How to Check the Legitimacy of a Charity

by Tom Streissguth
Legitimate charities donate most of their income to beneficiaries

Legitimate charities donate most of their income to beneficiaries

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Giving to charity is a worthy deed, but donor beware: not all charities are legitimate and not all groups use their funds for purposes advertised. There are convenient methods to check on a group to verify its self-marketing as a charitable organization. The key to this process is to investigate financial statements given to the IRS, to state agencies and as provided on informational web sites.

IRS Forms and Reports

A legitimate charity uses donations for the purpose it advertises, whether it's shelter for the homeless, medical care for the indigent or disaster relief. To find out how your group is using its money, request a copy of Form 990, the annual return that all non-profit groups must file with the Internal Revenue Service. Churches, synagogues and other houses of worship are exempt from this requirement but may still volunteer the information.

Websites

You can also investigate by navigating to online sites that provide ratings and reviews of non-profit groups. Donors, volunteers and those who benefit from the charity may all have something important to say. The big daddy of these websites is Charity Navigator, which offers reports on accountability and spending. The site breaks down charities by category (Animals, Environment, Health etc.) and gives star ratings, reviews and 1-through-70 scores in two categories: Financial Health, and Accountability and Transparency. The Better Business Bureau also hosts a webpage on charities and bestows the BBB Charity Seal on groups that pass its Standards for Charity Accountability.

Financials and State Agencies

Request a copy of the group's financial statements. They're not required by law to provide these publicly, but a legitimate non-profit won't mind responding to an individual's request for information. If this proves difficult, contact the state agency that oversees non-profit and charitable groups operating in the state (often, the Secretary of State), and ask for a copy of audited financial statements from the group you're investigating. In addition, the state attorney general may keep a database of complaints and lawsuits directed against the charity.

Costs and Expenses

Keep in mind some basic financial ratios that provide an idea of how the charity operates. Compare the earnings of the CEO to the budget for programs and check the office and administrative costs as a percentage of overall expenses. The higher these numbers and ratios, the less efficient the charity is. A legitimate charity is not run for the benefit of its leader or directors; instead, the majority of its spending goes to its beneficiaries.