A PI’s Tools to Vet Charities

2022. We survived a pandemic only to enter into a war. There is so much tragedy in the world but thankfully, there are people who created charities to help with possibly all of these tragedies. However, we as donors face fraudulent charities and also charities that may not be so charitable.

Here are some quick tips from a PI to help vet charities. Let’s look under the hood and see if the charity is real or a scam, check out the charity’s mission and financials, and most interestingly, how much does the charity use the money you contribute for the cause versus for their own administrative needs?

1.     The IRS Nonprofit Charities Database. This allows you to verify whether an organization is truly a 501(c)(3) organization and is tax exempt. If the organization is not tax exempt, your contribution will not be tax deductible. Also, misleading contributors that an organization is tax-exempt when it may not be is a red flag.

2.     GuideStar. This database gathers insights on charities’ financials, leadership and mission. They collect charities’ 990s.

3.     Charity Navigator. A charity rating and evaluation website that helps donors make informed giving decisions. This is my personal favorite charity research tool.

Charities are given an overall “charity score” based on the following criteria:

Program Expense: Reflects the percent of its total expenses a charity spends on the programs and services it exists to deliver

Financial Score: This score is calculated based on the following financial performance metrics: program expenses, administrative expenses, fundraising expenses/efficiency, working capital ratio, program expense growth and liabilities to assets.

Accountability and Transparency: Confirming that the charity has these governance practices in place: independent voting board members, no material diversion of assets, audited financials prepared by Independent Accountant, does not provide loan(s) to or receive loan(s) from related parties, documents board meeting minutes, distributes 990 to Board before filing, compensates board.

Leadership and Adaptability: This score provides an assessment of the organization’s leadership capacity, strategic thinking and planning, and ability to innovate or respond to changes in constituent demand/need or other relevant social and economic conditions to achieve the organization’s mission.

Culture and Community: This score provides an assessment of the organization’s culture and connectedness to the community it serves.

Impact and Results: This score estimates the actual impact a nonprofit has on the lives of those it serves and determines whether it is making good use of donor resources to achieve that impact.

Of course, it’s also important to read about the charity’s online reputation. A quick online search using Google or Duck Duck Go can offer a lot of information and insight about how the charity operates, how it treats its employees, and how it treats the people it was created to serve.