How to Make Sure Your Charitable Donations Go to the Right Place

Many of us are generous, caring people. And donating to charity is a great way to make an impact, both in our local communities and around the world. But some charitable organizations use pressure tactics and misleading language. They can trick you into donating or make you think your money is going towards one thing when it’s really going to something else. And charity fraud can make you think your money is going to a good cause when it’s really lining crooks’ pockets. But by doing some research, you can make sure your donation is going to a cause and charity you really want to support.

See How to Donate Wisely and Avoid Charity Scams with Laurie Styron for a complete transcript of the Easy Prey podcast episode.

Laurie Styron is the Executive Director of CharityWatch, and has been with the organization for eighteen years total. When she was young, Laurie did a lot of volunteering with her church. Her community were big believers in the idea that you help your neighbor put up their barn, and they’ll help you with yours. She grew up with the idea that it was part of your duty as a good citizen to give what you can, whether that’s time, money, or something else.

An accountant by trade, she admits that she was probably always going to end up in the nonprofit sector. She started out working in social services, helping low income people secure housing and emergency assistance. After a move to Chicago, she found a job at CharityWatch as a financial analyst. She worked her way up to senior analyst, and when the president and founder retired in early 2020, she took over.

The Story of CharityWatch

In 1992, long before the internet was everywhere, Daniel Borochoff noticed that there wasn’t much information available about charities. People weren’t making fact-based decisions about where to donate. Back then, donation choices were usually made by convenience. Charities sent direct mail, made telemarketing calls, and went door-to-door soliciting donations.

Daniel knew that people wanted their donations to go to a good cause and do good in the world. But there was nothing out there to tell anyone which charities were legitimate and which were using their money efficiently and effectively. Donations often went to charities that weren’t using money wisely, or even to outright charity fraud.

Registered nonprofit organizations are required to submit their financial records to the government, and those are publicly available. But the average person who donates to charity doesn’t have the time or the accounting skills to go through each charity’s documentation to figure out what’s really going on. Daniel saw a need for an organization that could do the hard work of digging through those financials and present it simply and clearly to the public. And so CharityWatch was born.

Other Websites Like CharityWatch

The whole purpose of CharityWatch was because there was no good information about charities. Now we have the opposite problem. Every year a new website pops up claiming to rate charities. Some of them are really good. GiveWell, for example, only recommends a few charities a year but digs deep into their impact. And Animal Charity Evaluators is a great resource for those who want to donate to animal-related causes.

A lot of other websites claim to rate tens or hundreds of thousands of charities. But most of them are big data sites doing one of two things. Some sites pull self-reported information from the organizations’ tax filings and put it in charts. These types of sites are popular because they look smart and official, but they’re not actually doing any research or confirming those numbers. They’re just taking what the charity says about themselves at face value.

The other type of site lets charities rate themselves. With one in particular, any charity that creates a profile and adds some information will become top-rated by the next day. There’s no one digging through financial stuff to spot signs of charity fraud and confirm that the self-reported information is accurate. But donors look at these sites and think charities are vetted when they’re not.

When you’re doing research and looking at these sites, find out if a qualified financial analyst looks at things. How are the ratings decided? What’s the process for a charity to increase their rating? At CharityWatch, they’ve found a lot of situations where a charity gets a high rating on other sites but are only spending 10% of their donations on programs. Understand what the site is looking at and how they’re vetting (or not vetting) organizations before you rely on them to make donation decisions.

Government Regulations and Charitable Organizations

People think the government is heavily regulating charities. And to some extent, they are. But “regulation” just means there are laws in place. It doesn’t mean they’re being enforced or that oversight is adequate. Sometimes people think that because a nonprofit is registered with the government, it’s trustworthy. But that’s not necessarily the case. In some cases, even charity fraud can be registered.

It would be great if regulations could require a certain percentage of donations to go towards the cause a charity supports or to what they say they’re doing. And to the credit of a lot of State Attorney General’s Offices, there are a lot of efforts to get charities to guarantee a certain percentage of donations go to the programs they run. After all, they reason, since nonprofits don’t pay taxes, taxpayers are basically subsidizing these organizations’ existence – they should have to give something back, even if that’s something small, like a guarantee that at least half of donations are being spent on programs.

However, the discussion of how much of donations should go towards programs is more nuanced than a lot of people expect. And there are actually some good reasons why this isn’t regulated.

Why the Government Doesn’t Regulate Charitable Spending

Every attempt to regulate how much charities have to spend on their programs has been shot down on First Amendment grounds. It’s a nuanced issue. But it comes down to the fact that some causes are easy to raise money for, and some aren’t. Sick puppies, kids with cancer, and injured veterans are causes that many people are willing to donate to.

