How to Check Out a Charity Before You Donate

You hear the words "childhood disease" or “cancer victim" or "natural disaster,” and it can be hard to say no to donation requests to help. But your instinct to be generous always should be tempered by a healthy dose of skepticism.

Should I Cut Off Support for My Charity?

Case in point: The Federal Trade Commission charged four cancer charities with bilking donors out of $187 million. The FTC announced on May 19 that the Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America and The Breast Cancer Society allegedly used most of the funds raised to support cancer patients to instead benefit the charities’ organizers and their family members and friends. Donations were allegedly spent on cars, cruises, concert tickets and other items that did not help cancer patients.

So how can you make sure that the money you give doesn’t end up lining the pockets of the unneedy? Follow these tips.

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Hang up on telemarketers. The cancer charities charged with fraud by the FTC used telemarketing calls – as well as direct mail and Web sites – to solicit donations. If you get a call from a group asking for money, you might feel pressured to make a donation on the spot. But the FTC cautions that you shouldn’t rush to say yes. In fact, you should decline any requests to give over the phone, says Leonie Giles, a senior program analyst for Charity Navigator, which evaluates and rates charities. Telemarketing companies that solicit donations on behalf of charitable organizations often keep a significant portion of the funds they raise. If you ask, professional fundraisers are required by law to tell you what percentage of your donation they get and what percentage actually goes to the charity – but Giles says that, in her experience, they don’t always know. You’re better off skipping the middleman and contacting a charity directly (by phone or through its Web site) to make a donation.

Don’t wait for charities to come to you. To avoid feeling the pressure to give to an organization that reaches out to you, figure out what causes are important to you, Giles says. Then find charities that are addressing those causes. You can browse charities that have been evaluated by Charity Navigator by category – such as education or human services – to identify groups you want to support. Having a giving plan will make it easier to avoid making impulse donations, Giles says.

Research before you give. The FTC charges against the four cancer charities shows that just because an organization claims to do good doesn’t mean it actually does. That’s why it’s important to find out as much as you can about how an organization will use your donation before you give. You can start with third-party evaluations and ratings at sites such as the Better Business Bureau’s Wise Giving Alliance, Charity Navigator and Charity Watch, which examine charities’ finances, governance and effectiveness.

Giles says that the majority of organizations evaluated by Charity Navigator spend at least 75% of their funds on programs and services. Be wary if an organization is spending more than 25% on overhead. You also can do your own research into how a charity allocates its money by checking its IRS Form 990, which most nonprofits are required to make public. GuideStar has a searchable database of those documents, and charities should provide Form 990 on their sites – as well as independent audit reports, Giles says. Or call charities directly to ask them how your donation will be put to use and how they allocate their funds. If they’re not willing to take the time to answer your questions or mail you the information you request, it should be a red flag.

Never send cash. The FTC recommends making donations by check or credit card for security and tax purposes. Ask for a receipt showing the amount of your donation and stating that it is tax-deductible.

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Award-winning journalist, speaker, family finance expert, and author of Mom and Dad, We Need to Talk.

Cameron Huddleston wrote the daily "Kip Tips" column for Kiplinger.com. She joined Kiplinger in 2001 after graduating from American University with an MA in economic journalism.