Where Is Your Charitable Donation Really Going?

The Federal Trade Commission (FTC) and the attorney generals of all 50 states recently charged four well-known cancer charities with fraud. This article poses the question: where is your charitable donation really going?

According to the complaint, the organizations bilked donors out of $187 million from 2008 through 2012. The FTC alleges that the contributions were largely used to fund the lavish lifestyles of the charities’ leaders, while only three percent were used to provide services to cancer patients. “[D]onated funds were used to pay for vehicles, personal consumer goods, college tuition, gym memberships, Jet Ski outings, dating website subscriptions, luxury cruises, and tickets to concerts and professional sporting events,” the complaint says. The companies face significant fines, and two have already shuttered their doors.

Unfortunately, scams involving charities are relatively common. While charitable organizations are required to file reports with the Internal Revenue Service, the nonprofit sector largely operates under very loose oversight. There is no regulator like the Securities and Exchange Commission looking over their shoulders, and no investors to hold them accountable.

Even charities that are not outright scams may still not be using your contribution to further the mission of the organization. In many cases, the actual percentage of your donation that is actually devoted to the charity’s mission can vary greatly.

As with any investment opportunity, it is wise to conduct some due diligence prior to making a charitable donation. CharityWatch provides a list of top-rated charities, which spend 75 percent or more of their budgets on programs, spend 25 percent or less to raise public support, do not hold excessive assets in reserve and receive “open-book” recognition for disclosing basic financial information and documents.

As highlighted by Daniel Borochoff, president of CharityWatch, “Spending just a little time on research can exponentially increase the good works accomplished by a donation.”

In addition to verifying how your money will be used, other tips for making the most of your donation dollars include obtaining detailed information about the charity’s endeavors via an annual report, maintaining written records of your donations, and keeping an eye out for frauds that capitalize on recent disasters, such as the recent earthquake in Nepal.