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Charitable Giving: How Is Your Money Being Spent?

WebMD discusses how charities use donations and how to find out where your money is really going.

When you make a donation to a charitable organization that is important to you, your commitment to the cause doesn't end when you sign the check. If you give to a cause that you are passionate about, you want to know that your contribution is being used effectively and efficiently, especially if you may donate again.

Consider Your Contribution

It's not always easy to evaluate the impact of every donation. Larger gifts that are restricted are often easier to evaluate than others, simply because you can often see the results.

"If you are in a position to make large donations to charity, it is easier to put restrictions on how the funds may be used by the charity and track the results," says Laurie Styron, an analyst for the American Institute of Philanthropy (AIP). "For example, if you donate $20,000 to a school and restrict the donation to be used for refurbishment of its playground, it will not be difficult track the progress with your own eyes or to follow up with the charity to see what portion of your donation has been used for refurbishment efforts as of the end of the charity's financial year."

Most, however, can't afford to leverage quite that amount of sway when giving to charity. But just because your heart is a little bigger than your wallet doesn't mean that you can't still be proactive about following up on what's become of your charitable gift. You just have to broaden your focus.

"For donors making smaller gifts, following up on your donation requires you to look at how efficiently the charity is operating on the whole," says Styron. "Even if the charity happened to use your $100 donation on feeding hungry kids, for example, if it spent the vast majority of its other expenses on fundraising and other overhead that year, clearly this is not a group that is accomplishing what it should relative to the donations it receives."

Be Proactive in Your Follow-Up

Evaluating the impact of your gift may take some legwork, but it's well worth your time. In fact, you may find the experience to be rewarding. Following are some tactics you may want to consider:

  • Get active with the group. Seek opportunities to volunteer with a local chapter, if you have the time. Not only will you get an insider's view of what the organization is doing, but it can be a valuable personal experience.
  • Be an investigative reader. Take time to read press releases and articles focusing on programs or activities. Get your hands on a copy of the organization's annual report. You can even request financial documents.
  • Keep an eye on solicitations for further donations. If you start to receive a substantial amount of flashy direct-mail materials, there's a good chance the organization is paying a third-party vendor a lot of money to run their campaigns, which can be an expensive diversion of funds that might better be spent helping others.
  • Be wary of expensive fundraising tactics, such as sales of merchandise supplied through fundraising businesses. These not only are frequently costly ventures, but the margin of profit that goes to the charity can also be slim.
  • When all else fails, pick up the phone. Don't hesitate to contact a charity directly with questions or concerns. The Better Business Bureau estimates that more than 80% of money U.S. charities receive is donated by individuals. Even if your donation is not in the thousands of dollars, a reputable organization should take the time to respond to your inquiries because every donation is important to its mission.
  • Check with charity watchdog groups, such as the American Institute of Philanthropy, Charity Navigator, or the Better Business Bureau’s Wise Giving Alliance. These groups conduct ongoing investigations into charity activities, including a close examination of financial records, and assign ratings to each organization.

Next Steps

If you determine that a charity you donated money to has made poor use of financial contributions, do you have any recourse? It’s not likely you will get your money back. "Charities are rarely under any legal obligation to return your donation to you in the event you later become dissatisfied with your giving decision," says Styron.

You can, however, use your voice as a consumer to speak up about your experience and observations. You can contact charity watchdog groups, such as the American Institute of Philanthropy or Charity Navigator, or file a complaint through your local Better Business Bureau. You can also communicate to friends, neighbors, and other associates who might be looking to donate. And you can direct your own future donations toward a different organization.

You can take similar actions if your experience is positive, too. It can be gratifying to continue to support an organization that has already wowed you with its programs and activity in the community. Says Styron, "Past performance is often a good indicator of future performance."

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