If you answer yes to all five questions, your prospective recipient gets the green light.
1. Is the charity tax-exempt? To confirm that the organization is registered as a 501(c)(3) charity, check for a listing on the rating website Charity Navigator or in the nonprofit directory Guidestar. The latter provides links to an organization’s IRS 990 form, which details its financials.
2. Does a hefty percentage of its budget go toward its mission? Well-managed charities spend at least 75 percent of their funds on programming. Charity Navigator does the math for you—but it ranks only the biggest and most established organizations. For smaller and newer nonprofits, look at the 990 form and divide the total program service expenses by total expenses. Multiply by 100. If the number raises a red flag, speak with someone who works at the organization. Any charity worthy of your resources should be able to articulate its accomplishments, challenges, and goals.
3. Is the organization clearly committed to transparency and accountability? Top-notch charities demonstrate viability by hiring independent auditors, granting board members oversight authority and regular opportunities to vote on key decisions, and adopting conflict-of-interest, whistleblower, and privacy policies.
4. Is the CEO’s pay in line with other expenses? The 990 form lists the salaries of the CEO and directors. The median nonprofit CEO salary in the United States is $150,000, according to a 2010 survey by Charity Navigator. But salaries fluctuate widely, so a good rule of thumb is less than 5 percent of the budget.
5. Is the charity making an impact? Call and ask questions or schedule a visit. Far more important than an elegantly phrased mission statement is the charity’s ability to demonstrate that it’s getting the job done.