BELTON — Whether it’s Salvation Army bell-ringers outside local stores or donation requests clogging mail boxes, there’s always someone asking for money at the end of the year.
For years, the question of which charity to trust was a hard one to answer. It took an investment of time and resources to look up a charity’s financial information. Now dozens of websites, articles and news stories rate and rank nonprofits.
Lindsay Nichols, communications director for Guidestar, one of the largest searchable, online databases of nonprofit financial data in the U.S., urged potential donors to think long and hard before donating any money.
“The first thing is to figure out what you care about,” Nichols said. “There are 2 million nonprofits in the U.S., so you have to think if you want to give locally, nationally or internationally.”
Nichols then recommended donors consider whether they want to give to a smaller “boot-strap nonprofit that’s getting it done or a larger nonprofit with a donor base.”
She encouraged potential donors to “ask for a nonprofit’s mission statement.”
“Don’t be afraid to say, ‘I want to see your mission statement, who is on your board and what are the results you’ve had,’” Nichols said. “Donating is absolutely about a person-to-person connection. A nonprofit should make you happy; if it makes you feel funky, give it a pass.”
Before giving anyone money, donors should determine if an organization is a legitimate nonprofit by asking for either its employer identification number or its IRS letter of determination, and in the case of religious institutions, its official listing in a denomination directory, Nichols said.
“If a nonprofit is unwilling to provide basic tax-exempt eligibility information, then they are probably a scam,” Nichols said. She advised people who may not be computer savvy to speak with someone directly at the nonprofit.
Tom Kelley, a spokesman for the Texas attorney general’s office, echoed Nichols’ words.
“Check out a charity as thoroughly as you can,” Kelley said. “If they’re reluctant to provide information to you, that should be suspect.”
Over the last few years, multiple media reports looked at how much of a charity’s revenue goes toward its goal, and there have been many statements on exactly how much of a charity’s budget should be spent on overhead.
Nichols disagrees with almost all of them.
“We think it’s a false metric,” Nichols said. “It has nothing to do with percentages. The definitions of administration and fundraising, the categories commonly called overhead, are entirely subjective. It’s just accounting practices.”
In an open letter to American Donors, the CEOs of the three biggest nonprofit monitoring agencies, Guidestar, the Better Business Bureau and Charity Navigator, detailed their organizations’ beliefs that the media and public’s focus on how much a charity spends on fundraising is short-sighted and misguided.
“At the extremes, the overhead ratio can offer insight: it can be a valid data point for rooting out fraud and financial management,” the letter reads. “In most cases, however, focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance does more damage than good.”
An example is Central Counties Services. According to its 2011 tax returns, the organization had $16,612,069 in total revenue and spent $12,987,292 on employee salaries and benefits.
At first glance, a nonprofit spending 78 percent of revenue on employee salaries seems a little odd, but Central Counties Services’ business manager Steve Slaughter explained the numbers can be misleading.
“We’re a service organization,” Slaughter said. “We provide therapy and assistance to the mentally ill and the majority of our funds goes to paying therapists.”
Slaughter explained that 85 percent of the funds Central Counties Services bring in is spent on direct costs while 15 percent is spent on indirect costs.
“We spend a lot on salaries but these aren’t administrative salaries,” Slaughter said. “These are the salaries of direct care providers.”
Tips on charitable giving
One of the greatest concerns about donating to a nonprofit is whether it will be a good steward of the funds it receives.
Helen Moore, the Waco regional director for the Better Business Bureau, said 501(c)3 nonprofits can exist “for a lot of different causes” and that the practices of each individual nonprofit vary, sometimes wildly.
“If you receive a phone or text solicitation from a nonprofit, we advise that you call them or visit their website to make sure that they aren’t make-believe,” Moore said. She also advised donors to use easily monitored financial instruments, such as checks, credit cards or debit cards, when making a donation. She also warned donors to “beware of imitation.”
“A lot of nonprofits have similar sounding names,” Moore said. “You might not be giving to who you think you’re giving.”