Pete Thomson is President/CEO of McQ Media Inc, a media and advertising firm based in Dallas, Texas. Thomson’s weekly radio program, The Consumer Team, airs on CBS Radio’s KRLD Radio in Dallas, Texas.
During the holiday season, many Americans open up their wallets to support a favorite charity. From local non-profits to major national charities with $1 million-plus advertising budgets, the non-profit landscape is more crowded and competitive than ever.
Just how important are the holidays to your average charity? Non-profits will often admit that over half of all their contributions are received in the fourth quarter, with much of the money being received in December.
Largely because of the strategically crafted marketing campaigns, it’s easy to assume that non-profits are good managers of the money we give them. The images of hungry children being fed or other acts of kindness that result from a donation are indeed powerful. Yet, the reality in today’s marketplace is that a high percentage of non-profits are not effective at managing the donations they receive.
Some of the biggest, most reputable-appearing non-profits and ministries that dominate television and radio make big promises in their marketing. However, in many cases, a relatively small percentage of donations actually reaches the needy. In the case of many of the web-based charity campaigns, little or no money is going to the cause that is advertised.
Like the Wild West
Charities and ministries that were founded with a mission of helping people, can lose focus of their foundational purpose because of the jaws of overhead. CEO and leadership salaries, marketing and other infrastructure expenses can easily turn even the best-intentioned non-profit into an organization that is overtaken with the costs of doing business.
Thanks to several charity watchdog groups, consumers now have access to reliable and unbiased information regarding charities. Charity Navigator is a New York based non-profit that rates non-profits in a number of key criteria. The Evangelical Council for Financial Accountability (ECFA) offers a similar service which rates Christian charities.
Sandra Miniutti, VP/CFO at Charity Navigator, says that donors need to be very careful before giving money to a charity. She said, “There’s a lot of scoundrels and thieves out there. There are more than a million public charities in America today. The IRS is charged with overseeing them at the federal level and there’s very little oversight. It’s a little like the Wild West and donors need to dig deeper into a charity’s performance before they hand over their hard earned money.”
Financial transparency, according to Miniutti, is an important cornerstone to responsible non-profits. Ms. Miniutti indicated that many non-profits open their books to donors and the general public. Such transparency gives donors a way to confirm that their gifts are being utilized appropriately.
Lack of transparency
Still, a number of non-profits don’t open their books to the public. Many of these, according to Miniutti, are faith-based non-profits that are not required to share financial information. One such faith-based charity is The Salvation Army. Miniutti said that she finds The Salvation Army’s lack of financial transparency troubling.
“If a group is considered a house of worship by the IRS then we’re not able to rate it. And believe it or not, that includes The Salvation Army takes that exemption," she said. "They don’t have to file any financial data with the IRS so we can’t get access to data to evaluate them. We’ve asked them many times to share the data with us and they’ve refused to do so. We’ve found other religious groups that have the exemption with the IRS that will still provide us the data because they know that it’s important to their donors to see how they’re performing financially and to prove that accountability and transparency piece to them.”
Beyond financial transparency, consumers should look at other financial data to ensure that a charity is using donations responsibly. Overhead should be measured as a percentage of total gifts received. According to Miniutti, the most responsible charities keep overhead to less than 25% of total cash gifts received. Another area to analyze is charity CEO salaries, which Miniutti says should be in line proportionately with the size of the non-profit.
Cost of acquisition
The cost of donor acquisition is important because it measures how much a charity pays to third parties for delivering new donors. Radio stations, for example, will sell non-profits large advertising campaigns which are designed to recruit new donors. Charities and media companies attempt to justify the process of charging nonprofits to raise money because the marketing campaigns generate new, incremental donors for a non-profit.
But according to Miniutti, such marketing campaigns cut into charity operations and efficiency: “Anytime there’s a middleman involved, whether it be a telemarketing firm or a radio station trying to take a piece of the pie, that’s very disturbing. The truth is giving doesn’t change much in America from year to year. And if some of that money is evaporating into for profit companies, then the charitable sector has less to fulfill their worthy mission.”
What to do
In spite of the bad charities and scams, it is possible to connect with worthy non-profits. Here are some suggestions.
Use The Watch Dogs Tap into the vast resources of the charity watch dog organizations we’ve cited. Their services are free and can offer important information.
Don’t Give to Door-to-Door Solicitors Because fake credentials and even uniforms can be easily produced, avoid giving to any charity that comes knocking on your door. Be especially wary of the local organizations with volunteers soliciting for funds on street corners. Charity Navigators generally gives low marks to police and fire fighter charities.
Delete Charity Emails Unless you have an established relationship with a charity that you’ve first initiated, consider all the email solicitations to be bogus. Even emails that appear to be from a major charity are often a front for a scam, often located off-shore and out of reach of US laws.
Charity Scams Target Older Givers Older people sadly often fall victim to charity scams. Their general lack of sophistication with email (see email scams above) combined with isolation and their generosity makes for a perfect profile for the bad guys to go after. Take time to make sure that the seniors in your life become well informed about charity and non-profit scams.
Charity scams will only get more sophisticated and effective in the future. Indeed, high technology has given the bad guys a new platform to operate in with great anonymity. Because of this, consumers need to be even more vigilant in our efforts to separate the good from the bad. Giving to reputable and responsible charities can truly impact the lives of hurting people. Before giving, do your research to make sure your dollars are being used wisely.
During the holiday season, many Americans open up their wallets to support a favorite charity. From local non-profits to major national charities with $1 m...