In Time of Giving, Donors Must be Careful

Julie Whitehair | The PHOENIXThe Salvation Army often has bell-ringers standing on corners raising money for basic human needs.

As the holidays approach, people tend to catch the charitable bug. But before blindly throwing money at a charity or fundraiser, donors should be aware that their money might not go where they intend.

Most Chicago-based nonprofits fare well with ratings given by watchdog agencies, with some of the highest-rated charities including PAWS Chicago, Alliance for the Great Lakes and Rogers Park’s Misericordia.

A few others received less praise, including Special Olympics Chicago and Friends of Refugees of Eastern Europe. But how are these rankings determined?

Students feeling generous should examine how much money is being spent on direct services versus fundraising or administrative costs, according to Ivan Medina, coordinator of Loyola’s nonprofit management and philanthropy certificate program for the School of Social Work.

Organizations should usually spend no more than 10 to 20 percent of their money on fundraising, according to Medina. If they spend more than 20 percent on that aspect, Medina recommends that students look up the financials on GuideStar, a website that shows data such as tax forms for tax-exempt nonprofits and provides summaries of organizations in order to hold them accountable.

But allocation of finances is not necessarily the only criterion consumers should use to evaluate charities. Watchdog agencies acknowledge that other factors, such as leadership and transparency, can reveal a charity’s worth.

One of these watchdogs is Charity Navigator, which gives organizations an overall rating based on individual scores for finances, accountability and transparency. The site rates organizations both with a percentage and scale ranging from one to four stars, four being the best.

Special Olympics Chicago received only one star in September. While most of its money is spent on programming, the low ranking can be attributed to its lack of certain accountability and transparency criteria.

Friends of Refugees of Eastern Europe was also rated with one star in June primarily based on accountability and transparency (it was rated 43 percent for this category).

Comparatively, some national organizations have been ranked even lower by Charity Navigator, which has compiled a list of the top 10 most consistently low-rated charities.

Connecticut-based National Veterans Service Fund has received unfavorable reviews from Charity Navigator for the past 13 years. It earned a zero on financials in June but received a score of 82 percent for accountability and transparency.

About 25 percent of the charity’s expenses go directly toward funding. The charity acknowledges this deficit.

“We outsource our fundraising to professional fundraisers. Here’s the sad reality — they get around 65-70 [percent] of every dollar,” the organization states on its website.

Phil Kraft, executive director of National Veterans Service Fund, said that the nonprofit had to partner with a national mailing house to make its services known.

“We’re a national charity, we’re needed nationally, but in order to outreach nationally, we need either staff or a company that can do mass-mailing,” Kraft said. “The cause is just, the need is great, but the means to reach out to millions of people, it just isn’t there [because] it’s a small charity with big hearts.”

Kraft said charities should be evaluated based on the services they provide rather than solely their financial information.

“Many nonprofits get really bad grades based on the fact that … they outsource their fundraising, which is what we did,” Kraft said. “What we do with the money we get from the fundraiser is what we should be judged on.”

This type of holistic thinking has also been endorsed by watchdog organizations themselves. Kraft referred The Phoenix to a letter from the presidents of watchdog agencies BBB Wise Giving Alliance, GuideStar and Charity Navigator that advises donors that the ratio of fundraising and administrative spending to programming spending, also known as “overhead,” was not an accurate depiction of charities’ value.

“In most cases … focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance does more damage than good,” the letter states.

The letter advises donors to take other details, such as leadership and results, into consideration. It also says donors should acknowledge that some cases of extra spending on administrative or fundraising expenses can benefit a charity in the long run.

If students are looking to donate to local causes, they can rely on some of Chicago’s highest-rated charities to get their donations to the intended recipient.

Rogers Park’s Misericordia received a four-star rating from Charity Navigator as of October. Misericordia is a care facility that houses people with physical and intellectual disabilities. About $55 million of its $63 million in expenses went toward programming in 2014.

PAWS Chicago, a charity for pets, and Alliance for the Great Lakes, which focuses on the environment, also received four-star ratings from Charity Navigator. There are 59 Chicago-based nonprofits rated with four stars on the website.

Medina recommended the Chicago Community Trust and Metropolitan Family Services as some other respectable local charities.

Medina said that instead of only worrying about good financial standing, students can also look at the history and reputation of a charity.

“[If] agencies … have been in operation for a long time and are sustainable, [it] means that they probably are doing something right,” Medina said. “But agencies that just pop up in the last year you want to be more careful about.”

One of these long-standing charities is the Salvation Army, which first got its name in 1878 from the Evangelical William Booth. The charity can often be associated with the holidays, as it sends volunteers to city street corners to ring bells and raise money to provide individuals with basic needs, such as shelter.

The organization is considered a religious one and thus is not required to file a nonprofit tax form. But according to its annual report, 72 percent of its expenses are put toward social services.

Still, instead of relying on any one factor to judge a charity’s effectiveness, Medina said students should pick a social concern they care about and then do their own homework on charities associated with that cause.

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