Charity Scams with Michael Thatcher and Zachary Weinsteiger
With Giving Tuesday right around the corner, it is important to make sure that the money we give gets to the causes we are passionate about. In the midst of the season of giving, scammers are working to get as much of your charity as they can.
Today’s guests are Michael Thatcher and Zachary Weinsteiger. Michael leads Charity Navigator and its efforts to make impactful philanthropy easier for all by increasing the breadth and depth of ratings coverage of a large number of charities. He has held various board positions within the non-profit and tech sector, holds several patents in enterprise systems management, and has a degree from Columbia University in New York. Zachary is on Charity Navigator’s analyst team and is responsible for data collection, research analysis, and the evaluation of the performance of America’s largest charities. He also works towards improving the evaluation system and process.“The hardest part about charity scams is that they’re scams and until they get caught, we don’t know they’re scams.” – Michael ThatcherCLICK TO TWEET
- [1:16] – Michael has been with Charity Navigator for about 5 years, but previously worked for Microsoft. He was attracted to Charity Navigator to make a more positive impact.
- [2:04] – Zachary initially intended on being an educator on the college level, but during the course of study he felt that he wanted to do more. He wound up with Charity Navigator after hearing someone speak at his graduation.
- [2:53] – Charity Navigator was started in the early 2000’s by someone who was wealthy and wanted to donate money. He noticed that there was no way to evaluate the organizations he would invest in, so he started it himself.
- [4:42] – Michael shares how large the non-profit and charity sector is in the United States.
- [6:10] – On one hand, there are several successfully run charities, but then there are some that fall apart.
- [6:42] – Michael started working in the non-profit sector when he opened a dance company with his wife. Unfortunately, it failed, but now he has found himself in a similar position running Charity Navigator.
- [8:03] – The hardest part about charity scams is that they’re scams and until they get caught, we don’t know they’re scams.
- [9:32] – Zachary says that sometimes the donors might not actually know they were scammed and move forward without knowing.
- [10:43] – If you feel like you have been scammed, you need to report it, regardless of the feeling of embarrassment that many people feel.
- [11:04] – Look for transparency. Legitimate charities will have a website and will be able to direct you over the phone to a way to find out more about them.
- [13:10] – Be intentional with your giving. Donate to causes that you care about and find out if the charity in question is on Charity Navigator.
- [14:29] – During times of crisis, people change their giving philosophy. This year, the United States has seen different crises and people may be donating to charities they don’t normally notice.
- [16:21] – Charity Navigator has a relationship with GoFundMe and Michael says it is a legitimate, strong, and successfully run crowd-funding site. But if you don’t know the person and have a real relationship with that person, you need to be wary.
- [18:04] – What Zachary notices with GoFundMe is when individuals donate to others they don’t know, there’s no form of accountability.
- [20:09] – There are organizations that are a good filter to avoid fabricated stories on GoFundMe. Michael shares them as Give Directly and Donors Choose.
- [21:39] – When you donate to charities through Give Directly and Donors Choose instead of GoFundMe, you can use them as a tax write off. When you donate to an individual on GoFundMe, you cannot.
- [22:08] – One of the key things that Charity Navigator looks for is strong financial performance. Michael describes what this looks like and why it is important.
- [22:41] – Another important facet that Charity Navigator looks for to establish their ratings is the charity’s level of transparency and governance.
- [23:33] – Overhead costs are not a bad thing. The salaries of the people that work with the charity organizations are important too. Charity Navigator looks at this as well.
- [25:02] – Michael dives into the way their rating system works and what a rating could mean.
- [28:19] – There really isn’t a one-size-fits-all that works in this space. Michael compares a charity that supports an orchestra versus an organization for a homeless shelter. Charity Navigator does not cross compare.
- [29:36] – Charity Navigator is the largest independent evaluator of charities in the US and has been around for 20 years.
- [31:14] – Charity Navigator has a team of only 26 people to maintain a small business feel and keep their costs low as well. Each analyst is assigned a specific type of charity that they themselves care about. Zachary explains how this works.
- [33:25] – Another thing Charity Navigator sees frequently is when costs disappear. Zachary explains how this works and how it goes into an evaluation.
