The holidays are coming up and with them come many requests for charitable donations. Americans are generous, but some charities and nonprofits (I’ll simply call them all charities) exist mostly for the benefit of those who run them or do fundraising. In many cases only a small amount of your donation goes the charity and even less goes to helping those in need. My advice is be generous, but first be careful.
There is a charity for just about everything, thousands of them, and commercial fundraising is a very big business. More than 850 of the charities registered with the State of California used commercial fundraisers in 2011. That year the commercial fundraisers collected $338.5 million in charitable contributions but distributed only $172.8 million, 51 percent, to their clients; the rest went for expenses and profit. Therefore, 165.7 million, 49 percent, went to pay for the fundraising. About half the money was gone before the charity even saw it.
Never allow yourself to be pressured into making a donation and don’t donate until you’re satisfied that you have all the answers you want from an independent source. If there is any pressure, don’t deal with that charity; tell them not to call or visit again. Legitimate charities will not mind waiting while you check them out.
What’s in a charity’s name? Nothing. Both good and bad charities use names designed to make you feel secure or want to donate. Some of the most popular names contain the words police, veteran, firefighter and American, and many more use some version of “child” or “children” in their name.
You should investigate three primary issues. First, does this charity do what it claims? Second, do most of the contributions actually go to the program goals? Finally, does the charity make good use of your donations or do they pay too much for fundraising and/or administration. To answer those questions I like to use Charity Navigator – it’s not perfect, but it’s a lot better than nothing. If you really want the detail on the cost of commercial fundraising, you can go to Attorney General’s reports at oag.ca.gov/charities/publications#fundraisers.
The return for individual programs varied wildly. Some were 100 percent and some even suffered losses; 117 charities lost a total of $4.8 million because the cost of the fundraising exceeded the amount taken in and/or the minimum payments guaranteed to the fundraisers. The Attorney General reported that 572 of the 853 charities using commercial fundraisers received less than 50 percent contributed to them. The report shows that 354 charities lost money on fundraising or received less than 20 percent – 5 cents – on the dollar. If you gave $100 to those charities through a commercial fundraiser, the charity received $20 or less.
Some fundraisers have been grossly dishonest for long periods. In 2010, the FTC banned Civic Development Group LLC of Edison, NJ from soliciting donations and fined them $18.8 million for violating FTC orders and deceiving consumers into believing all donations would help local police, firefighters or veterans. The telemarketers, falsely told consumers they worked directly for the charities, which received “100 percent” of the donations collected when they typically passed on less than 20 percent.
The safest – but not perfect – bet is to donate to the local charities that involve people you know well and trust, and then you can see exactly what they are doing for the community because it is happening right here.
