Checking Out Charities

Philanthropy can be a lot like investing. A good philanthropist needs to check into any organization he’s giving money to, in the same way a diligent investor researches a company whose stock he wants to buy.

Conducting due diligence isn't hard these days. Information about local, national and international not-for-profit groups is available on myriad websites, through financial and philanthropy advisors; not to mention through many organizations themselves. Still, this wealth of information means it's more important than ever to know where to look, and what to look for.

Go to the Source

An obvious place to turn for information is the charity itself. This means visiting the group's main office or the schools, hospitals or community centers where it does its work to see what goes on. Sit down with a program's director to learn more about the organization.

If a not-for-profit is small or relatively young, ask about succession planning for the organization's key leaders. "Some of the best ideas get started because of one charismatic person," notes Michael Smith, director of Wealth with Responsibility, an educational program within Deutsche Bank's Private Wealth Management group. "When that's the case, you have to ask, is there a structure in place that will survive if the person leaves?"

Is it for real?

The next step is to make sure the organization has a clean record. You should check that the organization is registered as a not-for-profit with your state's attorney general or secretary of state, that it files an annual tax return (IRS Form 990) and whether there have been any complaints against it. The 990 enumerates how much funding comes from memberships, donations and government supports, and gives details on how funds are allocated, including salary and expense account data for key managers and trustees.

How much information you'll find online depends on where you live. In tech-friendly California, for example, you can get financial documents for many local charities right through the attorney general's website. Other states provide contact information for donors to request hard copies. The National Association of State Charity Offices provides links to the appropriate websites for most states.

If your state hasn't gone digital yet, GuideStar is an internet resource that can help you get the information you need. Guidestar provides IRS Form 990s and other information on 850,000 organizations for free.

Keeping It Local

Across the country, some advisors say their clients are bypassing large national charities in favor of smaller, local organizations that enable donors to readily see both the need for funding and the difference their charitable dollars are making.

Stephen Goldbart, cofounder of the Money, Meaning, Choices Institute, a philanthropy advisory firm based outside San Francisco, cites the example of a couple who decided to shift their giving from national environmental groups to their local parks organization. One spouse also joined a public advisory group to learn more about park-related issues. "That connected them with the realities of that world," Goldbart says. "They know what's going on with their money, and they can influence how donations are used."

Trusting Your Instincts

Finally, several advisors note that, while it's important to know that an organization you're investing in is responsible, effective and will be around long enough to put your donations to work, not-for-profits are seldom perfectly oiled machines.

Enlightened self-interest can also be an important driver, and some risk taking can lead to great ends. What do you care about? Where can your dollars help? Trust your instincts.

Adapted from an article produced for Community Foundations of America, Copyright 2004.

Carla E. Dearing