- [35:53] – Charity Navigator uses the form charities fill out to establish and maintain the organization. This creates uniformity, consistency, and gives them a way to determine if a charity is being truthful.
- [39:42] – Michael explains how and why the end of the year sees an increase in donations and traffic to their site.
- [41:18] – Scams pop up during this time of year as well because scammers know that people are in a rush and are in an emotionally driven time to give.
- [43:13] – Charity Navigator has a feature called The Giving Basket which allows you to donate to an organization through their website. This is a very safe way to make a donation to make sure it goes directly to the right place.
- [44:55] – Before you give, do your research. Slow down and look at everything you can find about the organization.
- [45:39] – Think of your giving as an investment and follow the money. Stay connected to the non-profits you give to because you are investing in the changes they bring to the world.
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Thank you. I’d like you guys to give us a little background about yourselves and how you got involved with CharityNavigator.
Michael: I’ll start. I’m the president and CEO of CharityNavigator, I’ve been in this role for about five years. Prior to being with CharityNavigator, I worked at Microsoft as the CTO in their public sector, looking at trying to make a difference using technology and social and economic improvement in areas like Africa, Middle East, and Asia. I became attracted to CharityNavigator as a means of actually affecting more good in the world and working on an evaluation system that would allow us to guide dollars to well-run and more effective nonprofits and hopefully weed out the bad players even when they existed.
Zachary: I’ll hop in. I’ve a bit of a less storied history, and I found myself here by accident. I initially intended to be an educator at the college level, but during the course of study, I found myself feeling like I want to be doing more in the world and happened upon CharityNavigator by happenstance. Their founder actually spoke at my graduation. A friend of mine wound up working there. I wound up here as an analyst and over time took over our advisory system, which is what I do today.
That’s awesome. Why was CharityNavigator originally created?
Michael: Zach was just talking about Pat Dugan who is the founder of CharityNavigator. Pat and his wife, Marion, started the organization back in the early 2000s. Pat came into a significant amount of wealth and started giving back. As he started giving back, he realized there wasn’t an independent evaluator of nonprofits. He was familiar with Morningstar, which was a system that has been created to help people figure out the best organizations to invest in. He was seeing his giving as an investment in social change.
When he saw that there wasn’t an evaluator, because he had the means, he created it. He didn’t necessarily have the knowhow to make that happen, but he hired the right people, built it up, and he funded CharityNavigator’s existence well over the first decade of our coming into being.
I’d say the other catalyst for Pat was, at that time, there were a couple of high-level and high-profile scandals within the nonprofit sector. There was a situation at Covenant House, there was a situation with Hale House, and a little bit later, something with one of the United Way in the country.
Again, seeing that there was not always the best behavior in the sector, it drove this idea of how do we help the donors and become a donor advocacy. CharityNavigator’s involved a fair amount since that origin. In fact, we’re no longer supported by the Dugan family. We’re actually an independent 501(c)(3) charity ourselves living off of the donations of people who use our service.
Got you. How big is the charity sector domestically or nationally?
Michael: In terms of dollars, it’s about $450 billion annually that goes into the sector. There are about between 1.6 million and 1.7 million nonprofits that are registered with the IRS.
Wow, that’s huge.
Michael: Yeah, and it’s been growing quickly.
That leaves a lot of room for poorly run or ineffective charities and highly effective charities. That seems like a surprisingly large number to me. Is there a fairly low barrier to entry?
Michael: It’s relatively easy to register as a 501(c)(3) nonprofit. One of the things that you realize is that it’s a little bit like startups where you have about 80% fail within the first five years of existence. I don’t know that it needs to be hard to create a charity. It is harder to run one and have it be sustainable.
Often, we start nonprofits or a charity when we are moved by some specific issue or cause. Usually, it is family started. We’ll get together and we’ll create something. Sometimes, that has interests that lasts and is sustainable across the generations, sometimes it’s multiple generations. You look at some of the larger foundations that have been around for several generations. You can see significant growth and benefits that have come from them, but then you have many that just disappear.
It’s a lot of churn on the front end that charities within the first couple years, either they’re not able to get traction, they’re not able to get donors. The people running it have challenges in their lives and have part-time donating or dedicating a large amount of time to assume that running a charity can start consuming a considerable amount of time.
