Some organizations may use misleading language or pressure you as they solicit for a donation and this can cause distrust. Research is needed to make sure your money is going to the charity of choice and not a predator preying on your emotions.
Today’s guest is Laurie Styron. Laurie was appointed the Executive Director of CharityWatch, American Institute of Philanthropy in 2020. She served as CharityWatch’s Senior Analyst for 16 years and thereafter as a Program Consultant through her nonprofit accounting and consulting practice. Laurie has been quoted in The New York Times, Los Angeles Times, The Wall Street Journal, NBC Nightly News, and by many other media outlets. She has also vetted charities for Good Morning America and has worked with 60 Minutes and many other news organizations on charity related investigations.“Make that little bit of research you do before you donate part of your giving.” - Laurie Styron Click To Tweet
- [1:53] – Laurie shares how she started with CharityWatch and why she was drawn to working in a nonprofit.
- [3:31] – The founder of CharityWatch realized people were not making fact based decisions around donating to charities.
- [5:04] – There has been some effort to regulate and enforce how donations are used.
- [6:14] – Niche and very specific causes are harder to raise money for.
- [8:14] – The funding for regulators is insufficient for them to adequately oversee.
- [9:40] – Laurie explains how to vet a charity on CharityWatch and gives an example of how organizations are ranked on the site.
- [11:50] – Sometimes organizations will use donations as their funds to continue marketing for more donations which causes an ineffective cycle.
- [14:06] – A lot of donors get really focused on the salaries of charity executives.
- [15:05] – It is actually a red flag if board officers are not paid enough.
- [18:17] – There are not enough people in the United States with a masters degree that could work for a low salary.
- [20:46] – Going into the season of giving, avoid high pressure tactics.
- [22:12] – A lot of fundraisers have expert scripts that are designed to pressure you. Laurie gives tips on how to say no.
- [25:01] – Laurie gives advice on how to use your emotions to choose a charity for a cause you are passionate about.
- [26:33] – Laurie tells the story of a crowdfunding scam that was well intentioned but the money raised was not done by someone who could execute the result.
- [28:41] – She shares another story of fake campaigns on GoFundMe as copycats.
- [30:22] – You have the ability to check filings, tax information, and registrations for organizations. Crowdfunding sites do not vet their account holders.
- [32:36] – Cut out the middleman. Donate directly.
- [34:02] – It is advised to only donate on crowdfunding sites to those you know.
- [35:04] – It is not logical for a charity to use 100% of all donations on the cause.
- [37:24] – Laurie describes how charities are rated on a grade scale on CharityWatch’s website.
- [38:35] – There are other sites that rate and rank charities but not all are reliable.
- [40:57] – When you are doing your research, ask yourself what the site’s process is.
- [43:00] – Sometimes, third party platforms will hold on to the money for longer than necessary and Laurie says to donate directly.
- [45:47] – If you send small donations across multiple charities, your donations will be much smaller due to fees.
- [49:42] – Make that little bit of research you do before you donate part of your giving.
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Laurie, thank you so much for coming on the Easy Prey Podcast today.
Thank you so much for having me. This is a really important topic in part because, a lot of times, people think that the government is heavily regulating charities and to some extent, they are heavily regulating them, but regulating them just means that there are laws in place. It doesn't necessarily mean that they're being enforced or that they're being adequately used to oversee what nonprofits are doing.
Sometimes people have a false sense of security that if a charity is registered with the government, that it's OK, and that is a misnomer. I think that it's going to be great to dig into this topic today.
Absolutely. You work with CharityWatch, what is your title there again?
I'm the Executive Director of CharityWatch. I want to say that, at least on the day this is being recorded, it's kind of a special day for me because this is 18 years that I've been working with CharityWatch now.
Oh, that is awesome. How did you get started with CharityWatch?
I was interested in charitable work. When I was young, I did a lot of volunteering with my local church. I was raised in a family along the line of Lutheran farmers, where it was kind of like help your neighbor, help them build their barn, and they help you build yours kind of thing.
I kind of grew up with this idea that it's part of our duty as good citizens to help other people and to give what we can, whether that's time, or money, or support in some other way. I was always someone who was probably going to end up working in the nonprofit sector, if I'm honest.
