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Charity Watchdog Grades Fund-Raising

Philanthropy guide rates charities on need, performance

THE holidays herald the season for charitable giving. Requests from every direction flood mailboxes, and the Salvation Army rings in donations at busy street corners and mall entrances.

Americans contributed $126 billion last year to the nation's 1 million nonprofit organizations, according to the American Association of Fund-Raising Counsel. But these generous givers often know little about how their money is used once the check is cashed.

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``Donor beware,'' warns Daniel Borochoff, president of the American Institute of Philanthropy (AIP), which analyzes charity finances. ``The biggest advertisers get the most money, but they may not be the groups that are doing the best work,'' he says during an interview at his spare office in the Central West End of St. Louis. ``People need to keep in mind that these organizations may spend your money well, they may waste it, or they may pocket it.''

Recent scandals involving such large charities as the United Way and the NAACP have raised public awareness on the topic. A 1993 Gallup poll found that 50 percent of those surveyed viewed charities as less trustworthy today than a decade ago. But nonprofit organizations remain largely free from scrutiny, Mr. Borochoff says.

To help donors make informed decisions, AIP publishes a quarterly Charity Rating Guide. It analyzes about 300 charities in 37 categories ranging from ``Abortion & Family Planning'' to the ``Environment,'' ``Literacy,'' and ``Youth Development.''

The guide gives each charity a letter grade and answers three basic questions about its financial practices:

* What percent of donations are spent on charitable programs? At least 60 percent of total expenses should be spent for charitable purposes, according to AIP standards. The remainder is used for fund-raising and general administration.

``What's really gotten out of hand is charities calling their solicitations a public-education program,'' Borochoff says. ``They're certainly free to do that. But what the donor has to decide is: Do I want to fund this?'' If you would prefer your dollars went directly to the cause rather than toward fund-raising, look for charities with high percentages in this category.

* How much is spent to raise each $100 donation? In this category, the AIP standard is $35 or less.

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More and more professional fund-raisers take a share of each donation. ``Charities are hard up for money, and there's a lot of competition out there,'' Borochoff says. In some cases, professional fund-raisers keep up to 90 percent of what they raise for a charity. State regulators have tried to require professional fund-raisers to reveal their cut when they solicit donations. But the United States Supreme Court has overturned the regulations three times, holding that such a requirement violates free-speech rights.

* How much does the charity have in reserve assets? This category indicates how long a nonprofit organization could operate at current levels without additional fund-raising. A reserve of less than three years is reasonable, according to AIP. It considers a group with more than five years of available assets ``least needy'' and gives it an F, regardless of the group's rating in the other categories.

``Most people give money away with the expectation that it will be spent for the intended purpose within a few years,'' Borochoff says. ``It doesn't seem right to me to be sitting on all this money when there are so many needs out there.''

This standard has angered several of the charitable groups AIP ranks in its guide. After Boys Town received an F for having enough assets to operate for nearly six years, the residential home for troubled youths filed a lawsuit against AIP and Borochoff this year. Boys Town accuses AIP of publishing ``false and defamatory statements'' about the charity's finances.

``The watchdog has become an attack dog,'' Boys Town officials say. ``Somebody has to muzzle it.''

Borochoff is fighting to keep the muzzle off. ``This is important public information, and we have every right in the world to get it out,'' he says.

In addition to AIP, the Better Business Bureau publishes an Annual Charity Index and the National Charities Information Bureau in New York puts out its own guide. But these sources depend more on the charities to provide financial information rather than digging it up themselves, Borochoff says.

Tracking down financial records filed with state governments and the IRS often leads to hidden information about nonprofit groups, AIP has found. ``We'll get information out whether or not a charity wants us to,'' Borochoff says. ``The public is owed answers to basic questions about the accountability and accomplishments of charities that are taking its money.''

* To obtain the American Institute of Philanthropy's ``Charity Rating Guide'' send $3 to 4579 Laclede Avenue, Suite 136, St. Louis, MO 63108.

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