A Caustic View of Charitable Giving

Al Jacobs

For the charitable among us, investigative reporter Teri Sforza paints a dismal picture in her recent article “Beware the charity middleman.” In it she describes the practices of commercial fundraisers, which the California Attorney General’s Office reports sends no more than half of what’s raised to the charities while keeping the rest for themselves. And perhaps those pocketing only 50 percent of their collections are among the more generous.

One firm in Santa Ana, The Association for Firefighters & Paramedics, is singled out as among the most flagrant in its deception. In both 2014 and 2015, they retained 89 percent of the contributions they raised. And yet they continue to operate, for apparently there are no laws prohibiting charity middlemen from keeping as much of their collections as they choose.

We Americans are a pretty generous bunch of people. If we can’t rely on our attorney general or other government agencies to close the scam charities, what can we do to insure our contributions really go to the deserving? I’ve a few thoughts on this.

To begin with, be certain any organization you give to is legitimate. There are a lot of people out there in the soliciting business who perform no charitable function at all. They’re simply collecting money for themselves. Some are easy to spot. Using what I’d describe as the “smell test,” simply ask for credentials and a telephone number. If that causes their hasty retreat, you’ve saved yourself the trouble of checking them further.

Beyond mere legitimacy, you want to be sure whatever you give will be used for the purposes intended. Luckily this can be checked out without too much trouble. Of the thousands of non-profits in the nation, details on many of them can be found on two websites: www.give.org and www.guidestar.org. Both are easy to search, with a wealth of information available. On each organization you can learn, among other things, its stated purpose and programs, the size of its staff, the source and amount of income it receives, and a detailed schedule of its expenses.

Let me give you some information I discovered during 15 minutes of browsing. One well-known organization I’ve always held in high regard, last year devoted 76 percent of collections to its programs, 19 percent to administration, 4 percent held over for the next year, and only 1 percent to fund raising expenses. This sounds pretty good, doesn’t it?

Compare this with another charity that employed only 12 percent toward programs while assigning 63 percent to fundraising and 25 percent unallocated. Not the least impressive.

Finally I spotted a third admitting to a mere 1 percent for programs, 52 percent for fundraising, and not a word about the other 47 percent. Why do you suppose they’re in the money-raising business?

I hope you get the message. There’s a wide variation in the way non-profit foundations operate. Some take their obligations seriously by devoting the contributions they receive to the purposes they profess to support. Others are less concerned with the way services are provided and money spent. And, unfortunately, some of the charities are nothing more than thinly disguised confidence operations preying upon the gullible.

With this said, let me spell it out. Don’t make contributions based simply on the promises or affability of the solicitor. Be skeptical – and informed. Before you make any decision, collect the information. Then go home, or wherever you must, to search the internet for details on the organization. If it checks out to your satisfaction, you can then arrange for the donation. If it doesn’t check out, consider the effort well spent.

You might ask whether there’s some certain method to distinguish the good charities from the not-so-good ones. Within certain limits there is, but only somewhat. Statistical data, mostly based on the IRS Forms 990 filed annually by all non-faith-based charities earning more than $25,000, is available. However, meaningful evaluation often requires reading between the lines – a tough job if you don’t know what to look for.

In getting down to fundamentals, I believe in ensuring the ultimate recipient is both deserving and identified. You’re now entitled to a bit of reality. Despite your inquiry and the available information, there’s no way to really know what happens to the massive sums of money disappearing each year into America’s charities. You’ll have to take some of it on pure faith. My wife and I regularly donate to two organizations: the Salvation Army and Goodwill Industries. That’s our preference. Similarly, each of you must make your own choices, but first conduct your investigation.

As a final word on giving, I want to pass on a suggestion to those of you who’ve attained a degree of prosperity – or intend to. There’s a way to ensure contributions you make are used effectively and exactly as you desire. This is accomplished with the private non-operating foundation you can establish under Section 501(c)(3) of the Internal Revenue Code, allowing for the pursuit of a broad range of religious, charitable, scientific, or educational purposes. Into this vehicle you’ll transfer sums of money to be used for designated purposes. Not only are the funds applied exactly as you direct, but are fully tax-deductible as well.

As a guide, I’ll explain how one organization, Science Scholarship Foundation, created in 1981, operates. With the cooperation of the chemistry department faculties of four local community colleges, deserving students completing their sophomore years at those schools are awarded scholarships to pursue bachelor’s degrees in the physical sciences. During their subsequent two-year attendance at universities of their choice, each student receives $10,000, scheduled in four $2,500 distributions at the start of junior and senior semesters – admittedly, not enough to live very high on the hog, but sufficient so they can spend their time studying instead of flipping hamburgers at a fast food joint.

As a condition for continued receipt of the payments, the foundation director monitors their grades. Those which don’t perform are dropped from the program after a semester’s probation.  It’s controlled tightly with no administrative expenses – all the money goes for the intended purpose. And best of all, over the past 36 years of operation it has helped over 200 talented and dedicated students earn their degrees in chemistry, chemical engineering and biochemistry. How can money be better spent?

Let me sum it up for you. Charitable giving is a fine gesture, but generosity without accountability is not. The simple fact is many persons in the charity business are completely devoid of any charitable instincts. It will be your job to distinguish between the good and the bad – not an easy task. When you donate to a cause, you must do your best to make certain the cause you support is truly furthered.

Al Jacobs, a professional investor for nearly a half-century, distributes a monthly newsletter in which he shares his financial knowledge and experience. You may view it on www.roadwaytoprosperity.com.




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