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Making the Largest Impact With Your Charitable Giving

Is your elderly parent’s mailbox stuffed with requests for donations?  Do they receive frequent telephone calls from organizations seeking financial support?  Although a desire to aid worthy causes may be present, some older folks may be tempted to give out personal information thinking that they are contributing to a worthy cause, when a telemarketer is the one receiving most or all of the funds.    With so many organizations to choose from, how does one determine which ones are legitimate and most deserving of a donation?  Also, how should solicitations be handled in order to avoid potential mismanagement of personal information or funds?

The starting point for charitable giving is to determine causes that are important to you.  Are you an outdoor enthusiast concerned about the environment?  Have you lost a family member to a certain disease or act of violence?  Maybe a historical place or event holds a fascination for you.  Once areas of special interest have been identified, you can begin to research opportunities for giving and organizations that work to support “your” causes. 

Charitable appeals can range from small, privately organized fund drives for local individuals or causes to events and outreach by large, nationally recognized nonprofit organizations. Charities that are designated as 501(c)(3) organizations by the Internal Revenue Service are generally a safer bet for your money, as they must meet certain requirements for this classification and file at least some financial information annually with the government.  What does this designation mean?  For starters, the organization must be a corporation, unincorporated association, community chest, fund, or foundation which has documentation specifically defining its purpose and operation for “exempt purposes”.  As identified by the IRS, exempt purposes include:  religious, educational, scientific, literary, the fostering of amateur sports competition, preventing cruelty to children and animals, and charitable.  Charitable purposes are further defined on the IRS website, but a couple of examples include erecting or maintaining public buildings, monuments, or works; and eliminating prejudice and discrimination.  In addition to a specific purpose, the organization is not allowed to benefit private interests (such as individuals or shareholders), and political activity is restricted.  Perhaps most importantly, the assets of a 501(c)(3) organization must be “permanently dedicated to an exempt purpose”.  If this type of organization dissolves, the assets must be utilized for one of the purposes listed above, or given to the federal, state, or local government for public benefit. 

How does one determine which 501(c)(3) organizations operate in an ethical manner and make the most efficient use of the donations that they receive?  These organizations are required to file tax returns with the IRS.  Although not required to pay taxes, they must report their income and expenses, as well as information about their mission, activities, and governance on an informational return.  A review of these returns is one method that individuals and charity watchdogs can use to evaluate the transparency, accountability, and financial health of charities. Some of this information may also be found on organizations’ websites.  Several important ethical questions to consider include:

  • Whether or not an independent board exists to govern the charity, and if so, are meeting minutes documented?  
  • Do policies exist about conflicts of interest, whistleblowers, record retention/destruction, and determination of CEO pay?
  • Are independent financial audits conducted and are the results made public?
  • What is the organization’s privacy policy for donors? (In other words, will they sell your information to other charities?)

You may not be able to access some of the specific policies or information listed above, but their existence indicates a higher level of governance compared to an organization that does not have these types of policies in place.

Evaluating the effectiveness of a charity is more difficult.   Historically, many charities have not collected data to measure the costs versus the outcomes of their programs.  One charity watchdog, Charity Navigator, is challenging charities to collect and share this type of information, and desires to integrate it into its charity rating system.  Data should be collected from those people whom the charity serves, as well as from objective third party evaluations. While not a specific measure of effectiveness, a review of a charity’s mission statement and its approaches for fulfilling the mission should seem logical to a potential donor.

Assessing the strengths and weaknesses of individual charities can be a time consuming task.  If you decide to utilize a charity watchdog to assist you in determining worthwhile charities, be sure to review the watchdogs’ methods of evaluation.  Some watchdogs allow charities to submit their own information or pay for advertising on the watchdog’s website, charge charities for a review, or rely on personal reviews of nonprofit organizations.  Personal reviews of nonprofits are not as valuable as they might be for a consumer product or service, because nonprofits are more complex to evaluate and donors who submit reviews may lack firsthand experience of the nonprofit’s specific programs.  A watchdog should demonstrate practices that allow it to be objective in its evaluation of charities.

Is it worth the time and effort to research specific charities?  Yes, if you care where your money is going and what it is doing.   Laura Barlament, in an article about the watchdog Charity Navigator and its founder, Pat Dugan, wrote “The goal is to change the donor paradigm from charitable giving to social investing.” Ken Berger, the current CEO of Charity Navigator agreed that the trend is “to move away from giving something and just walking away from it.  You’re investing and you want to see some return, some social value, as a return on that investment.”   (Wagner College Magazine, Summer 2013).  Stay tuned for more specifics next week about handling charity solicitations.

Karen Kaslow, RN