Informed Giving - How To Tell If A Charity Is Legitimate

As we head into November, we also enter the season of giving and charitable organizations ramping up their year-end requests for donations. According to nationalgivingmonth.org, 31% of all annual giving happens in December. Why December? The holiday season is known for putting us in the giving spirit. We buy gifts for our friends and family and are inspired to extend that generosity to others. People also donate in December to maximize their IRS tax deductions before the end of the year. Regardless of your reasons for donating, charitable organizations are counting on your support, and your donation will help them further their mission into the following calendar year.

It is important to give back and support charitable nonprofit organizations, but it is also essential to do your research before donating. Doing your due diligence will ensure that your gift goes to a legitimate organization and helps the cause you care about most. Unfortunately, not all nonprofits are created equal. Doing your research will help you avoid nonprofit organizations that may mismanage their money or scammers who prey on your good intentions by pretending to be a 501©(3) organization. At The Kindness Cause, we thoroughly vet our nonprofits to ensure they meet our long list of requirements before we agree to partner with them. We want to share our vetting process with you to give you all the tools necessary to research and vet the nonprofit organizations supporting the causes that matter most to you. By following our tips and tricks, you can donate confidently, and you’ll feel great knowing your money is going to the root of the mission for the causes that matter most to you.

Here is our recommended process for selecting and verifying the legitimacy of nonprofit organizations:

1) Determine the causes and issues that are most important to you. What issue would you like to help solve? What kind of contribution do you want to make (financial, in-kind, volunteering your time, or a combination of these)?

Once you determine a cause and how you’d like to contribute, we recommend researching local organizations supporting this issue. We are not discouraging supporting national organizations. As a small business, we know how much work is required and we love helping other smaller, regional organizations with less resources succeed. When you donate locally, you also get to see the impact of your donation in your community.

2) Once you select a 501©(3) organization, we recommend going to their website and looking for their Employer Identification Number (EIN). 

If their EIN is not listed on their website, reach out and ask for it. There are many nonprofit organizations with similar names. Scammers will also use similar charitable names to try to trick you. All 501©(3) organizations will have an EIN number. If they cannot provide their EIN number, do not donate to their organization.

3) Use the organization’s EIN number to start your research. When researching an organization, we want to answer the following questions:

Are they are registered 501©(3) tax-exempt organization with the IRS?

Has their tax-exempt status ever been revoked?

When was the organization founded? In times of crisis or disaster, there is an influx in scammers. You’ll want to verify the organization has been in existence and in operation for some time before the crisis or disaster.

Have they filed their required 990 tax documents with the federal government?

What percentage of their expenses is spent on salaries and administrative costs? The Better Business Bureau says that no more than 35% of a nonprofit’s budget should be spent on overhead. A couple of our sources which we will talk about further below (Charity Navigator) will often award higher ratings to nonprofits that spend a lower percentage on overhead. However, nonprofit organizations can include salaries in their program expenses, so it is a good idea to read an organization’s 990 filings.

What is the organization’s fundraising costs? A generally accepted metric is 15%. Charity Navigator takes this a step further to determine how much it costs the organization to raise $1. Generally, it should cost between 3 cents and 20 cents to raise one dollar. 

How much of the organization’s expenses go to support their programs? The Better Business Bureau recommends that program expenses should be at least 65% of the nonprofit's total expenses, and the largest expense for the organization. If this is not the largest expense for the organization, I’d reconsider donating. This means that they are likely not using the funds to deliver the programs in accordance with their mission.

What kind of press has the organization received lately? 

4) We recommend using the following sources for your research:

The Tax Exempt Organization Search (TEOS) tool on IRS.gov- This tool allows you to verify that an organization is a registered 501©(3) tax exempt organization and let you know if the organization's tax-exempt status has ever been revoked. The site also provides their federal tax filings for the 501(c)(3) organization. At The Kindness Cause, we review the 990's for the last couple of years for a potential nonprofit partner. We do this because we want to know how much money the organization is bringing in and how they are spending the money they receive.

**If you are on TikTok and want to learn more about how to read a nonprofit’s 990, we recommend you check out the content creator, @ashcapps. She puts together great videos on understanding 990 and reads the 990’s for several nonprofit organizations.

Charity Navigator- Using the EIN you can view ratings for a nonprofit organization based on financial health, accountability, and transparency. Smaller or newer charitable organizations may not have ratings. If the nonprofit you are researching is not rated or has poor ratings, it is important to find out why before donating. If an organization is not rated, we recommend you use the TEOS tool on IRS.gov to research. Use this link to learn all about how Charity Navigator rates charities (https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=5593#rating).

GuideStar- Guidestar is a great resource to find a lot of information about a nonprofit all in one place. However, you will have to create an account to view limited information. More detailed information, including financial information, is only accessible through a paid plan. While the site is a great resource, I don't believe it is necessary for the average donor to invest in a paid plan. You can find the information needed to make an informed giving decision from the other free sources. 

BBB Wise Giving Alliance- The BBB has 20 standards they use to evaluate nonprofit organizations (https://give.org/donor-landing-page/bbb-standards-for-charity-accountability). It notes whether or not an organization has met all of the BBB’s standard’s and a high level overview of the organization’s information. While we appreciate the ease and overview provided by the BBB Wising Giving Alliance, the site fails to provide the in depth information we seek in our research. However, it is a great resource for quick, easy, top level information. 

Google- Sounds simple but it is important to Google the organization. I want to know if they have had any bad press or if there have been any negative experiences or outcomes in response to their services. For example, you might research an animal shelter, and on paper, everything looks great. You love the mission. The numbers say they are doing everything right. They also have a great rating on Charity Navigator. You Google the organization only to discover their city council is auditing them, the employees are quitting over working conditions, and there have been questionable care of the animals. Yikes! You might want to rethink that donation. 

Making an informed decision is important in anything we do, and donating to charity is no exception. While researching an organization might sound overwhelming, we promise that it gets easier and faster after you've done it a few times. You'll feel so much better about your donation when you know it will help those who need it most. 

Rest assured that The Kindness Cause is thoroughly researching the organizations with whom we partner. We hold our partners to high standards so that you can rest assure knowing that your support is making a difference. 

Let us know in the comments if there are any tips or tricks you use that we might have missed. 

 

 

 


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