By Neel Hajra, President & CEO, Nonprofit Enterprise at Work
If you’ve decided to donate your hard-earned money to nonprofits, good for you! Your support is needed now more than ever. Sometimes the harder question is where to to invest your charitable dollars. Local or national or international? What kind of cause? With 40,000+ nonprofits in Michigan and a million nationwide, the choices are many.
One way of cutting through the clutter is to think of your charitable giving as a portfolio of investment choices. Perhaps your charity portfolio is based on habit or personal connections, and there’s nothing wrong with that. However, if you want a more strategic portfolio that really reflects your values, a little bit of homework and diligence goes a long way. To get started on your portfolio, I recommend CharityVillage.com’s nice checklist for choosing charities, or U.S. News & World Report’s user-friendly Giving Guide. If you’re looking for something closer to home, check out the Giving Wisely tips published by a coalition of Michigan nonprofit groups and the Michigan Attorney General’s office.
Once you’ve identified portfolio candidates, you have a range of online resources to help decide which investments are the smartest ones. The last thing I want to do is make your giving process more complicated, so I’ve ordered these tools from “simple” to “complex” – you can decide which ones are best for you:
- Annual Reports (simple): Many nonprofits produce annual reports on their websites that summarize their program and financial activities for the past year. Use these to get a better sense of exactly how an organization would use your funds. If they don’t publish an annual report, sometimes the websites themselves might provide similar information.
- Solicitation Licenses (simple): Many (but not all) nonprofits in Michigan are required to have a charitable solicitation license to ask for donations. The Michigan Attorney General’s office publishes a spreadsheet of charities that are currently licensed in Michigan – this doesn’t guarantee that a nonprofit is good, but it’s a quick and easy check on a nonprofit’s basic legitimacy
- Boards of Directors (fairly simple): Every nonprofit is governed by a board of directors that is the ultimate authority for an organization’s activities. These boards are critical – in fact, many foundations that specialize in charitable giving assign very high importance to a board’s membership. A board roster should be available on a nonprofit’s website (and be very suspicious if it’s not!). Do board members appear to come from reputable organizations? Do they represent a cross-section of the communities they serve? Better yet, do you know someone on the board you could talk to?
- Online Rating Systems (fairly simple): There are several online services that rate larger nonprofits. Keep in mind that these rating systems are highly controversial – each rely on different factors that may or may not tell the whole story.
- CharityNavigator: The most well-known (and controversial) rating site, this service relies mostly on financial data from nonprofit tax returns.
- BBB Wise Giving Alliance: Another popular service, this site provides evaluations of charities based on a set of best practice standards.
- Givewell and American Institute of Philanthropy: Two more services that evaluate charities on a somewhat more holistic set of criteria.
- Nonprofit Tax Returns (more complex): The Form 990 is an annual tax return that must be filed by all charitable nonprofits with income more than $25,000. If you have the time and desire to do a deep dive, go to Guidestar and look up a nonprofit’s Form 990. The Nonprofit Coordinating Committee of New York publishes an excellent walk-through for interpreting this complex document.
- Audited Financials (very complex): If you’re REALLY serious about understanding a nonprofit’s financial activities, consider an organization’s audited financial statements. Larger nonprofits conduct independent audits every year in order to verify that their financial activities are accurate and compliant with regulations. These reports are extremely revealing, which is probably why surprisingly few nonprofits publish them online. If you can get your hands on one (online or by request), you can learn a lot about a nonprofit’s overall financial health, as well as how they spend their money.