Where Are Your Charity Dollars Going?

A pedestrian donates a dollar to the Salvation Army bell-ringer stand.
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A pedestrian donates a dollar to the Salvation Army bell-ringer stand.

As America napped off Thanksgiving dinner, began Christmas shopping, and lit menorahs, mailboxes across the nation were filling up with year-end donation appeals from charities.

But how can you determine which charities best deserve your dollars? There’s no definitive answer, due in part to individual preferences of causes, but donors also need to consider the ethics and effectiveness of their preferred charities, and decide how they want their donations spent. Taking the time to become more savvy and selective about charitable donations can ensure that your money is helping in the way you intend, not lining someone else’s pockets.

One public resource for investigating charities is the Foundation Center, which allows access to organizations’ IRS records, but services such as Charity Navigator, The Better Business Bureau’s Give.org, and the American Institute of Philanthropy’s CharityWatch.org have already crunched the numbers on hundreds of charities and rated them accordingly.

Once favorably vetted by these watchdog groups, of course, some charities tout their ratings, such as The Nature Conservancy, who included an insert in their year-end solicitation mailing titled, “A Charity You Can Trust.” On it, a pie chart derived from the organization’s 2009 annual report shows that 85% of funds go to the program, 6% to fundraising and membership, and 9% to administrative costs, and it notes that Better Business Bureau and Charity Navigator “both applaud program efficiencies above 66%!”

Another note in favor of informed charitable giving: When you focus donations on a single or a few favorite charities, you’re less likely to get unsolicited appeals from other charities in the mail. “Small donations, such as $25, barely cover the costs the charity incurred in soliciting the gift. To recoup those costs, many charities will simply sell the donor's name to another charity doing similar work,” advises the Charity Navigator website.

How does your charity distribute its funds?

“Of the 5,500 largest charities in America that depend on support from the public, our research shows that the typical charity spends 75% of its budget on programs, 10% on fundraising and 15% on administrative,” says Sandra Miniutti, Vice President, Marketing & CFO of Charity Navigator. “Donors should look for groups that hit or come close to this benchmark and remember that charities must pay for mundane things like the electric bill and they do have to spend some money to bring in donations.” However, the AIP also notes that newer organizations and charities dedicated to less popular issues may need to spend more on fundraising and administrative costs.

Make sure you understand how these charities’ expenses break down, because employee salaries can be (and often are) figured into the program costs. Also, “follow the cash,” cautions Daniel Borochoff, President of the American Institute of Philanthropy, which runs CharityWatch.org. He says it’s common for charities to inflate the value of donated goods, like valuing a 2-cent de-worming pill for $10—a 500% increase in value.

Is your charity serving your cause the way you want it to?

Are you sure you understand what your chosen charity is specifically trying to do? For example: The pink-clad charity synonymous with the high-profile breast cancer cause, Susan G. Komen for the Cure, uses its considerable funds for education, fundraising, treatment, and research; Gateway for Cancer Breast Cancer Charity, on the other hand, funds research only. Gateway focuses on research that will immediately impact the lives of patients, and reports that 99 cents of each dollar go to finding better treatments and cures for cancer, which they’re able to do through a “generous arrangement,” wherein Cancer Treatment Centers of America funds their entire operating budget.

Distinctions like this can help givers distinguish between charities serving the same cause and make informed decisions on donating.

Another concern is making sure the giver’s ethics line up with that of the charity. Some donors support the greater cause of a charity such as the American Heart Association, but as documented in the comments forum on the organization’s Charity Navigator profile, some take issue with the methods the charity ends up funding, like research through occasional animal testing.

The good, the bad…

So what charities should be avoided? “The worst would be those that use telemarketing to raise funds,” says Miniutti, because these for-profit telemarketing companies often charge the charity 20 to 90 cents of each dollar raised, according to the Charity Navigator website. “We oftentimes see this particularly with groups that tug at our heartstrings such as veterans, firefighters, children’s causes, says Miniutti, and Borochoff agrees, adding another heartstring-tugging cause: “protection of cute furry animals with big eyes. Particularly causes that people get emotional about and tend to not think through their donation decision. Fundraisers that are driven more by profit than doing good choose the most popular causes that are the easiest to raise money for.”

On the other hand, Borochoff counts off the types of organizations that are the best at directing funds to their cause:Usually less popular causes with built-in constituencies that are more targeted in their fundraising and therefore have lower fundraising costs, e.g. gay, African-American, Hispanic rights. Also, mental health and population planning do well. Perhaps [it’s] because these are more complex problems that a fundraiser looking to solicit lots of people quickly will not select.”

…and the CEO?

Potential donors who are suspicious of how charity dollars are allocated often focus on the wrong villain, albeit a very prominent one: The handsomely paid charity CEO. According to Charity Navigator, the overpaid CEO is a minority, and the average compensation is about $150K.

However, leadership compensations that have raised controversies on the Charity Navigator website include major names like the American Cancer Society, which inspired 81 donor comments, overwhelmingly critical of the Deputy CEO’s $1,027,306 compensation, as well as Save the Children ($365,130) Susan G. Komen For the Cure ($531,924), Boys & Girls Club of America ($593,926) and the American Heart Association ($1,089,331). The USO’s CEO pulls down $435,762 annually—as one commenter posited, those earnings are comparable to what the President of the United States earns. Commenter John Robinson put it succinctly on the USO’s profile: “After seeing their salaries, their request just went in the garbage.” And Mr. Robinson is not the only one reporting that they decided against donating. Also in that same forum, others complain about the unnecessary cost of gifts and postage-stamped envelopes enclosed in charities’ mailed appeals.

“I’ve had complaints from donors about the head of the American Red Cross making $500,000 and how that is so much more than they make so why should they donate, Borochoff says. “I tell them that it does not make sense for most people to compare their job and pay with someone who runs a multi-billion dollar organization that is responsible for half our nation’s blood supply, is the lead responder in the event of a major disaster,” he observes. “With so much serious responsibility you’d want a highly capable person with a salary that reflects the complex duties and serious responsibilities of the position.”

And if these considerations and percentages seem too daunting or impersonal, as the AIP’s website points out, you can always call and ask the charity’s representative for specific information, such as how many individuals were served annually or what were the major program accomplishments during the past year.