Michael: The shorter side of that: the first thing I did professionally was run an arts organization. My wife and I started a 501(c)(3) dance company. The two of those for us ran that for about 10 years until we ran out of steam and ran out of money. Over that time, I was supporting myself and us by writing software, which eventually became my main point of focus. It’s been interesting for me to come back later in life and actually run a nonprofit evaluator that’s all about being more efficient. Needless to say, that was a tough failing at that time when I was in my 20s and beginning in my early 30s and having to walk away from what I really loved.
Efficient charities or effective charities are not highly profitable in terms of the people that are running them in most cases. It’s not your private-sector job where you’re going to make vast sums of money, not that anyone does. The core of what I wanted to talk about was charity scams. Not necessarily charities that are not properly run or have technical challenges when they operate, but actual scammers who are fake entities representing themselves as a charity. Is there any indication of how much money is going to these big charities?
Michael: I think I’ll start on this and maybe let Zach add some color to it, but the hardest part about charity scams is that they’re scams. Until they get caught, we don’t know they’re going on. You can be a fake entity that is pulling off $20 donations from thousands of people. Even if they get caught, those people that gave away their $20 to a fake organization, they may never even know that they got burnt. That’s one of the harder parts.
The other is I think it’s almost psychological, when you’ve been burned, you don’t want to admit it. Some people don’t always sign up to say I got ripped off.
That’s a very common thing with any type of fraud or any type of scam. I was recently interviewing someone about corporate embezzlement and I think she was saying only 30% of corporate embezzlement actually ever gets reported because the person who embezzled the money was a family member. They were well-liked and they don’t want to come out and say I’m this seasoned business person who lost $500,000 to an employee who was taking it out the side door. It’s definitely not something that people want to talk about.
Zachary: I think that particularly within the nonprofit sector and charitable giving, sometimes donors just never figure out that they were scammed. If you’re called by some guy on the phone who spoofed a number and is telling you they’re from an organization they’re not, you’re giving your credit card information, they take the money. You get to go about your life thinking, “Well, I did a good thing today.” It may never come back to you that that person wasn’t actually with them. You may never seek that receipt from the original organization you thought you were supporting.
I’ve assumed lots of people, for listeners outside the United States, when people in the United States give to charitable organizations that are registered and whatnot, that’s a tax deduction that can lower the amount of taxes that they pay. It’s relevant to get that receipt, but if you’re only donating $20, $30, $40 or $50 to something, you might not even expect or even care whether you get a receipt.
Zachary: Exactly and I think we often find that we start to hear more and more from individuals once they actually do look for that, when they’re looking for that confirmation is when they start to realize something seems amiss and we often get little emails from donors expressing frustrations around this. It’s one of the hardest things to prove in those moments, but one of those things that you know at that point if you feel you’ve been had, you certainly should be reporting it to the regulators in charge of dealing with this kind of thing.
Are there any specific warning signs people should be watching out for in terms of how they’re being communicated with, with someone who’s claiming to represent a charity?
Michael: Go ahead, Zach.
Zachary: Largely, we’re looking for transparency. We would always recommend that you tend on the side of wariness if you’re approached by a phone call to give to a specific cause. Ask them for their EIN, their employer identification number, all 501(c)(3)s will have one. It’s something you can then run through a database. You can find their website, and that is often the safer place to do it. You can also do it by our website, Giving Basket. If callers are not willing to have that conversation with you, provide that information transparently, if they’re trying to apply pressure to get you to give now, at that point we’d say certainly maybe take a step back and do a lot of extra due diligence.
There is someone who claims to be from a charitable organization—I have no idea if they’re legitimate or not—that calls me on a monthly basis and says, “We’re collecting for this particular cause.” I’m vaguely aware that they might be a legitimate charity, but I’ve never outreached. I’ve never actively pursued this entity before. I get these phone calls and I’m like, “Honestly, I don’t give to people who call me unsolicited because I have no idea that you are who you claim to represent.” He’s like, “I can send you literature in the mail.” That doesn’t really confirm it either.
