Organizations shine spotlight on the financial workings of charities

Your Money

October 17, 2004|By JAY HANCOCK

IT'S FUND-RAISING season. A thousand wrongs beg to be righted. A thousand charities hound you for the means to do it. How to proceed?

A decade ago you might have heeded the best sob story, written a check and crossed your fingers. But now you can actually find out a bit about these groups.

An amazing concept, I know. Donors can check basic filings and standards to try to ascertain whether charities are scams, wastes, executive piggy banks or already amply financed by somebody else.

What progress. The quality of disclosure for nonprofit corporations now approaches what was available for for-profit corporations in, say, 1934, when the Securities and Exchange Commission was established.

It's not perfect. It's not even adequate. But it's better than just a ka-ching and a prayer and a tax deduction.

Thanks to organizations such as GuideStar, the Maryland Association of Nonprofit Organizations and Better Business Bureau Wise Giving Alliance, chances have risen that donations will go where they're most needed.

The first stop for the conscientious giver is GuideStar (www.guidestar.org ), founded a decade ago by Arthur "Buzz" Schmidt. A businessman who knew good information drives good economic outcomes, Schmidt was appalled that disclosure on charitable "investment" was almost nothing compared with what was available for stocks and bonds.

"The resource allocation process in philanthropy was the least informed, the least efficient transactional process we had in our social economy," Schmidt says from Amsterdam, where he's promoting transparency for European nonprofits.

GuideStar displays Internal Revenue Service filings for almost 400,000 nonprofits on its Web site. Charities have had to file these "Form 990s" for years and make them publicly available, but they often refused or obfuscated, and the documents were never accessible in one place.

Now they are, and easily.

Say you want to learn more about Dyslexia Tutoring Program, a Baltimore charity that gives free reading instruction to hundreds of low-income dyslexic kids and adults. Great idea. Cute kids in the brochures. But what's really going on there?

Register free on GuideStar's Web site. Then find Dyslexia Tutoring by using the "Search for Nonprofits" field, click on "Form 990" and call up the most recent filing.

You'll see that Dyslexia Tutoring had $400,000 in revenue in fiscal 2002. So it's not drowning in dough, and most support came from private donors, not government programs. That's a plus. If a charity gets my money via taxes, I'm less inclined to write a private check.

You'll see that 85 percent of its expenses went toward teaching dyslexic students how to read. Less than $27,000 was spent on fund raising. That means you're supporting Dyslexia Tutoring's mission, not paying some telemarketer to ask for donations to pay some telemarketer.

You'll see that Executive Director Marcy Kolodny made only $53,308 in 2002 - a very modest amount, especially next to other nonprofit CEO salaries. I like charities whose bosses are in it for love, not money. I want my dollars to make a dent in the world's misery, not pay for an executive retirement plan.

If you go to the Maryland nonprofit group's Web site (www.marylandnonprofits.org), you'll see that Dyslexia Tutoring passed the Standards for Excellence program, which sets strict ethical guidelines and reduces chances that a charity's trustees are profiting from insider business deals disguised as program expenses.

Visit the BBB's Wise Giving Alliance (www.give.org), and you'll learn even more about how to evaluate Dyslexia Tutoring or any nonprofit. Maybe you'll end up with a fraction of the information you might gather before investing in, say, a mutual fund or a car.

GuideStar, a nonprofit group financed mainly by foundation grants, has revolutionized the nonprofit world. Its site gets 20,000 visitors a day, says CEO Robert Ottenhoff.

The information it furnishes has launched investigations by newspapers and law enforcement. Knowing their IRS filings are open to all, nonprofits are cleaning up their acts and adopting the Wise Giving and Standards for Excellence guidelines.

There is still enormous room for improvement, although Iowa Sen. Charles Grassley and others in Congress are working on fixes. The IRS rarely moves against dubious charities. Penalties for self-dealing and disclosure violations are almost nonexistent. Form 990 is too hard to decipher.

But charities are no longer black holes, vacuuming in money and emitting no light.

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