Follow the Money

Americans—among the most philanthropy-minded people in the world—give an estimated $184 billion to charities each year, and many of those dollars go to diabetes-related research foundations, clinics, hospitals and patient groups. But with so many worthy causes to choose from, wading through the direct mail, e-mails and phone solicitations can be daunting, especially when donors don’t know how their gifts will be spent.

Too often charities skim off a sizeable portion of donations for administrative costs and fundraising, leaving a paltry sum for actual programs and services.

According to charity watchdog groups like the American Institute of Philanthropy, shady operations may proliferate because government oversight of charities is sorely lacking. In fact, the U.S. Supreme Court has forbidden states from setting minimums on what percentage of a charity’s funds must be spent on programs. And the majority of charities fall into two categories—religious organizations and charities with annual gross receipts less than $25,000—both of which are exempt from making IRS tax information available to the public. The inner workings of two-thirds of U.S. charities remain a mystery for that reason.

Fortunately, there are tools and resources available to help savvy donors weed out suspect charities and find those that are actually doing good work. Some watchdogs, like the Better Business Bureau’s Wise Giving Alliance, analyze data provided to them voluntarily by charities. Others, such as Charity Navigator, a nonprofit that rates the 5,000 largest charities in the country, collect financial data on organizations directly from the IRS. In either case, a little muckraking can yield a surprising amount of information about charitable organizations.

Interview Your Charity

Finding the right charity is sort of like dating. It’s important to take the time to find out about each prospect’s background, spending habits, ethics, honesty and work history before you commit.

You should begin by determining how open the charity is about its programs, finances and structure. In the interest of transparency, many charities disclose their financial information to national watchdog groups such as the ones mentioned above.

But if an organization refuses to divulge how it spends its money, that could be a red flag. A closed-book accounting policy could mean it has something to hide; after all, if the organization is ethically allocating its revenue, it should be eager to publicize its good work.

It’s also important to know how the charity spends its money. According to charity watchdog groups, a good rule of thumb is that the organization should be spending at least 65 percent of its total expenses on program activities and less than 35 percent on fundraising.

The Defeat Diabetes Foundation, for example, pours 75 percent of its money into fundraising and administrative costs, leaving just 25 percent for programs. This inappropriate ratio earned it “zero stars” out of a possible five on the Charity Navigator scale for intelligent giving.

The Whittier Institute for Diabetes, in contrast, spends 75 percent of its budget on programs, which earned it a four-star rating; and the Diabetes Research and Wellness Foundation dedicates more than 85 percent of its monies to services and scientific research.

According to Peter Cleary, Juvenile Diabetes Research Foundation’s national director for news media relations, the scope and focus of an organization’s programs are also important indicators of its efficiency and impact.

“Unlike many organizations that have multiple programs, projects and goals, we fund research that will lead to a cure for type 1 diabetes and related complications, and we fund more research on type 1 than any other organization,” says Cleary.

Size Does Matter

The size of the organization may play into donors’ decision as well. Smaller organizations can sometimes make better use of donor dollars, but larger organizations may be able to implement riskier, more cutting-edge programs that require a substantial initial investment.

For example, the Joslin Diabetes Center (JDC) is launching a new research effort to harness the potential of stem cells to treat diabetes, according to Marjorie Dwyer, JDC spokesperson. The organization is trying to raise $100 million to fund this and other forward-looking programs.

Another question to ask: Is the person at the helm earning a king’s ransom in salary? For example, the CEO of the American Diabetes Association earns over $433,000 per year in compensation, according to the Better Business Bureau’s Wise Giving Alliance. And the CEO of the Juvenile Diabetes Research Foundation International earned $582,000 in salary and benefits in 2004—one of the top 25 salaries of any charity CEO in the country, according to the American Institute of Philanthropy. Both CEOs manage large research budgets, and some may argue that their generous compensation is justified; how much a director or CEO should be paid is a subjective judgment. Nonetheless, some donors may prefer giving to an organization whose director or CEO isn’t earning a salary of that order.

Let the Donor Beware

In recent years, donors have become aware of a sneaky charity practice: selling donors’ private information to other charities for profit. These third parties bombard donors with spam, junk mail and unwanted phone solicitations.

“It’s perfectly legal for charities to do that, but it’s very frustrating to donors,” says Sandra Miniutti, director of external relations for Charity Navigator.

According to Miniutti, reputable charities should have a prominently displayed or publicized written privacy policy that guarantees they will not sell or trade their donors’ personal or contact information.

Finally, donors should investigate if there is a governing board of at least five voting members that meets regularly (the general rule is at least three times per year). While the Diabetes Research Institute Foundation met almost all of the criteria for the BBB Wise Giving Alliance’s check list, it failed to show that all of its board members convened at least three times per year, causing it to lose its “charity seal of approval.” That’s because charities without a functioning board may lack the oversight necessary to ensure fiduciary responsibility and overall efficiency. Such information should be disclosed on charity Web sites or other promotional material.

Making the Decision

Once you’ve sorted the wheat from the chaff and zeroed in on a few good charities, you can confidently make your final decision.

“Once donors have determined whom they want to give to, we suggest they call the charity to find out more about its goals, accomplishments and challenges so that they can learn if there are areas that need particular support on the programmatic side,” says Miniutti.

All of this may seem like a lot of work just to give away your money, and it really shouldn’t be this hard. But for philanthropists who want the peace of mind of knowing that their generosity and hard-earned dollars won’t be wasted, the extra legwork is well worth it.

A Comparison of Diabetes Organizations

Charity American Diabetes Association Defeat Diabetes Foundation Diabetes Research and Wellness Foundation Diabetes Research Institute Foundation, Inc. Joslin Diabetes Center Juvenile Diabetes Research Foundation International Kilo Diabetes and Vascular Research Foundation Whittier Institute for Diabetes Research
Annual Operating Budget $196 million $1.8 million $4.9 million $9.7 million $93 million $147 million $647,200 $5.5 million
Leadership Compensation
(CEO/director salary)
$433,544 $78,000 $69,777 $340,388 $463,156 $582,098 $41,340 $248,576
Mission Execution
(percent of budget spent on programs)
74% 25.2% 85% 77% 83.2% 84% 77.6% 83%
Staying Power
$115 million $89,766 $1.6 million $16 million $76 million $125 million $2.9 million $10 million
(percent of budget spent on fundraising)
19%** 67%* 13%* 14%** 3.8%* 10%* 11.8%* 6%*

*Source of information is
**Source of information is National Charities Information Bureau

Online Resources for Investigating Charities

American Institute of Philanthropy

Charity Navigator

National Charities Information Bureau

Philanthropic Research, Inc.

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