I’ve just opted with, if I receive an unsolicited phone call from someone who claims to be from a charity, I’m like, “No, I’m sorry, I already have charities that I work with. If your charity is in an area that I’m interested in, I’ll likely find out about you and give to you through means that I know are legitimate.” Unfortunately, phone calls are not one of them, nor emails, nor letters in the physical mail.
Michael: On that point, Chris, I think as a prospective donor, I would be defensive. And also, you mentioned a really key factor to be intentional in your giving. Let’s say the causes you care about are the environment, animal protection and something around health or education. Those are your causes. If someone comes in, calls you up and says they want you to give to something that it’s totally unrelated to the cause, you have an easy out saying, “This is where I give.”
Particularly with cold calls, asked them if they exist on CharityNavigator or on one of the other platforms. As Zach said, ask them for their EIN. Say, “Hold on a second. I want to look you up. Tell me your EIN.” And then you look them up on a site like ours. We’ll tell you right away. We’ll also give you a rating. If they don’t exist, they won’t show up in our database. I think that’s a really key thing. You want to know that they’re really a 501(c)(3)-registered charity. You also want to stay aligned to your giving intentions.
I’d add one last thing, and I think where we see more scams, and maybe this is a question to get to, is when there’s a crisis in the world, that will change your giving philosophy. We’ve been living through a couple of really intense crises in the United States over the last year, both with COVID-19, with racial injustice. People are really digging into and starting to give in areas where they may not have normally given.
That’s something that my wife and I do. We have a set group of charities that we give to on a regular basis that have causes that we believe or are passionate about and we want to support. There’s also when natural disasters happen, we have a contingent for that to be able to help out in those sorts of things, because we kind of view it as—we’re interested in causes that help people get themselves out of situations. If you’re helping to educate people and training people to have new skills, learn English well, that is something that will continue to help them throughout their lifetime, help their family, help the community.
There are also times of crisis when people just need food today. It would be nice to learn a new skill, learn a new language, but I need to eat today. I need to give my kids food today. It’s that balance that we always wrestle with, or go back and forth with, are we meeting immediate pressing needs of food and shelter or are we meeting long-term goal needs to help people raise themselves up out of poverty or something like that.
How do you guys feel or what do you guys think about GoFundMe, and charities, and people soliciting for support at GoFundMe in some of these—I don’t know that I will necessarily call them public-facing, crowdsourced funding for people in need, let’s say?
Michael: It’s crowdfunding and I’d love for Zach to speak a little bit about—we have a relationship with GoFundMe. I think as an organization, they’re a strong organization. The challenge with what we call personal fundraising through a crowdfunding site, be it a GoFundMe or another, is if you don’t know the person, you don’t have a real relationship with that person. It’s literally a person we’re talking about, not a registered organization with the IRS that you actually have some form of accountability structure with. If you don’t know them, you’re taking some significant risk.
That said, the platform itself, Zach, maybe you can talk about how we supply data to GoFundMe, but they work really hard to make sure that there isn’t bad behavior on their site.
Zachary: Pat has a background in our advisory system, what I do, and what we provide as an organization, even supplementing our ratings is these advisories. These little flags let you know when there is alleged misconduct, when there is a scam, that we become aware of a fake entity out in the world. What we do with our data partners, including GoFundMe, is seen on a weekly basis as these things update, as they’re published, all of that, we send them that data list and they adjust on their end. Their idea is that they want to make sure that their platform is not being used for outright scams to raise money.
What I do hear most often from users, who are again reaching out because they feel they’ve been scammed, is these individual fundraising attempts for an individual community that has faced some sort of tragedy. “I want to give money. I felt good about it, but now I’ve passed by the house and I saw a porch and driveway and I’m worried that they just use the money for things that weren’t that.” Regrettably, there’s really nothing we can do about that. As Michael said, there’s very little accountability structure in place for that. Again, if you want to give to a cause, per se, we definitely recommend looking for a registered 501(c)(3) nonprofit. Look for one that has a strong track record with ratings through us or through others, just those little trust indicators and give there.
If you want to give to an individual’s campaign on one of the crowdfunding platforms, I’d err on the side of making sure it’s someone you really know and trust, but there is going to be a more implicit risk there.
