When You Choose a Charity, It Pays to Do Homework
'TIS the season to be jolly - and generous. But which of America's half a million charities really deserve your hard-earned dollars?
The holiday season, Thanksgiving to Christmas, is when Americans traditionally open their hearts and their wallets to those in need. Some organizations take in more than half of their total annual contributions in November and December.
Billions of dollars are given to churches, food banks, children's groups, and large organizations, such as the Salvation Army and American Red Cross.
''Americans are wonderfully responsive,'' says James Bausch, president of the National Charities Information Bureau (NCIB), a New York-based charity watchdog group. ''But they tend to give without looking deeply enough into the charity.''
Americans are big givers. Last year, 80 percent of the $129.9 billion in private donations given to charities came from individuals, according to the American Association of Fund-Raising Counsel Inc. in New York.
Watchdogs say that before giving, contributors should check out some key indicators about their favorite charities, such as:
* How much of their contributions will go to actual programs?
* What would they like to see accomplished with the money?
* How much does the charity pay its top executives?
''Nonprofit organizations should be as transparent as possible,'' meaning donors should be able to find out everything a charity is doing, says Daniel Borochoff, president of the American Institute of Philanthropy (AIP) in St. Louis, a watchdog group.
''The field,'' he adds, ''is ripe for abuse when people aren't bothering to find out what is really happening with their money.''
Still, by and large Americans can feel good about where their charitable dollars go, industry watchers say.
Of the more than 300 charities the NCIB evaluates, 78 percent meet all its standards; about two-thirds of the charities the AIP evaluates make the grade; and almost 70 percent of the groups the Council of Better Business Bureaus' Philanthropic Advisory Service (PAS) looks at pass its standards.
For starters, the experts recommend that donors request a copy of either a charity's audited financial statements, including the auditor's notes, or the Internal Revenue Service Form 990. Nonchurch charities that take in $25,000 or more a year must file a new 990 with the IRS annually. If a group hesitates to provide this information, experts say, think twice about giving.
One of the prime figures to look at is what percentage of a charity's total income is actually spent on programs. The AIP and NCIB require that at least 60 percent of donations go toward program services; PAS's minimum is half.
Exceptions do abound. A charity may have spent only 50 percent of its annual income on program activities, Mr. Bausch says, because it mounted a major capital campaign where all the costs were incurred in one year, but the payoff is over the next five years.
On the fund-raising front, AIP says it should cost a charity $35 or less to raise $100. The group also says avoid giving to professional fund-raisers. Charities that hire such companies typically receive only 30 percent of the money collected. So ask who's doing the soliciting. And beware of freebies - greeting cards, address labels, calendars - that jack up fund-raising costs.
One area that ruffles donors' feathers is salaries. ''There are some people who think that everyone who runs a charity should be paid Mother Teresa's salary,'' Bausch says. ''But ... it's very often worth paying someone who knows how to run it so donors' dollars go the furthest.''
Contributors need to ask charities to justify these salaries, the experts say. If the president of a major charity earns $150,000 a year, look at the scope of the job as well as the total spread of the administrative and management needs of the charity.
What else do the three national charity watchdog groups check out? The NCIB and PAS standards differ slightly, but both look at the availability of financial statements to donors, the adequacy of the governing board, and fund-raising practices.
The AIP bases its evaluation on the percentage spent on charitable programs; the cost to raise $100; and how long a charity with large reserves of available assets could continue to operate at current levels without any additional fund-raising. In AIP's view, a reserve of less than three years is reasonable. AIP automatically assigns a failing grade to a group with more than three years of available assets. (Father Flanagan's Boys' Home, in Boys Town, Neb., which has reserves of 5.8 years, is suing AIP for giving the group an F.)
One final note: The IRS requires a receipt for any gift over $250 that is deducted from taxable income.
For a free copy of the NCIB's ''Wise Giving Guide,'' write to: National Charities Information Bureau, Dept. 501, 19 Union Square West, New York, NY 10003.
For PAS's holiday ''Give Wisely'' newsletter, send a self-addressed stamped business-size envelope to: ''Give Wisely,'' Council of Better Business Bureaus, 4200 Wilson Boulevard, Suite 800, Arlington, VA 22203.
To get AIP's ''Charity Rating Guide and Watchdog Report,'' send $3 to: AIP, 4579 Laclede Ave., Suite 136, St. Louis, MO 63108.