But in a complex and diverse society like ours, there are also a lot of niche causes. Some very deserving causes are less popular or affect only a small number of people. Those are more expensive to raise money for, because it requires more specific messaging and a greater amount of publicity to reach the people who are willing to donate. It’s been determined that requiring charities to spend a minimum percentage of donations on a specific thing is indirectly limiting their speech. For smaller, more specific causes, this would make it even harder to reach people who might donate, and that could be devastating.

You don’t necessarily want the government deciding who is allowed to raise money from the public.

Laurie Styron

The average person would say there should be laws that require charities to spend a certain amount on actually helping people. In theory, that sounds good. But this is why those laws don’t exist. Laurie herself would love more regulation, and there are probably some ways to do it. But it’s difficult and complex to find ways to regulate without harming less-popular causes.

The Government Can’t Protect You from Charity Fraud

Because of this challenge with regulations, the government can’t fully watch out for you in the case of charitable organizations. They can require charities to file tax forms, register to solicit donations in individual states, and that kind of thing. But regulation can only go so far. We haven’t yet determined a good way to regulate charities in a way that protects people from charity fraud without harming legitimate charities in the process.

Another problem with regulations is enforcement. As mentioned earlier, “regulation” just means laws exist. But laws don’t do much good if they’re not enforced. And unfortunately, a lot of laws related to charities, financials, and fraud just aren’t enforced. It’s not that the people in charge are doing a bad job on purpose. But the state and federal regulators responsible for this enforcement are often underfunded. If they don’t have the funding, it’s really hard to provide adequate oversight.

As a donor, you’re somewhat on your own here. Don’t let government regulations lull you into a false sense of security. Just because the regulations exist and a charity is officially registered and filling out the proper paperwork doesn’t mean you can trust its marketing. It may not even be a legitimate charity. There are regulations out there, but the challenge is with enforcement. It’s up to you to do your own research.

Find Effective Charities with CharityWatch

Organizations like CharityWatch are a good starting point to find effective charities that will put your donation to work actually supporting causes. CharityWatch’s analysts dig through charities’ finances and untangle sometimes very complex numbers. They determine what percentage of your donation goes towards programs and how much it cost that charity to raise that money. Use those numbers as a starting point.

Every once in a while, Laurie finds someone who makes donation decisions only by the efficiency numbers. She tells people to use financial efficiency just for initial vetting. Charities that are top-rated on CharityWatch generally spend more than 75% of donations on programs. If a charity is top-rated, you can consider it financially efficient, regardless of the actual number.

From there, figure out if they actually operate programs that are important to you. For example, veterans are a very popular cause and easy to raise money for. (This also makes them a popular target for charity fraud, where predators swoop in to siphon off money.) Some veterans’ organizations provide direct aid to veterans, like helping with medical bills or rent payments. Some support a military or independent hospital that helps veterans.

Other organizations just send out lots of mail. If they send out mail encouraging people to fly an American flag to show support for veterans, they are allowed to report that as a “program.” Laurie has seen instances of charities spending millions just sending out direct mail, then claiming in their marketing material that 90% of your donation goes to “programs.” Even if they are efficient, determine if they’re operating programs you want to help fund.

Are you really helping people? Are you providing … something that’s really legitimate, or are you really using my donation to send out more fundraising letters?

Laurie Styron

Common Types of Charity Fraud

This year the Federal Trade Commission, in conjunction with forty State Attorney General’s Offices, cracked down on a number of fundraisers raising money for about a dozen charities. It resulted in about $170 million in settlements.

There were two main issues that they were focusing on. The first was misleading fundraising appeals and marketing. The organizations committed charity fraud by saying they were doing something with the donations, but they were really doing something else. In addition, the thing they were actually doing didn’t at all help the cause that the donation was intended to support.

The second issue was self-enrichment. Fraudsters were using the charitable organizations to enrich themselves. They might have been claiming salaries that were really low, but used other channels to get compensation that they weren’t reporting. Or there may have been third-party transactions where the charity did business with another organization and that other organization somehow benefited one of the board members. There are a lot of different ways people can siphon off money that was supposed to go to charitable programs to enrich themselves.

There are a lot of ways for bad actors to get around reporting all the compensation they’re receiving from a charity.

Laurie Styron

High Executive Salaries Aren’t Actually a Big Deal

Many donors get focused on the salaries of charity executives. It’s a hot-button issue. Laurie understands why people get upset when charity executives have excessively large salaries. But the problem is that nonprofits compete with private businesses for competent people. When you see a highly-paid executive, ask if that salary would be reasonable for the CEO of a private company getting paid by the government to do the same things the charity is doing.

Charities need competent people so they can be a good steward of their resources and donations. If they hire someone with the knowledge and experiences to do the job really well, they may be able to double or triple the charity’s impact. In that case, paying that person market rate for an executive in a private company is worth it.

