It’s not that there’s a law, it’s that it’s a red flag of something fishy possibly going on, because charities that actually do what their purport to do are more in the 60/40 or better range. IOW, if the IRS digs into it a bit, they’re probably going to find some actual lawbreaking.
The biggest French charity scandal was uprooted a decade or so ago when financial investigators got puzzled by the fact the charity in question reported 73% of its income going back into overhead and publicity. After some digging, they realized the board of directors and CEO of the charity were taking turns slicing off the top, bottom and some of the middle of the pot. Ugly stuff.
It’s not a question of cash value being embezzled, but the manner in which it is.
No matter how you slice it, a guy who takes advantage of your sympathy to your fellow men by begging you to give money to help send kittens to Africa, but really puts it all in his pocket, well, that’s fraud and confidence tricks plain and simple. Furthermore, it poisons the well real charities draw from, which makes it even more despicable (to me at least) than armed robbery or tax evasion. It’s not like charity and sympathy are over-abundant resources in this world…
Agreed, though you will have to spend some time working through the IRS forms.
The American Institute of Philanthropy is another charity watchdog. Get one of their reports and you can get a sense of what a high or low expense ratio might be. They are not comprehensive though: they don’t cover smaller or local charities.
The Better Business Bureau has a charity evaluation group. They aren’t as good with expense ratios as AIP, but they do have solid governance information on major charities.
That’s not the question I raised at all though. Duke suggested any charity with 80% overhead should be investigated. I’m saying there are plenty of organizations out there with 80% overhead that aren’t fleecing anyone. Buncha guys who like to get together and watch North Carolina State football games? They can form a 501(c)(3) and rent out office space so they can set up a big screen TV and drink beer. That’s 100% overhead, and completely within their rights. Why they would do that, I have absolutely no idea. But it doesn’t mean the IRS needs to waste their time by snooping around.
Lots of great info on giving in general and some very interesting articles, as well as rating and grading organizations, and tips on avoiding unwanted mail & phone solicitations.
When I am looking at 990’s, a couple things I like to look at is percentage of expenses going to programming (I like to see 60% or better), and CEO salary as a percent of expenses (that varies more based on the nature of the organization and overall expenses). And if their income is $1M or more annually, they really ought to have audited financials available to look at - otherwise I suspect something is fishy. In any non-profit I have been the head finance officer, I prefer these documents to be freely availble on the website, but if not they are always available by e-mail to anyone who asks for any reason or no reason.
The situation encountered was probably worse than what they admitted to. I’ve had experience with charitable organizations and currently sit on a Board of a very efficient and effective organization.
What probably happened was that the OP asked what percentage of the money was going to the charity. The person talking to the OP was a telemarketer hired by the “charity”. The telemarketer proudly said that 20% was going to the “charity”. 20% is better than the 15% that the telemarketers typically pass on.
However, that says nothing about how much the “charity” is actually passing on to the cause that they are pretending to raise money for. The “charity” may be very inefficient and are only passing on 10% of what they get from the telemarketer.
Do you see what I’m getting at? Your donation may actually be 5 cents (or less) on the dollar.
Moral of the story: Don’t contribute anything to any organization that contacts you on the phone unless you are absolutely sure that they are not using a telemarketing service.
I just got back from a charity event for a group that aims to eliminate high school dropouts. I saw someone raise 20k in five minutes - and that wasn’t even the auctioning part. Sometimes schmoozing with the rich folk pays off. They do great stuff, but…most of their funding comes from the districts they work with, so basically they’re a body that does education/social work that’s ‘outsourced’. BUT - I took a look at their financial and 80 per cent of their funds does go to programming.
Still, my version of charity these days is giving directly. I see someone in need and I reach out.
Read your own post. Not all non-profit organisations are charities, so someone saying “any charity with 80% overhead should be investigated” is not saying “any non-profit organisation with 80% overhead should be investigated”.
A non-profit organisation that is selling itself as a charity is implying that the money given to them will actually go to charity. That’s completely different to an organisation that collects money from its members and is open about providing services to its members. I also wouldn’t expect donations to the second organisation to be tax deductible.
