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Thursday, December 15, 2011

How to Check if a Charity is Legitimate

Sometimes good causes can go bad.  Worst are the charities with questionable ethics.  Even when so-called charities aren't outright scams, it's tough to know whether your donations are getting through to the cause for which they were intended. This, however, is no reason to stop giving. Just give a little smarter. 

How do you find a charity that matches your interests and uses your money wisely?  Always use caution against putting money into any company or charity you don't understand.  Once you've settled on a cause (for example: medical relief or education), research which groups support it.  Charity navigator and the American Institute of Philanthropy (whose website is Charitywatch) rate major nonprofits and analyze expense ratios - the percentage of a charity's budget that goes directly to the cause versus its own operating expenses.

However, don't get hung up on expense ratios.  Donors may dismiss an organization if administrative expenses seem "high."  Yet some nonprofits (museums, for example) have costly maintenance.  Impact is what matters most, not expense ratio.

Here's a hypothetical example: two organizations distribute mosquito nets in Africa to fight malaria.  The first charity brings the nets to remote areas, dips them in insecticide to increase effectiveness and trains villagers to use them properly.  The second charity just hands them out.  The latter group's administrative costs are lower, but its bed nets will be used for dresses, fishing nets, and curtains; the former charity's expense ratios look worse on paper but more lives will be saved.

So how do you assess a charity?  GiveWell lists excellent suggestions and recommendations of domestic and foreign charities to support, as does GlobalGiving.  If an organization you like isn't listed on these sites, GuideStar keeps a comprehensive database on nearly all of the nation's nonprofits.  Clicking the website's "Take Action" tab will lead you to GuideStar's "9-Step Guide to Giving Wisely."

If a neighbor recommends an impressive program, embrace it.  Do your research by visiting or even volunteering for a day.  There's no better way to get insight than to work inside an organization.  One of the most telling signs of charity getting results is that its staff and volunteers are committed heart and soul.  If you're on the premises of the program, ask these individuals how long they've been with the organization and what they think its strengths and weaknesses are.  When the people most intimately involved in the non-profit work are true believers, that's the most powerful endorsement of all.

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