When Laurie looks at tax filings, it’s actually a huge warning sign when people are underpaid. What competent business executive would really be willing to work for $20,000 per year? Almost every time she’s investigated a charity that reported low salaries for executives, she found some sort of charity fraud. The executives were really making a lot of money – they were just using other, sneakier methods and not reporting it.

A good rule of thumb is don’t just focus on the [executives’] salary as the single variable and deciding if a charity is good or bad. Look at the context.

Laurie Styron

When it comes to executives’ salaries, use common sense. If the woman running your local cat shelter is paying herself half a million dollars a year, that’s inappropriate. If an executive is running an international charity in a position that requires both a medical degree and an MBA, you can’t hire someone like that for $40,000 per year.

Red Flags to Watch For in a Charity

There are a lot of red flags out there. Whether they indicate outright fraud or just a charity that isn’t responsible with their finances, Laurie doesn’t have time to go through them all here. But these are a few of the major red flags you should always be watching out for.

High-Pressure Tactics

Laurie can’t stand it when she’s in line at the grocery store, having worked a long shift and got what she needed and just wanting to get home, and the cashier or the self-checkout machine starts asking if she wants to donate some money to help starving children. No, she doesn’t – not until she has time to check out this charity. The same is true of people fundraising on the street with their clipboards. There’s nothing wrong with taking their literature, especially if it’s a cause that interests you. But don’t donate there. Do some research, and if they check out, go to their website and make a donation there.

We all only have so much money to donate. We want to make sure we’re donating to charities we’re passionate about, not because someone’s pressuring us. Many of these fundraisers are great at making us feel guilty. And the people involved often have a script telling them how to override your objections. They’re experts in the psychology of influence and they’re using all of it against you, a person just going about your day.

[Fundraisers] are experts, and they’re up against you, a person who was just going about your day.

Laurie Styron

Be wary of high-pressure tactics, maintain good boundaries, and be willing to say no in the moment. You can even say something like, “I love to give to charity, but I’m not donating today. I am interested, though, and I’d love to take a pamphlet.” If they don’t respect your boundaries, you have no obligation to be polite. You can just walk away.

Telling an Emotional Story

A lot of charity fundraisers, even for good and legitimate charities, try to convince you to donate by connecting with you on an emotional level. They’ll tell you a story about a very sad child who needs eye surgery, kittens who were almost drowned in a river, or a veteran who lost a limb defending our country. It’s great if you’re affected by that. It means you have empathy, and that’s a good thing. But don’t let those emotions compel you to donate if you haven’t done your research.

You have to separate the feeling from the resulting action. That’s really important.

Laurie Styron

If you feel compelled to donate, use that feeling to determine you’re going to donate to that cause at some point. It doesn’t have to be that specific charity, and it doesn’t have to be right now. If you opened a letter and see pictures of abused horses that make you want to help abused horses, get on CharityWatch. Even though they don’t have ratings for every charity, they also have tips for how to do some research on your own. Also take a look at other charities working with that cause or similar causes. Once you feel good about a charity you’ve found, go ahead and make a donation.

100% of Your Donations go to Programs

Donors love charities that claim they will spend 100% of your donation on this or that program. It sounds great, but it’s not logical. Every charity has some overhead – rent, utilities, insurance, salaries, fundraising costs, and other things that aren’t programs but make the charity run. How can they spend 100% of your donations on their programs if they also have to pay rent and pay all the people who work there? People get excited that their donation won’t be “wasted,” but the claim doesn’t make sense.

When Laurie has dug into these claims, the charity often equivocates. When she gets a straight answer, it is usually something to the effect of a wealthy board member is paying all their overhead so all donations can be used for programs. But that’s just marketing spin. Since money is fungible, it would be just as true to say 100% of your donations go to overhead so the board member’s generous donation can go towards programs. But if they said it that way, you wouldn’t be nearly as excited to donate.

When you see 100% of your donation goes to something, it’s not real, don’t believe it.

Laurie Styron

The key is to make sure the amount of your donation going to overhead is reasonable. On CharityWatch they have a sliding scale, and you can decide for yourself how much is reasonable for you. Especially if it’s a smaller or more controversial cause, an organization with a lower rating might still be worth supporting because it’s more expensive to raise money in those situations. This is another reason why it’s important to look at the whole picture, not just the numbers.

The Risks of Crowdfunding

A social media influencer heard about the plight of civilians in Afghanistan fleeing the Taliban and wanted to help with evacuation. He started a crowdfunding campaign. By the end, he raised over $7 million. But he didn’t have the expertise or experience to evacuate civilians from a war zone. He projected that evacuation would cost about $1,500 per civilian. By the end, it cost almost $12,000 for him to help each person evacuate. And this is a best-case scenario. This young man wasn’t trying to steal money or commit charity fraud. He had great intentions and genuinely wanted to help, but got in way over his head.

