How to Choose a Charity: What Makes a Charity Great
I get asked the question all the time, when there are 1 million charities to choose from, where does one start? How are we supposed to know if a charity is "good" or not, or whether it is "effective"? What criteria can I use to select a great charity and how can I know which ones to avoid?
While the landscape can certainly be overwhelming, the good news is that just by doing a few things you will be better informed and in a position to answer the question, "what makes a charity great".
1. Is it Legit?
Sadly, there are many charity scams that seek to take advantage of well-meaning donors. Some nonprofits are not duly registered. Others are mere fundraising schemes without any real impact. So how do I know if an organization is legit?
Use the IRS Charity Lookup Tool to see if a charity is eligible to receive tax-deductible contributions. If it is not on the IRS list, any gifts made are not tax-deductible and the organization is not recognized by the Federal government as a registered charity.
Check for financial data. Nonprofits with nothing to hide make their financial data readily available. You should be able to see the numbers for Income, Expenditure, Balance, and Cash Flow published in an Annual Report or clearly documented on the organization's website. For added accountability the data will be certified by an external audit.
Check for certifications. There are a number of organizations that certify nonprofits based on standards of accountability or demonstrated impact. Guidestar is a great example. For faith-based organizations, the Evangelical Council for Financial Accountability is highly regarded. For example, you can see the certifications for Five Talents here.
2. Is it effective?
Effective Charities are mission oriented and have strong governance and staff. Pay attention to an organization's name and mission statement. Learn more about its leadership and staff. Does the organization do what it says it will do? Where is the proof of what have they achieved to date? Do they have stories, direct quotes, statistics, reports (financial or otherwise) that lend credibility to the mission?
Great charities are not only good at making an impact, but they also document their work with photos, videos, testimonials and provide clear data from their programs. Furthermore, top charities understand the scope and role of their work within the larger picture of their mission. For example, Five Talents aligns and tracks its development programs to the United Nations Sustainable Development Goals and we closely monitor and document our ministry's impact and publish Impact Reports for each of our programs at least twice a year.
3. Is it efficient?
Do great charities spend money on marketing and advertising? Yes of course they do – the question is how much are they spending on fundraising relative to charitable programs and the overall budget.
According to the American Institute of Philanthropy, a highly efficient charity spends about 75 percent of the money it raises on charitable programs and the remaining 25 percent on general administration and fundraising. The best charities have best practices to make the most impact with limited resources.
Sadly, many charities spend far too much on fundraising and administration and not enough on doing good. Some charities are notorious for their reliance on paid solicitors. This is a huge red flag. For example, in the past few years Cancer Fund of America, Breast Cancer Relief Foundation, and Kids Wish Network raised hundreds of millions of dollars through fundraising phone calls and spent less than 3 cents of every dollar on actual charitable programs. Great charities engage their staff as well as volunteers and are efficient in how they raise and use donor funding.
(Note that some charities may claim higher efficiency rates than they actually have by not including certain fundraising costs such as grant-writing or by varying how they count non-cash contributions and expenses. Checking their financials directly will be a better method than relying on rates listed on their websites). You can view Five Talents audited financial records here and see that Five Talents is indeed a highly efficient charity with global impact.
A Final Word
In identifying charities worthy of your support, be honest with yourself. Identify the impact that you want to make and stand by your values. This will help you narrow the field of potential organizations to those that fit your values, goals, and interests. What kinds of nonprofits do you most want to support, build, and strengthen? What do you want to achieve with your giving, volunteering, and even your skills and experience?
Great charities are great because they have strong, committed donors, strong governance, strong staff members, clear accountability and a strong mission oriented approach with a proven track record of success.
If all of these things are present when you sit down to narrow down your list, then you will know you've got the key ingredients for supporting a great charity.
If you've read this far, you're serious about making the greatest impact you can by supporting great charities: