Not only do donors need to check out the usual things about a nonprofit, such as its administrative, fund-raising and program expenses, but also where it is investing its money.
Generally, there is little danger with smaller nonprofits since they rarely have endowments or other investment funds.
But, if you give to large institutions such as universities, hospitals, museums, and some large social service agencies, it will be wise to ask questions about their investment strategies.
In a Wall Street Journal column, Elizabeth Bernstein asked experts how donors can protect their donations. Here are those suggestions:
1. Look for transparency.
Look for key financial information on the charity's web site, such as an annual report, audited financial statement, and its Form 990.2. Check out the organization's mission.
Does its financial actions match? A nonprofit that needs money for the long-term, such as a university, should have an endowment. However, a charity that is helping to alleviate the effects of malaria in Africa should be spending its money to do just that. It would be outrageous to be investing money when people are dying.3. Find out who is giving the organization financial advice.
Who is on the board? Is there an independent investment committee? Who are the organization's auditors?4. Take a look at the group's investment portfolio.
Is the portfolio well balanced? Does it make sense given the organization's mission? Does it look good for long-term growth rather than short-term risk?
Although there are no guarantees when you give money to a charity, checking out the financial fundamentals may well help ensure that your donation goes where it can do the most good.