Yeah. In Southern California about two years ago, there was a well-covered in the news story of a woman who had claimed that her husband had been a firefighter and she had all these health challenges and ended up raising a significant amount of money on I don’t know if it was GoFundMe or one of the crowdfunding sites. As more and more people started to give, the news and reporters started to do more and more digging and found out that her whole story was fabricated, there wasn’t a single word of the story that was true and people have given I think $100,000 to this woman.
Again, maybe, it was someone drove by and saw the Porsche in the driveway. I’ve always been really leery about what people are saying. Here’s this GoFundMe campaign that’s being covered on the news. I’m like, “I don’t know who this person is. I’ll give where I know.”
Michael: Chris, there are a couple of organizations that provide that filter that allows you to give to an entity or an individual, but do so through a non-profit. I’m thinking of two organizations. One is GiveDirectly, which is really about providing funds directly to a recipient, but it’s handled by that non-profit. This could be anywhere in the world.
The other closer to home is DonorsChoose, which is more in the education space where a teacher will run a crowdfunding campaign for, let’s say, pencils and paper for their students for some specific project. DonorsChoose will then go and provide the pencils and paper to the teacher. There is no money being transacted directly to the teacher. You know it’s going where they say it’s going. It gives you that filter or layer that’s in between.
It’s nice because it allows you to give to a specific individual or very small cause but you’re not giving those cash. You’re reducing the risk, hopefully, someone’s not going to commit a scam to get 100 pencils.
Michael: But even then, that’s all they get. The last point on this, though, is that when you give to a DonorsChoose or GiveDirectly, you have the potential of getting a tax write-off if you’re in the United States. You give to an individual, you won’t have that advantage.
That’s a good way to get money to an individual but also get the tax deduction. Earlier where you talked about ratings, and that’s one of the cores of what the CharityNavigator does. What are some of the signs of maybe a lower-rated or a less efficient charity?
Michael: I’ll start. I think one of the key things that we look for at CharityNavigator is a strong financial performance in the sense that we want to know that the significant amount of the funding is going to the primary program and what the mission is of that non-profit. We want donors to know that they’ll be around in a year or so. In other words, do they have reserves? What are their liabilities to assets? The other thing that I think is really important is the levels of transparency in governance. If you ask them a question can they answer it, or are they going to avoid that?
Zachary: No, I think that’s a good starting point. I think that of course, we do want to see that the majority of the funding going in is going to go out to their programs, but we do also make clear that overhead isn’t, per se, a bad thing. I think we often see donors to very much have the best intentions. They want their money to go to the cause, the mission, all of this, and so they see that the CEO’s making a certain salary and suddenly they say I wanted 100% of this to go there and that’s not quite realistic.
I think that organizationally we do take a pretty strong stance on whether there is a relatively good amount to be spending on programs and a good healthy amount to be spending on administrative or fundraising. Making clear that those things are not mutually exclusive in terms of if they have money here in their expenditures, means they’re not doing certain other things they should be doing. Making it clear that those overhead things also weigh into our system and we also do have thresholds for what is good here on a cause-by-cause basis.
Is there a general threshold where it moves from lower-rated to higher-rated, let’s say if it’s, I’m going to make up a number, 50% of the giving actually goes to the cause and 50% handles overhead and salaries? Does that blend move or depending on the size of the entity, or is it something that’s fixed?
Michael: Right now, for example, we’ve just launched a new version of our rating system. We’ve set the bar at 70%. That’s based on doing a statistical analysis of about 200,000 nonprofits and looking at what the average behavior is. More than 85% were above 70% in terms of how much was going towards the actual program. That basically says you’re OK. We’re also trying to not say that 99% is necessarily the right number to be an effective non-profit. It makes you a highly efficient non-profit, but not necessarily effective.
On the flip side, though, if you put less than 50% of your funding into the overhead, you fail at that point. That’s a failing grade. Just one point of clarification, though, on something you said, which is salaries may or may not be considered overhead because if you’re paying people for program delivery, that’s a program expense. Your HR director and the executive admin, that’s an administrative expense and their salaries are admin, but those that are working on a program that expense is very much a program expense.
It takes time, money, and effort, and people to administer programs. Thank you for that clarity.
