November 29, 2023
William C. Shannon
Director of Strategic Growth

Informed Giving: 4 Steps for How to Evaluate a Charity

Donating money to a charitable organization can reap many benefits, not all of them financial. Personal satisfaction, a desire to make an impact, supporting a cherished cause, and a sense of duty regarding giving back are among the many philanthropic motivations cited by donors.

Tax considerations obviously are top of mind, too, as people review their finances and try to capitalize on deductions for charitable contributions in any given year. That’s a big reason why charitable giving increases during the final months of the year.

Choosing a charity that can be trusted to spend your money effectively can be challenging, with many seemingly exemplary organizations spending exorbitant amounts on awareness campaigns, marketing and overhead. Some advance spadework is needed to help unearth the best, most impactful fit(s) for you.

Here are a few tips on how to evaluate nonprofits, including questions to ask both yourself and the organization in question.

Step 1:  Pick a charity that reflects your values. Do you want your gift to go to a recipient organization with a local, national or developing-world focus? What is the cause or issue area that is most important to you – the arts, education, the environment, health/medical, religious affiliations, etc.? The best way to begin navigating among the millions of charities is to decide on the location and issue areas that reflect your interests and evaluate the organizations that meet those criteria, one by one.

Step 2:  Examine their website closely. What does it tell you?  Here are questions to consider:

Is it the mission you wish to support?

  • How long have they been in existence?
  • Do they offer direct programming or act as a funding vehicle for external programs? Either way, look for efficiency.
  • A heavy emphasis on feel-good language rather than specifics and hard data may be a red flag, or at least a cautionary sign.

Look at the Executive Director, senior staff, board of directors.

  • Who are they?
    • Look for leaders with a passion for the mission. Those individuals are committed to the cause and will “make it happen.”
  • Are they stable and consistent?
    • Turnover is a clue for you to ask more questions.

Step 3:  Conduct independent research. This will probably be the heavy-lifting part of your process. Do the same due diligence on your donations that you would your investments or your business.

Are there other nonprofits duplicating their mission?

  • If not, great! They’re addressing an unmet need.
  • If there are similar charities, they might be competing for donor dollars and volunteers. Determine if there is overlap and if this organization focuses on a specific aspect of an issue area. For example, if the issue is alleviating homelessness, does this organization provide shelter, help people find work or provide outreach to those on the street? Then you can concentrate your giving on the aspect that is most meaningful to you.

Use EIN (Employer Identification Number) to review most recent IRS Form 990 that nonprofits are required to file annually.

  • Confirm it is a registered 501(c)(3) and your donation will be tax-deductible. If you use a donor-advised fund for gifting, this filter will be done before donation is allowed.
  • Review Form 990 data.
    • Confirm charity name matches information on their website.
    • Will it be a going concern? Is there anything unusual?
      • Look for financial stability.
      • Are there material year-over-year changes?
        • Are asset levels going up or down?
      • How much funding is public grants vs. private donations?
      • Too much reliance on a single source of donations should be investigated further.
    • Are the directors all contributors?
      • If not, you’ll want to know why.
    • Is your giving efficient?
      • Pay particularly close attention to the overhead. Anything above roughly 9% to 14% may indicate that too much goes to staff or office space and not enough to the actual mission. That said, be careful to consider the organization’s mission in evaluating the overhead costs. For example, there are organizations where physical buildings are a part of the mission such as the Boys and Girls Clubs. These organizations also require greater staff numbers to fulfill their mission. So be aware of overhead but evaluate it in context with what the service need requires.
      • Check the percentage of employee salaries/compensation/benefits against contributions/grants. How much of your donation reaches the end user?
      • What is the total number of volunteers involved?
    • Vet your charity with sites such as GuideStar, Charity Navigator, Charity Watch and GiveWell, which present their findings after combing through tax filings and governance documents.

Step 4:  Call the organization. Inform them you are reviewing them for a possible donation and ask any of the above questions that you were unable to find satisfactory answers to. They should LOVE to speak with you!

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The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice. Although we made efforts to verify the accuracy of the information, Altair Advisers cannot guarantee its accuracy. Please see Altair Advisers’ Form ADV Part 2A and Form CRS at https://altairadvisers.com/disclosures/ for additional information about Altair Advisers’ business practices and conflicts identified.

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