use your
knowledge and experience to benefit the charity not just
financially, but also by improving its strategic outlook. Your
efforts could be the crucial element in ensuring the continuing
success of your favorite charity well into the future.
By Dan Caplinger
December 7, 2006 |