Zachary: To that point, again I think that for our newer system, that 70% threshold is very good as a general barometer. Again, if you are spending less than 50% of what you’re spending on your program, we would generally see that as a negative trendline and something to be concerned about. With our traditional star ratings, I just want to dig in a little bit and say cause-by-cause. If you’re a food pantry versus a museum, you’re going to have a different threshold for what is an appropriate amount to spend on a program.
For example, in museums, because they’re maintaining these huge buildings, typically the larger ones at least, they, by their very nature, have more costs that are typically put into the administrative bucket. Our star rating system is responsive to that. If we know you’re a museum, we know that those thresholds will be different for you than they will again for that food pantry. We do try to approach this with as much nuance as we can and where we can. It’s an ever-evolving process on our end.
That makes sense that, as you guys, as CharityNavigator, is in the space longer, you learn the nuances and have a better understanding. You have the analytics of what’s normal for a charity within a specific sector or a specific cause. It’s nice to know that your platform adapts and doesn’t—you’re a three-person charity versus a 10,000 person charity, you’re going to function significantly different.
Michael: There is no-one-size-fits-all that really works in this space. When we get to something like looking at the effectiveness of the impact of these organizations, what’s the impact of a symphony orchestra versus a homeless shelter? They’re not the same. At the end of the day, we’re going to come up with an evaluation that gives you a number that says, in this particular space, let’s say homelessness and homeless shelters, this is a better run and perhaps more effective organization. We would never do the cross-comparison because that would just be damaging, if at best.
Maybe that’s a little tangential. Are you finding that you’re needing more and more staff for CharityNavigator to have an understanding of how specific sectors of charities work and what’s normal within that sector? Can your team, just as a whole, see these trends, easier to see them just because you’re in the overall charity as a whole?
Michael: It’s really a great question and I think when you think about CharityNavigator, we’re the largest independent evaluator in the country. We’ve been around for 20 years; it was sort of the go-to for that. Today, we have 26 people working in the organization. We’re a very small nonprofit ourselves. The way we’re attaining the scale is through one data analysis of common data sets, so the IRS Form 990, which all nonprofits over 50,000 are filing.
The other area, when you start breaking into arts and culture, museums, zoos, and aquariums, you have all these different segments. It’s actually about working with collectives within those segments. Where we partner in, we have established significant relationships with other organizations that collect data and that are doing some analysis because we’re not capable of actually becoming experts in each and every one of these areas. Rather, we’re an aggregator of expertise, that we qualify that the expertise exists and then we bring that into what becomes our rating.
That’s helpful because I was thinking, otherwise, it will be heavily staffed if you have one person who is an expert in animal charities, one person who is an expert in educational charities. This is going to get staff-heavy very quickly if that’s the case.
Michael: There is actually—and Zach, you can speak to this—there’s an assignment of causes per analyst within the organization. That’s done to a certain extent, but it’s in aggregate.
Zachary: Definitely within our analyst team I was formerly a member of, while I was on the team, my main areas of interest and the places I personally evaluated and oversaw that process was museums, arts, cultures, humanities, religious activities, organizations. Those were the places that I gained a vast amount of insight into just through the process of evaluating 990, after 990, after 990, all within the same space. I know it seems really great, it’s a small team, it’s a mighty team, they’re great at what they do.
Oftentimes, just in team meetings, we’ll come up and say, “I’ve noticed this new trend,” just by, again, more and more 990s being done. “I’ve noticed there is shifting; we should look into how we can address this.” That’s, again, a constant process and the process that’s been ongoing since we started, which I think is one of the great strengths of what we do here.
That’s great that you can see trends and adapt the platform to that and adapt the way you look at things through that new information.
Michael: He’s reading the matrix.
Humans are very good at seeing trends and data sets. It’s very interesting to me.
Michael: And anomalies, actually. I think that’s the part that I get excited about is when everything looks the same, you spot the anomaly and then that’s where your mind goes.
Zachary: That’s the joy.
I have a background in IT, and I had built a fraud system for a company that I was working for and that’s exactly what it was. I would just be scrolling through data, “That’s odd; let me look at that.” It was the anomalies that really stood out. “That’s an outlier; let me look at that and see what’s going on there.” Sometimes when data sets were too uniform, that itself was a concern.