Grumman, your distinction has absolutely zero meaning for any rational discussion of charities. In the nonprofit world, the words “charity”, “nonprofit” and “501c3” are completely interchangeable.
No, they can’t do that. The IRS only allows certain types of charitable organizations to organize under the 501(c)(3) umbrella. These types of organizations are:
Do you see “bunch of guys who want to drink beer and watch football”? Didn’t think so.
Well, seeing as the IRS is the arm of the government which sets up the rules and regulations for 501(c)(3) organizations, and which enforces tax code violations which 501(c)(3)s might cause, why exactly would it be “wasting their time” to “snoop” around an entirely bogus charitable organization like the one you posited?
Sorry, I didn’t have anything specific in mind, just that it’s not hard to come up with a hypothetical organization that fits that description. Perhaps you could tell me why every organization at 80% overhead should categorically be investigated?
Because as I’ve stated, there are far more egregious potential violations out there to investigate rather than spend time on some $20,000/year nonprofit with high overhead.
Regarding CEOs…while I’d certainly be suspect of a small NGO where the CEO brings in a huge chunk of income, for larger NGOs it’s absolutely necessary to pay the CEO and management competitively.
The skills it takes to manage an NGO are pretty much exactly the skills it takes to manage a business. Something like the Red Cross is an enormous operation, and the management is in charge of a lot of people and a lot of money. They are working directly with the upper echelons of governments and business. To be effective as an organization, they will need top-notch management skill- people with strong leadership, vision, and connections. If you want people with the skills and experience it takes to make an effective organization, you need to hire those people, and they will need to be compensated.
Would you really rather some amateur schlub whose never managed so much as a lemonade stand be the one running these things? If you want professional work, you need professionals.
In my experience, far more money gets wasted by mom’n’pop charities that don’t have a clue about how to develop, manage or sustain an organization. You can easily give 90% of your intake to the poor, but if that means you are giving them something they don’t want or don’t need in an unsustainable or even harmful manner, you’ve just done worse than the charity that only gets 10% of their intake out there but manages to do it right.
Maybe there is. Maybe there isn’t. Maybe such fraudulent charity would be an open and shut case that’d take them all of an afternoon to send straight to booking. I’m fairly sure they’re more competent than you to do their own triage, no ? So what’s the harm in sending them a heads up ? What they do with the warning is up to them. Failing to report a (possible) crime because there’s bigger, better crimes out there seems a little silly to me.
They certainly are. I, however, made no sweeping claims on broad categories that the IRS should investigate 100% of the time. Perhaps you should be directing your comment towards Duke, who did.
Greg Mortenson, author of Three Cups of Tea, got into a big scandal a couple of years ago when there were many allegations about how much of the funds he raised really made it to build schools in Afghanistan and Pakistan. It turned out that of the millions he’d raised only about 40% had made it to the schools.
I wondered at the time “I wonder how many people who are outraged know that compared to many charities whose names you’d recognize, that’s pretty damned good”.
Southern Poverty Law Center, the non-profit civil rights charity most famous for bankrupting the KKK, is an organization on my “Do not donate” list. It’s not that they don’t do some good work, but they are a cash cow: at one point they got into a lot of trouble with the IRS because they were still soliciting donations even though they could operate indefinitely at their then expenditure rate on the interest on the money they had banked. They’ve loosed up a bit in recent years (they didn’t have a choice if they wanted to keep their non-profit/tax exempt status) but they still have a King Kong’s Buttload of cash and don’t need more.
911 was a boon to charity rip off artists. many people started charities which became cash cows for those running it. Some collected money for specific purposes and kept it.
Years ago, my roommate and I found out that the United Way had some ungodly high administrative costs, somewhere about 80-90%. (We were especially peeved because they had NFL players hawking for them during televised football games.) Thereafter, we vowed never to donate to them.
I later was hired by a company that did in-house donation drives for UW. We were offered “casual Fridays” if we got a “voluntary” 95% participation rate. (With only 50 employees, that meant that they needed 48 of us to participate.) I told the HR “pusher” that I would only donate to charities that could prove they had an admin cost of under 30%. She kept at me and at me, but I never caved.