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In a charitable mood: Giving wisely

With over a million registered charities soliciting donations in the U.S., opportunities to give abound, but so too does the need for thought as to whom will be receiving those donations and assurances that the gift will be used as intended.   By Gayle B. Ronan.

“Knowing our donations might give someone something tonight they did not have last night makes me feel good,” says Emma Camell, a 10-year-old Chicagoan. She and her brother, Griffin, have almost a third of their annual allowances withheld to give to the charities of their choosing each Christmas.   It is a big decision and one they put a lot of thought into.

Regardless of the age of a donor or amount they give, most people donate for the same reason Emma does. But for many, it's with much less planning and forethought.

Too often people react emotionally when giving, says Daniel Borochoff, founder and president of the Chicago-based American Institute of Philanthropy. He thinks people focus too much on the ‘feel good’ aspect of giving, shortchanging the more important consideration — how their donation will be used.

The distinction is important, as his organization’s analysis attests: not all charities are created equally, run with integrity or are even all that charitable.

“People often want to believe there are government regulations that would prevent spending 95 percent of donations on fundraising activities and only 5 percent on providing programs and services. But there are none,” says Bennett Weiner, chief operating officer of the Better Business Bureau’s Wise Giving Alliance, headquartered in Arlington, Va.  While charitable organizations are required to file for registration as tax-exempt entities, and provide an annual accounting of their operations, there is no further oversight of how they chose to spend your money. 

That is left to watchdog groups like the Better Business Bureau's group and AIP’s

Look Behind the Numbers
Organizations know potential donors want to see low operating expenses in relationship to total contributions, a statistic readily available on services like  But the ratio can be misleading.

Weiner cautions a low expense ratio is as questionable as a high one. “Even efficient organizations have some expenses. When it is extremely low, you need to find out who is paying the bills,” he says, and for how long.

Borochoff takes an even harsher view toward reported numbers — he looks for and has found outright manipulation.

“A common ploy for keeping the operating expense ratio low is to recharacterize overhead expenses as program and service expenses,” he says. A tip off is if during a telephone pitch a ‘service’ line like an offer to say a prayer or a warning not to drive drunk is included.

Because professional fundraisers make many of these calls, Borochoff estimates only a third of the resulting donations pass through to the charity. Also, they often use such cold calling programs to compile donor lists for resale to other organizations.  “It is possible that a donor’s name may be more valuable to the charity than their donation is since they can turn around and sell it to other organizations.”

In other cases it may be the charity’s name that is the real fundraiser. “The organization doing the soliciting may not be the one you had in mind,” warns Weiner. 

For instance, AIP lists five organizations devoted to fulfilling the wishes of the terminally ill with ‘wish’ in their names.  It gives failing grades to four of them.  Only the well known, Make-A-Wish Foundation receives an acceptable mark.

Sound-a-like names also surface in outright frauds. Weiner says such scams tend to rise following large disasters. Currently they are not as much of a problem as last year in the wake of Hurricane Katrina, but that can easily change with the weather. 

Phishing schemes using look-a-like email pleas, however, are always in season. Weiner discourages clicking through an email to make a donation. Instead he suggests using a search engine to look up the charity’s Web address, and if making an online donation, doing so from the Web site.

Weiner also cautions against giving in response to pressure. “Watch out for on-the-spot decisions — pressure is often a ruse to avoid scrutiny. Reputable charities will welcome donations next week or next month. Need, unfortunately, is a year-round occurrence,” he says.

Corporate Scrooges?
Cause-related giving that is linked to buying certain products also requires some scrutiny. Stephen Adler, CEO of marketing firm Charity Brands and author of Cause for Concern, advises consumers to look at the fine print underlying these campaigns to ensure purchases will accomplish what they think they will.

That is because some corporations cap their donations.  No matter how many items are sold, only a certain amount, such as $100,000, will actually be passed through to the cause.  The rest of the proceeds pass to the corporation’s bottom line.” It is important to know if the corporation is giving all proceeds, some or a fixed amount to the charity,” adds Adler.

Tax-deduction dilemma
Just because an organization is registered as a tax-exempt charity does not mean donations to it will qualify for tax deductions.  If the deductibility of a donation is important, then that aspect needs to be verified with the charity before giving.  Also, the IRS is cracking down on what it is allowing to be listed among charitable contributions.  A written receipt is now required for every contribution, regardless of amount or how it is made.

Think local
Many people may be thinking of local problems or people when they donate to a cause.  But Adler notes that donations to national or global organizations, especially on an unrestricted basis, tend not to end up in local hands. “If people want to give to address a specific disease or situation, they are well served to give locally where the money will stay in the community,” he suggests. 

This global versus local realization led to a change this year in the Camell children’s giving strategy. Influenced by the book, ‘Beatrice’s Goat,’ they have been making donations to the Heifer Project to buy farm animals for struggling families in other countries for several years.  But this year, realizing their money does not benefit anyone in Chicago, they decided to donate some of it to local organizations as well.