5 Tips for Donors to Non-Profit Organizations – Due Diligence of a 501(C)3 Organization

Most of us value our money, due in no small part to the understanding of what was done to earn it. Yet when it comes to giving our money away to charitable organizations even the wealthiest and most generous donors among us often fail to apply the same level of due diligence typically applied on a routine basis to most business transactions. Acknowledging this fact in an article for Forbes.com, Betsy Brill, a planned-giving consultant, noted:

Over two-thirds of wealthy households surveyed for Bank of America’s 2010 study of high net worth philanthropy reported that they give to organizations when they believe their gift will make a difference and when they know the organization is efficient in its use of donations. However, a much smaller percentage of donors actually conduct the extensive research necessary to accurately make these determinations. For example, another 2010 donor survey–this one by nonprofit consultancy Russ Reid–showed that only one-third of donors actually talked to an organization’s staff before making a gift, and only one-quarter visited the organization in person or reviewed its annual report.

The non-profit sector has been impacted by the downturned global economy and despite heavy regulation and oversight; scandals and abuses grab headlines regularly making it incumbent upon the fiscally wise donor to follow these five best practice tips when vetting your next philanthropic beneficiary. There are lots of choices out there for most causes and new organizations are being formed every day. Making use of these five tips will place you among the philanthropic elite, those who are confident that they are investing and partnering with organizations that are effectively governed, transparent, accountable, fiscally responsible and aligned with their core values.

1 – Evaluate the Organization’s Mission. Every charitable organization has a mission and purpose for its existence. A large number of donors have expressed a strong preference for giving to causes that they themselves have an interest in or passion for. The logical first step is to review the mission and purpose of the organization you are considering or seeking one whose mission matches your interest(s) and passion(s).

2 – Review the programs and services the organization provides. It is important to see if the services and programs align with the organizations mission. Some donors may be interested in the types of programs and services offered. Ask if there are any tools in place to measure programming effectiveness or impact and request to see the most recent results. An actual on-site visit provides an opportunity to meet and observe the administrative staff and effectiveness of the programs and services.

3 – Confirm the Organizations Tax Exempt Status. If your donation is somehow connected or motivated by the tax benefit of a deductible gift you are advised to confirm the active status of the organization’s IRS Tax Exempt Status. For the IRS they have a public search portal located at:  http://apps.irs.gov/app/eos/.

4 – Review the Organization’s Annual Report. A great deal of insight and information may be gained from the annual report. Prior to making any significant securities acquisition the prudent investor typically reviews the annual report of the company in question evaluating certain indicators. Why then should we treat our philanthropic investments and partnerships any differently? Ask the organization for last year’s annual report or ask for the last couple of years for your review. There should be a goldmine of information regarding the organization’s operations, achievements and activities.

5 – Review the Organization’s most recent Form 990. Every tax-exempt organization is required to file a Form 990 annually with the IRS. The Form 990 contains all the information that the IRS requires and provides a quick snapshot of the organization’s full operation. When reviewed in conjunction to the annual report a well-rounded understanding may be developed of the operational structure, financial health and the programming activities of your targeted non-profit.

If an organization’s use of funds is an issue or concern for you and your gift, you may desire to add a review of the organization’s last Financial Audit. It will deliver a more complete picture and share a more precise insight into the financial operations of the organization. Lastly, if you are considering more than a simple one time gift and are truly seeking to build a long-term relationship with an organization ask if there is a strategic plan and a fundraising plan, and if you may review them. You may also seek to review the organization’s investment policy to insure the long term vision and strategies align with meaning and purposes of your gift.

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