Michael: For example, one of the things that we issue advisories on is when a certain cause suddenly vanishes. It’s not right. There are two areas, I think. Zach, why don’t you take this one on some of the causes that go away inappropriately.
Zachary: One of the things we see most frequently, and something we’ve tried to address through the advisory system for the organizations we star rate because that is of a rigorous process, is if we’ve been evaluating you, it’s because you meet our criteria for evaluation and that is historically required that you’re spending something into your fundraising because we want to know that you’re soliciting from the public. We evaluate you years on end, multiple years’ worth of data, and one year we get the 990 and suddenly it says $0 on the fundraising line. That typically doesn’t make sense.
We look at that and we say, “That can’t be right.” We don’t want to make an evaluation based on that because obviously, we think that might be misleading. Our analyst team, again, great at what they do, they try as best as they can to reach out to the organization, get some clarification, see if maybe it was just an oversight from their accountants. See if they intend to correct it. If we don’t hear back from them, if we can’t really get that kind of clarity, at that point, just so our users are aware, they might know we evaluated the organization in the past. We want them to know we’re not doing that for a new 990. Here’s why and we will put an advisory on that.
There are other edge cases where we find something so egregiously abhorrent about the way the 990 is. Either the numbers aren’t adding up in a way that makes any sort of sense, we can address that through our system. Again, it’s just to let people know we’ve evaluated this organization, but we found this. You should be aware that because of XYZ data credibility issues, we simply can’t, at this moment, in good conscience, give you an evaluation.
I assume with all rating systems, there’s always somebody out there that’s trying to game the rating system. Do you occasionally see more fringe, let’s call it, charities cook the books in a way that would result in a better rating from you guys?
Zachary: Because we use the form 990 as the basis for evaluations, it’s a little bit harder to do it. It’s actually why we find the strength of the document that we choose to use is that it is uniform. There are rules around how it should work. If you were cooking the books or lying on it, you’re lying to the IRS, which is a bigger issue than lying to us.
I was wondering if that would be the answer. It’s not that they’re lying to CharityNavigator, it’s that they would have to lie to the IRS, and that has much more significant consequences than a better rating might get them.
Zachary: The IRS can do more to them than we can.
Michael: There’s one area and it doesn’t result in the adviser, it results in an impact on the actual rating. The score will go down, and this is getting a little bit into the weeds, but it’s something called joint-cause allocations. For example, let’s say you’re an advocacy organization and part of your mission is to raise awareness about something or some issue. You can also be sending paper mail having advertising that is raising awareness. Within that, you can be embedding a solicitation asking for money.
Depending on how you book that, you should be booking that in a very specific way, which is a joint cause. Part of the cause is attributed as program spend, part of the cause as fundraising. Sometimes that gets ambiguated in the favor of program spending. That’s something where we actually will pull out that amount from the rating. Needless to say, it’s not something that’s made us particularly popular with certain organizations, but we feel it gives a better representation of the real cause of the organization.
Zachary: Again, it’s one of the things we also do treat with nuance. There are organizations that we also know in certain cause areas, they’re going to have a joint cause. PBS, every time you watch their channel, there’s that little commercial every so often that says, “Funded by viewers like you. Thank you.” And maybe telling you where you can give money to. That’s a joint cause. They’re doing their program by having the programming and they’ve embedded an ask. We know an organization like PBS or your local radio station is going to do that. For those cause areas, there’s just an exemption on that policy.
Generally, the rule is it seems like something that donors wouldn’t be aware of. We find that they want that information to be available and they typically want to see it backed out. If you are very clear, very transparent with your donors that you are doing awareness campaigns and all this is happening, at that point, we would do an exemption. We try to treat it with nuance, too, because there are valid uses of that.
You just don’t want to be manipulated purely.
Zachary: Exactly. We’re looking for transparency in most things. As long as it’s transparent, we tend to give a little bit of leeway.
I know, at least in my mind as we’re recording this, it’s in mid-November and charitable giving seems, in my mind, to take up towards the end of the year as people are calculating, “How much can I give? What’s my tax benefits? Or how did I do financially this year?” There seems to be an increase in giving during the year. Do you find that there is more demand on charities at the end of the year? Is it just where everyone spends a portion of their fundraising opportunity?
