The report detailed a year-long investigation that identified America’s 50 worst charities. At the top of the list is Kids Wish Network, which gave nearly $110 million to corporate solicitors.
Kids Wish Network, like many others on the list, mimic well-known charity names that fool donors.
Some groups on the list:
- Kid’s Wish Network
- Cancer Fund of America
- Children’s Wish Foundation International
- American Breast Cancer Foundation
- Breast Cancer Relief Foundation
- Children’s Cancer Fund of America
- Children’s Cancer Recovery Foundation
- National Cancer Coalition
- Heart Support of America
Some of these group’s names sound deceptively similar to other well-known and well-run charities.
The data in the report show the worst charities devote less than 4% of donations to direct cash aid. Some charities gave even less. Over a decade, one diabetes charity raised nearly $14 million and gave about $10,000 to patients. Six spent no cash at all on their cause.
The story indicates that some nonprofits are little more than fronts for fund-raising companies, which bankroll their startup costs, lock them into exclusive contracts at exorbitant rates and even drive the charities into debt. Florida-based Project Cure has raised more than $65 million since 1998, but every year has wound up owing its fundraiser more than what was raised. According to its latest financial filing, the nonprofit is $3 million in debt.
How to check the legitimacy of nonprofits before donating?
1. Ask: Is the nonprofit a 501(c)(3) organization?
Donations to 501(c)(3) organizations are tax-deductible on donor’s taxes. But last year the IRS revoked the tax-exempt 501(c)(3) status of 300,000+ nonprofit organizations. Make sure that the charity is in good standing before you make a gift.
You can verify that the charity still has its 501(c)(3) designation from the IRS by utilizing the IRS’s online tool to verify tax-exempt status.
2. Ask: What is the mission of the organization and how do they accomplish it?
Believing in the mission of a charity is important, but you should also find out how they work towards their goal. Ask:
- What programs and activities do they offer?
- Who are their clients?
- How do they define success?
- What are their program outcomes?
You should see a clear connection between their mission and their program outcomes. Do the activities and programs they offer work to solve the issue stated in their mission?
You make also check to see how long the organization has existed, which can help you analyze the charity’s results. Newer charities may not have a huge list of results and accomplishments, but older charities should be able to demonstrate their effectiveness. Many nonprofits publish an annual report to highlight their successes. This can be a good place to start to get a snapshot of a charity’s work.
3. Ask: How does the organization spend its money?
Each year public charities must submit an annual reporting return (called a Form 990) to the IRS that shows information about their programs and budgets. Charity Navigator posts their evaluations of nonprofits on their website, and they also outline what criteria you should look at to conduct your own evaluation of a charity’s financial health:
- Program expenses – How much of an organization’s money is spent on program expenses? Charity Navigator rates organizations higher if they spend about 75% of their budget on program expenses with the rest going to administrative overhead and fundraising expenses.
- Executive pay – How much is spent on executive salaries? Cost of living, size of the organization, location, and other factors will affect a CEO’s compensation.
- Growth of revenue and program expenses – Is the organization growing or shrinking each year? You should notice small increases in revenue to cover inflation. If revenue stays the same or decreases, the organization may actually be cutting back on their programs.
- Types of support – What are the charity’s funding sources? Diverse funding sources are generally more favorable since an organization will hopefully not be as devastated if one funding source disappears.
4. Ask: Is the organization transparent and accountable?
Charity Navigator also examines specific criteria to determine how transparent and accountable an organization is to the public. Transparent nonprofits will post important information on their website such as the names of the board of directors, their leadership staff, their Form 990s, and/or audits.
Additionally, you should review their Form 990 to see how much money, if any, was spent on lobbying. The Form 990 should also state whether the organization has policies for conflict of interest, whistleblowers, and executive compensation.
5. Do Research
Search online to see what you learn about the organization. Have they been involved in any problems or scandals? How did they handle any issues?
The Cullinane Law Group works exclusively with the nonprofit sector. We set up and maintain strong and legally compliant nonprofits that have solid bases for long-term success. We provide risk management and offer practical solutions for sound governance. We help nonprofits, foundations, religious organizations, and social entrepreneurs throughout the United States who seek to create positive change. Founded by Texas nonprofit attorney Mollie Wettstein Cullinane. Based in Austin, Texas. Clients nationwide.