How to Choose a Charity

Everyone wants to maximize their donations, but we’ve all heard horror stories of fraudulent charities. How do we know which charities are legitimate and which will help maximize your donation dollars? Some organizations tackle the due diligence, so you don’t have to. Some of the major watchdogs over charities are The Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Navigator, CharityWatch, and GiveWell.

These watchdogs set their own standards and criteria for what they consider to be a reliable and well-run charity. The general theme of what they look for are finances, governance and oversight, effectiveness, and fundraising and informational materials. The emphasis is on the finances of the charity.

Finances dive into how much the organization spends on the cause it is supporting compared to their overhead expenses. Overhead expenses include things like fundraising, salaries of employees, administrative activities and marketing materials.

To meet the standards of the BBB, an organization needs to spend a maximum of 35% of donations on fundraising-related expenses. This means at least 65% of donations need to go to program activities. CharityWatch has a higher standard for the finances of an organization. To be considered highly efficient, CharityWatch believes it should cost less than $25 to raise $100. This means less than 25% of donations should go to the overhead costs associated with raising money.

Charity Navigator has a more complicated equation that looks at several financial efficiency metrics that include program, administrative and fundraising expenses. They also look at the growth rate of costs and liabilities. They then combine them into an equation that gives the overall financial score of the organization.

The governance and oversight of a charity standard examine the governing board to ensure the board is active, independent and does not self-deal. The BBB likes to see the board participate in appraisals of the CEO’s performance, approve a budget, have a minimum of five voting members, and hold meetings a minimum of three times a year. There are also standards for how much the board members can be compensated, and a compensated member cannot act as the board’s chair or treasurer.

The standards for the effectiveness of an organization vary among the evaluators. GiveWell likes charities to implement programs that have been studied repeatedly and rigorously, and the benefits should be able to affect large populations. GiveWell does not give specifics for what they consider to be rigorous testing or how many people make up a large population.

The BBB seems to be less stringent on what they consider to be effective. They look at whether or not there are measurable goals, a defined plan to evaluate the impact and success of programs, and a way to address deficiencies.

Fundraising and informational materials are often the only contacts with the public and sole reason people give to the organization. These materials are the face of the organization and need to provide an accurate and complete representation. The BBB wants it to be timely, truthful and not misleading, and have a clear description of the program.

These watchdogs are a great place to start when researching which charities are living up to the high standards we have for our donation dollars. Being vigilant about what charities you are donating to, and giving to those with higher ratings, will help maximize your donations.

Have any questions? We’re here to help!

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