Choosing the non-profit to investigate
Developing a story from a news tip, often from someone who has been close to the nonprofit and who may or may not have something to gain.
Developing a story from another news item or a press release.
Developing a story by checking Watchdog reports or 990s.
The test In about an hour, you can usually get a pretty
good idea of whether the nonprofit is worth investigating, based largely on information gleaned from a variety of sources.
Is the charity a member of a strong local United Way campaign? (Often, an indication of a good charity)
How is the charity viewed by national and local charity watchdog groups?
How much does it reveal on its website? How transparent is it?
The United Way Many charities, particularly local charities,
have to open their records and themselves to get access to United Way dollars.
If the local United Way is strong with a strong program review committee, its charities often are legitimate and above-board.
The watchdog groups Each of these has specific strengths and
weaknesses. Charity Navigator at www.charitynavigator.org
(largely deals with a nonprofit’s financials) The American Institute of
Philanthropy’s www.charitywatch.org site (again, largely deals with financial information)
The national Better Business Bureau’s Wise Giving Alliance at www.give.org (monitors a variety of areas include transparency, board involvement, administrative and other areas)
Local Better Business Bureau
Charity Navigator
Strengths: Has many of the larger nonprofits and an easy to
read guide of its financials. Offers a comparison to other, similar, nonprofits.
Weaknesses: Does not have the ability to look at programs. No way of checking the accuracy of the
information It simply accepts what is given to the IRS in its
990.
American Institute of Philanthropy
Strengths: Information both online and in printed booklet format Easy to read and understand Perhaps the toughest of all watchdog groups, particularly
on groups with high fundraising costs or large amount of noncash, gifts in kind, program expenditures.
Weaknesses: Limited number of charities, so the one you are looking for
may not be there. It’s toughness on groups that deal with large amounts of
gifts in kind make some argue that it is not a fair assessment of a charity’s work.
National Better Business BureauStrengths: Large number of national charities listed The one watchdog groups that goes beyond financials and
specifically asks charities to supply them with additional information regarding their operations
The 20 “Standards of Accountability” cover more area than either the AIP or Charity Navigator.
Weakness: Many charities find it either too time consuming or expensive to
provide information and thus the Better Business Bureau cannot grade them.
Again, the BBB largely accepts information from charities as true.
BBB accepts payment from member charities for the charities to be able to use a BBB Seal.
Local Better Business BureausStrengths: Only public monitoring of non-national
charities, other than some attorney general’s offices that show fundraising costs.
Weaknesses: Limited staffs locally mean limited
amount of information usually available Many charities not included
So, what does this mean? Simply because a nonprofit rates good or
bad with one or another of these groups usually doesn’t mean a lot.
Several charities get high marks from one watchdog group and low marks from another.
But if a charity gets all good or all bad marks, often is an indication that it could have problems.
A non-profit’s website A good nonprofit has web links to its 990s, its audit
reports and its annual reports. It WANTS you to know about it and feels the more you know, the more likely it is you will contribute.
Also has contact information and urges you to contact someone with the charity for answers to additional questions.
A bad nonprofit often has very little information on its website other than a couple of photos, a self-serving statement of what it does and a way to contribute money.
Seldom has links to additional financial information such as audit reports, annual reports or 990s.
The transparency question How transparent is the non-profit? The good nonprofits often have a lot of
publicity, send out a lot of press releases. When you approach them with a question,
they do all they can to come up with an answer as quickly as possible.
They readily offer their latest 990 and audit reports.
Accessing the Form 990
www.guidestar.org
Foundation Center at http://foundationcenter.org/
Ask the nonprofit for their most recent 990.
Required to produce it immediately.
Accessing the Form 990
What about asking the IRS?
Can request it from IRS, but it often takes several weeks or months to receive the information.
Dissecting the 990
Almost everything can be a lead to a story.
But remember, this information is supplied by the charity itself.
So, the information is the information that it chooses to release to meet requirements under tax laws.
Quick checks Check the phone number. Does it list to
another business or nonprofit?
Check the listed address. Is it a legitimate
business address or a private residence?
Check to see whether it is a 501 C-3, the
most common type of nonprofit, or another kind of nonprofit that does not allow a tax exemption (a fraternal group for instance).
Page 1 of the 990 Check to see how much it received in cash and non-
cash contributions. Although much of non-cash revenue can be legitimate, some nonprofits have used non-cash items to inflate their program expenses, making it look like they are spending more for programs than they actually are.
Look closely at its end of the year net assets. Unusually high can indicate hoarding of money.
A negative balance can indicate problems, especially if that number has been growing over the years.
Fundraising and management expenses: An indication of how much is spent for fundraising and management (more detail inside)
Page 2 of the 990 This is the expense breakdown page, one of
my favorites. Compensation of officers and directors (too
high or too low a problem). Legal fees, accounting fees, travel and
phone costs. (Look for unusually high amounts here)
Professional fundraising fees can be hiding under printing and publications, postage and shipping.
Look closely at other expenses and how they break down.
Other things to look for The Form 990 also includes compensation of
five highest paid employees (other than officers or directors).
It also includes the compensation of the five highest paid independent contractors.
Look for relationships between contractors and board members.
The board of directors Too few or too
many can signal a potential problem.
Look for relationships among board members.
Key points under Part VI Is the
organization related to another nonprofit or for profit organization?
Political and lobbying expenses.
Related party or conflict of interest transactions
Often nonprofits mark there is no
related party transaction when
there is.
If there is a related party transaction, it should be detailed.
Going to the source
Test of transparency is asking a nonprofit for specific information.
Ask them to walk you through its financial
information or the Form 990 itself.
Other tools Former board members or executives. Other nonprofits that do the same kind of
work. Neighbors of executives and others in
neighborhood of charity. Go to the charity-- see what is on its door,
who owns the building, etc.
Questions?