In another example, last year a five-year-old boy was shot in the head while playing in his front yard. His grandmother started a legitimate GoFundMe campaign to raise $5,000 for his funeral. It was a great tragedy, and people were happy to donate. The campaign for funeral expenses probably raised more than they were asking, and most donors were probably okay with that. But then more than a dozen fake campaigns popped up. People not at all affiliated with the family created their own crowdfunding campaigns claiming to raise money for the family. But these campaigns were fake and the money never made it to the family.

GoFundMe did intervene. They tried to take down the fake pages and reclaim some of the money donated under false pretenses. But these platforms aren’t equipped to vet everyone before they start taking donations. If there’s enough media attention on a fake campaign, they’re able to invest the resources to shut things down. But in most cases, they don’t have the resources to confirm the person you’re donating to is a real person championing a real cause.

Those [crowdfunding] platforms are not designed to vet every individual who goes on there and creates an account.

Laure Styron

Anonymity is Great for Charity Fraud

When you donate to a 501(c)(3) registered public charity, you can go to the IRS website to confirm their registration and access their annual tax filings. You may not have the expertise to interpret what those filings mean, but the information is there. People on crowdfunding platforms don’t have to do any of the filing or annual reporting that registered charities have, and they don’t have any of the regulations. Donating on a crowdfunding platform isn’t much different from giving cash to someone on the street.

The anonymity of being online poses a problem. Laurie is willing to bet that when asked for money by a homeless person who could probably use the help, most of us avert our eyes and walk by, thinking that we can’t give to everyone who asks us on the street. But most of us are also happy to go home and make a donation on a crowdfunding site because there are good pictures and a sad story.

Don’t Use a Middleman

Overall, Laurie advises against using crowdfunding platforms to donate. Sometimes individuals are raising money to deal with a tragic event. But you have no good way to verify if this particular campaign is actually genuine or if it’s for a made-up event or charity fraud piggybacking off a legitimate tragedy. Unless you know the person who is running the campaign, it’s best to steer clear.

CharityWatch always advises cutting out the middleman when you can. If someone is raising money and will be donating it to a charity, why go through a crowdfunding site? Just donate yourself. Influencers, celebrities, and public figures can leverage their fame to bring awareness to an issue. That’s great. But there’s absolutely no reason you should donate to them first and then have them pass the money on to the charity. Just donate directly.

When it comes to your data safety, the more people, places, and websites your data goes through, the more opportunities criminals have access it. Something similar is true with your charitable donations. Everyone takes a small cut as the cost of handling your money. So the more people and places your money goes through, the less actually gets where you want it to go. Even if it’s a perfectly legitimate crowdfunding fundraiser and they’re definitely going to pass your money on to the charity, you’ll do the charity more good if you go directly to the charity’s website and donate there.

How to Make Small Donations More Effective

Sometimes Laurie talks to people who get all sorts of donation requests and decide to just send each one $5. But the problem is fees. Every charity, just like every business, has some kind of payment processing fee. For every donation you send, there’s going to be some kind of flat fee and variable fee taken out of it. And after those fees, there’s not a lot left of $5. But if you pick only one or two and send them $25 or $30, the charity pays less of it in fees and gets to keep more.

In addition to fees, it also costs charities some money to receive donations. There’s admin costs to send you a receipt, and repeated solicitation because you donated and they want to encourage you to donate more. Even responsible charities who only solicit you a few times a year may find themselves spending $25 or more in printing, postage, and phone operators because of that $5 you gave two years ago.

There doesn’t even have to be charity fraud involved. Even for legitimate, well-intentioned charities, a tiny donation typically doesn’t do much good. If you don’t intend to donate to that charity in the future, it may end up actually costing them money in the long run. If you only have $5 and want to donate, it will do a lot more good if you give it to a neighbor who needs a meal or a homeless person on the street. Giving to someone in need right in front of you can put that small donation to work right away.

Donate – But Do Your Research First

CharityWatch puts a lot of focus on charity fraud. They recommend a lot of great nonprofits, but they spend most of their time trying to keep people from donating from fraudulent groups – or groups that aren’t necessarily fraudulent, but won’t use your donation effectively. They do this so people can have trust in the good nonprofits and charities out there.

The vast majority of charities are good. They’re working really hard, dedicated, often underpaid, and doing a lot of great work. Laurie doesn’t want to discourage anyone from donating. It’s a fantastic way to give back. But do your research first. Make researching before you donate part of your giving. Ensuring your donation gets used well should be part of your commitment to being a good steward and helping your fellow man.

Make that little bit of research you do before you donate part of your giving, part of how you give back.

Laurie Styron

Learn more about CharityWatch and start researching organizations you want to donate to on their website, charitywatch.org. If you’re not internet-savvy or can’t go online, you can also contact them for a copy of their biannual paper publication.