NDSU Extension Service - Ramsey County

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How is My Money Used?

How is My Money Used?

                When disasters happen, a common response is to donate to a fund to support the victims and their families.  Donations of dollars are often requested in place of clothing, food or other items that need to be sorted and stored.  Online donations and donations via your cellphone make donating even easier.  After you have written that check or hit “donate” on the charity’s website, do you know how your dollars are being used?

                Every charity or fund drive has some overhead costs – staff, supplies, rent for offices, rent for equipment, costs of fundraising including mailings or maintaining a web site.   Some charities are very successful at operating on a slim overhead cost budget.  The Red Cross moves 91% of donations received to victims.   Feeding America generally utilizes 98% of donations toward feeding the hungry. Another major charity, the Salvation Army, typically spends 82% of donations on aid and during disasters  it draws from its budget so it can direct 100% at relief efforts.  Certainly great examples of making the most of your donation dollars.

                But how do you know how your favorite charity is doing?  Since this information isn't always clearly stated when you're making a donation, it helps to research each charity first.

                There are three main charity watchdog agencies: the American Institute of Philanthropy, Charity Navigator and the Better Business Bureau's Wise Giving Alliance. Although each of the agencies uses a different methodology for rating charities, they all utilize the charity's financial documents, particularly the charity's tax return Form 990, as their information source.

                The American Institute of Philanthropy rates all charitable organizations, regardless of whether they are a 501(c)(3). It assigns letter grades from A-F to charities based on their review. The review is based on the charity's fundraising efficiency, available years of assets and the portion of funds spent on the charitable purpose. Generally, charities spending at least 75 percent of their income on the purpose, using a maximum of $35.00 to raise $100.00 and with at least three years of available assets are given 'A' ratings.

                Charity Navigator is an online organization that rates charities based on their organizational efficiency and capacity. Essentially, it compares how much money the charity raises, how it is spent and whether the charity could potentially increase the amount of donations they receive. Charity Navigator analyzes seven areas of a charity's functioning, including their program expenses, fundraising expenses and fundraising efficiency in their review. It assigns a number ranging from 0-10 to each category. A '0' ranking means that the charity fails to perform the specific task category adequately or at all. The organization usually highly ranks charities that spend between 65 to 75 percent of their operating budget on their cause and no more than twenty cents to raise a dollar.

                The Better Business Bureau Wise Giving Alliance only rates 501(c)(3) charities. It requires that charities meet a minimum of 20 standards before designating it as a "BBB Accredited Charity." Charities not meeting the 20 standards are not accredited. The Alliance's standards include spending at least 65 percent of total expenses on program activities, no more than 35 percent of donations on fundraising activities and having no more three years of financial resources in reserve.

                A good guideline is that prior to donating to a specific charity, review their ratings with at least two of the three watchdog groups. A charity with low rankings indicates that it is not spending its funds wisely. In this circumstance, consider donating to a different charity concerned with the same cause, but with higher rankings. Doing so will ensure that your donation will be put to its best use.

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