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Use Charity Navigator to Research Charities

As we near the end of the year, you’ll inevitably start seeing year end tax tips type of posts (I promise you at least one before we close out 2010). Those year end tax tips will certainly recommend that you make some charitable contributions before the end of the year so that you can take advantage of the tax deduction for this year. Before you go out donating money to every organization that you think is worthy, I recommend that you do a little research on charities to make sure your dollar can go as far as it can. With the economy as weak as it is, it’s important to make those contributions count.

Charity Navigator [3] is my go-to charity rating site whenever I want to learn more about the effectiveness of a particular philanthropic organization. They do a fantastic job of reading through the financial statements and boiling it down to metrics that matter. When it comes to donating, you want your dollars to go as far as possible. I don’t want to have fifty cents of every dollar going to fundraising, I want 80 cents to go to the mission and maybe 20 cents to the “other stuff.” (even that seems high to me)

How to Use Charity Navigator

The first step is to look up the name of the charity and read it’s statistics. I always look at Organizational Efficiency first because it tells me where the money goes. Take a look at Oxfam America [4] – 79.8% goes towards program expenses, which I see as the charity’s mission. 6% go to the administration of the organization and 14% goes towards raising more money. Is that good or bad? It’s hard to tell without a basis for comparison. Charity Navigator gives them a three-star 51.07.

Another similar charity is Heifer International [5] which sports a 75.9% towards program expenses, 6.2% to administrative and 17.7% to fundraising. Heifer International gets a three star, 52.68 rating; so comparable (incidentally, Heifer International raises 2x as much money as Oxfam).

There is a lot more to charities than Organizational Efficiency, though that’s what I like to look at first. It appears that the two organizations are similar and with this information I make my donations to Oxfam (slightly more of my money goes towards program expenses).

Go Outside the Top Lists

If you have a direction you want to go with your donation but aren’t sure where to go, it’s easy to look at the “top charities” in a particular area and donate to one of those. I recommend digging a little deeper and finding smaller charities that may be struggling in these tougher economic times. Avoid organizations that don’t pass your requirements based on their Charity Navigator ratings but don’t stick with the top lists because there are plenty of hard working charities who need your assistance.

Go Local for Impact

If you can, try to work with local organizations to have an impact in your community. We donate to a local food bank (Maryland Food Bank [6]) so that we can help local Marylanders in a tough spot. Going local works for charities as well as it does for produce! (it helps that the Maryland Food Bank has a four star, 60.34 rating and 91.2% of dollars goes towards program expenses – I like a charity that sports those numbers).

Beware Red Herrings

When reading the reports, be careful about red herrings. Many times people point to a high paid CEO as being a bad thing when they don’t recognize the level of responsibilty they have may. That’s why reports like the “10 highly paid CEOs at low-rated charities [7]” is a more effective list than one simply of the highest paid CEOs. The CEO of the Hoag Hospital Foundation [8] is paid $403,285, or 2.97% of expenses. The CEO of the American Red Cross is paid $446,867, which is more than the CEO of Hoag Hospital. The difference is that Gail J. McGovern’s, CEO of the American Red Cross, salary is only 0.01% of expenses. Salary alone isn’t a good indicator because we can be talking about two vastly different organizations.

So, spend a few minutes before the next time you go to make those donations to maximize their impact!