Determining if a Charity has Your Best Interest (and the General Public’s) in Mind

The word charity holds high regard in the minds of most. It is associated with selflessness, helping those in need, and improving one’s community. While we’d like to think that every charity has good intentions for humanity, there are organizations that qualify as charities that, from your perspective, may not be inherently “good.” So, how does a discerning donor identify troubling “charities?”

The first step is validating what type of organization the charity is. Justification to file for nonprofit status is considerably broad and there are over 25 different codes under the 501 IRS tax classification umbrella. And, each one means something different for both the organization and the person that is supporting that entity.  Under United States tax law, most charities qualify for exemption from taxes and must file an annual Form 990 to remain compliant. Certain entities who are tax-exempt, such as churches or “integrated auxiliaries of churches,” are not required to file a Form 990 to report on their finances and activities in the same manner as other nonprofits.

Missions can be as general as “relief of the poor,” “maintaining public buildings,” “advancement of religion,” and “combating community deterioration.” The idea of charity can be subjective. My views on combating community deterioration may be vastly different than yours. For this reason, referring to an IRS policy alone isn’t sufficient when making donation decisions.

As a reader of this blog, you know the value of Charity Navigator. Through an exhaustive review of nonprofit finances, leadership, and transparency, an unbiased score of stars can be produced. This analysis ensures that organizations who claim good stewardship of monies are held accountable. I look for the Charity Navigator logo on nonprofit websites I research. It gives me comfort knowing they have met rigorous fiduciary standards. For example, I confirm that organizations spend 15% or less of their funds on administration costs. This, and many other important organizational data points, can be found in an organization’s evaluation on Charity Navigator’s website.

Most organizations who review charities (including Charity Navigator) do so on an impartial basis. If a group qualifies as a nonprofit under IRS standards and provides the necessary information, they can potentially receive a 4-star rating from Charity Navigator. While this demonstrates that they are able to effectively operate within specified financial and governance requirements, these ratings do not provide analysis on the organization’s mission and service delivery.

The next step in my evaluation of a nonprofit is digging into its mission and practices. There are organizations that qualify for tax exemption that actively discriminate against others, often under the guise of religion or free speech. Some organizations even go as far as encouraging controversial practices like “conversion therapy.” These are areas that I feel very strongly about and speak out against. My hope is that the philanthropic community will establish a minimum set of standards and human rights certifications that all reviewed nonprofits may be measured against. With the most recent data indicating the rise of hate crimes in our country, it is an especially poignant time to carefully examine how we are spending our time and money to help those around us.

The beauty of our country having a vast landscape of nonprofits is that you can support causes and organizations that are close to your heart and speak out against those that conflict with your belief system.  How do you evaluate nonprofits after doing your research on websites like Charity Navigator?