Michael: I think the driver has been probably two things. One, the spirit of the end of your holidays, which are about exchanging gifts and giving in general. And then the other is about getting your tax write-off while you can because of the calendar year-end. In terms of our specific traffic and what happens at CharityNavigator, the busiest day of the year for us, and it goes right into midnight in Hawaii, is December 31.
Needless to say, it’s not great to be a CharityNavigator employee between Christmas and New Year’s Day.
That’s your crunch time.
Michael: It really is our crunch time and it’s amazing. It’s crunch in the sense of that’s when everybody’s giving, that’s when nonprofits are really on edge about their ratings because they need to be showing the best face to their donors. It’s also when donors are saying, “My gift didn’t go through. I’ve got to get this in by midnight.” I think it’s the tax incentive and then just the fact that it’s a period where we tend to exchange gifts with each other as human beings.
That makes sense. It triggers in my mind having had so many conversations about scams that there are usually several elements of scams. There’s urgency, which ties in with the end of the year. There’s emotion, which ties in with gift-giving and exchanging gifts, and being thankful. That almost makes it a very ripe time for scams to happen because those elements are in there that people are rushing to try to do something and maybe they’re not in the clearest state.
Michael: Definitely. Stay with the emotionality a little bit. There’s this sense of you are exchanging gifts and think of all these people that don’t have. We are naturally drawn to that. We want to care for people. We’re giving gifts to our family, to our children, and there are going to be many children out there in different parts of the world that aren’t going to be receiving anything and may actually just be needing food and water. That’s the reality of the world that we live in.
There’s something particularly abhorrent to exploiting that, to steal. You’re essentially stealing from the goodwill and the good hearts of others. I don’t know, I have a particular issue with that. It’s worse than just if you were to rob me in the street. That’s different than taking my money when I was actually thinking I was going to make someone else’s life better. There’s a twist that’s really hard to digest.
I think there’s a double offense to not only have you taken my money, but you’ve now taken money also from someone who is even in more need of it than I was.
That’s adding insult to injury. If people are wanting to give to a charity and wanting to make sure that the money is going to the actual charity as opposed to maybe a mistaken charity or a scam, do you guys have a system in place to help with that?
Michael: We do. And about five years ago, we created something called the Giving Basket, which allows you to give directly from within charitynavigator.org to the nonprofit that you found in our system. One of the nice things and the conveniences is that you actually can’t give to the wrong charity or a fake charity through our Giving Basket. There are essentially two factors of authentication. One is CharityNavigator, and then the back-end provider, which is Network for Good. Neither of us will allow you to process a transaction that’s not going to a legitimate 501(c)(3) organization. It’s a really safe way of actually making your donation.
That’s great. We’ll make sure to mention that in the show notes and direct everyone to be able to give from there.
As we wrap up -if people want to learn more about CharityNavigator, can they follow you guys on social media? Let’s tell them what the website is and what their best course of action is if they have friends that they want to donate to charity before the end of the year.
Michael: Sure. The easiest place to find all and everything about CharityNavigator is simply charitynavigator.org. You’ll find us on Facebook, you’ll find us on Twitter, you’ll find us on Instagram. Generally, @charitynav would be the handle. When you’re getting ready to give, be clear on your causes. I think sometimes that’s easier than you realize because, as I heard just recently, we don’t pick causes, they pick us. You generally know where your heart’s been called.
Before you move too quickly in your giving, do a little bit of research. Slow yourself down by two minutes, by searching on a platform like CharityNavigator. Know that it’s a legitimate 501(c)(3) charity so you’ll get the tax break. If it has a rating, take a look at that rating. One thing to know with the ratings, if it’s a good rating then you can feel great about your gift. If it’s an OK rating, dig into it. Ask some questions because you may still think it’s a good organization and you may want to put your money there. I think the real key is thinking of your giving as an investment and follow the money.
Stay connected to the nonprofits that you give money to because you’re investing in the changes that they’re bringing about in the world. That will really make a difference because you’ll also become a regular donor to that nonprofit, and then you build a relationship. In many respects, it’ll be a more meaningful experience for you.
There’s something significant about not just writing a check or entering a credit card number but seeing the results it actually has in people’s lives.
Michael: Yeah, that’s your return on investment, right?
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