An important element of philanthropy is researching the organizations you plan to support. How much research you need to do will depend on how well you know the organization. For example, if you are considering a donation to your church or your college, you probably already know how they will use the money. But when it comes to organizations that you don’t know as well, you need to do some looking.
Online service like Charity Navigator and Guidestar can help your research. Both groups collect and publish information about charities’ governance and financial health. There are limits though. These sites can only publish what is available. Not all charities have to file the documentation that supports much of this research. For example, many religious organizations don’t have to file reports with the IRS. However, many organizations will post their audited financial reports on their websites, so that’s another good place to look.
So, what are some things to look for:
How much of the budget goes to programs as compared to fundraising or administrative expenses? Obviously, you want your contribution to help as much as possible. If you are supporting research into a particular disease, for example, you want your money paying for scientists and lab setup, not swanky offices or tchotchkes for donors. As you research, you’ll discover that some well-known charities spend more on fundraising than they do on their purpose. While someone running a large non-for-profit is very likely worth a significant salary, you want to make sure that salaries are in proportion to the funds raised and expended on programs.
Are the programs funded something you support? Do they serve a population you are concerned about? It’s perfectly fine to decide that you’d rather send free books to low income kids than fund college scholarships. Both are worthy, but you can decide which has more meaning for you.
Is the organization ethical? The charity watchdogs are very good about identifying organizations that don’t protect the privacy of donors or who may engage in some self-dealing (e.g., giving the printing contract for their fundraising mailing to their kid’s company).
How much research you do will depend on how much time you have and how much money you are donating. If you are donating $25 to sponsor your godson’s walk to raise money for his school’s PTA, you probably don’t need to analyze the financial reports. But if you are pledging $5000, you may want to look more carefully.