I started out working in social services, a nonprofit that helps low income people with mental illness secure housing, and it helps them with emergency assistance. When I moved here to Chicago, I found this job at CharityWatch where I started getting into the financial analysis. I'm an accountant by trade.
I ended up on October 1st of 2003 working at CharityWatch, primarily there as the senior analyst. When the president of CharityWatch and the founder of CharityWatch retired in early 2020, it was the logical choice to take over, so that brings me here today.
That's super exciting. Was there a reason that CharityWatch was started? There's some incident that happened?
Yeah. The founder, Daniel Borochoff, saw that, at the time back in 1992 when CharityWatch was founded, a long time ago way before the Internet, that there was really a dearth of information about charities, that people weren't really making fact-based decisions about what nonprofits to donate to.
They were really more donations of convenience based on who asked you. You get a letter in the mail, you get a telemarketing call, or even just a neighbor goes around with a jar saying, “Hey, help support the local this or that and that's how people decide who to donate to.”
The founder of CharityWatch saw that there was a need for an organization to come in and to be able to tell people, “Hey, we have expertise in this. We can dig through these financials and we can tell you if how the charity is marketing itself reconciles with how they're really raising and spending your donations based on what can be gleaned from the finances.”
Got you. Earlier, you talked about how there's this impression that charities are super well-regulated, is there any regulations as to what percentage of their incoming donations actually have to go to the causes that they support or kind of what they say they're doing?
It would be great if that were the case. To the credit of a lot of the State Attorney General's offices, there have been a lot of efforts over the years to say, “Hey, you're a nonprofit organization—especially if you're a public charity—you are operating in the good graces of the general public. We're essentially subsidizing your existence because you're not paying taxes on your income, so you should have to give something back in return. You should have to give some kind of guarantee, like if people are donating money to you, you need to spend at least half of it, or 80%, or some reasonable number on it on the programs that you're soliciting for.”
This is kind of a nuanced discussion, but about 20 years ago, attempts to regulate that at the federal level got shot down on First Amendment grounds. Then there had been other attempts by the states. I think the state of Oregon a number of years ago, tried to instill something similar, at least within their state borders, and that got shot down on First Amendment grounds.
What it comes down to—and I do understand this; it is a nuanced issue—is that there are really popular causes like sick puppies, kids with cancer, and injured veterans, and those are really easy to raise money for. But in our very complex and diverse society, we also have a number of really niche causes that maybe aren't so popular or maybe they only serve a very tiny population of people like a rare disease or something. It's a lot more difficult and expensive to raise money for those causes.
What was determined is that requiring charities to spend a minimum percentage of your donation on any specific thing is sort of indirectly limiting speech. This is why it has been so incredibly difficult, because I think your average person would say, “Hey, there should be a law against it.” This is the reason there isn't. It's because it was determined on constitutional grounds that, just in principle, that limiting speech in this way could really sort of have the unintended consequence of making it difficult for these unpopular niche causes to get funding.
That makes sense. If it's something it's particularly niche to reach the people that would actually donate to that particular organization might be more complex than showing pictures of sad puppies, let's say.
Exactly. You don't necessarily want the government deciding who is allowed to raise money from the public. I do understand that as much as a watchdog, I would also love for there to be some more regulation. I think there probably would be some ways to put some more regulation in place, but that's far in principle. This is why it's been so difficult.
This is also why the general public really, really needs to understand that the government in this case cannot totally watch out for you. They can require charities to file tax forms every year, to register to solicit in the states and that kind of thing, but a lot of these departments—it’s not that people are flaky or not doing a good job on purpose—it’s that they're underfunded. There's just really not adequate funding for state and federal regulators to really provide adequate oversight.
As a donor, you need to understand, “OK, I'm somewhat on my own here. I can't just rely, I can't have this false sense of security with the government heavily.” Like I said, there are regulations, but the enforcement of them is what the issue is due to limited resources.
A place like my organization, CharityWatch, is a good starting point for people to find efficient and effective charities to support because we've actually looked into those finances, some of which are very complex and we've actually dug into those and figured out, “OK, if you donate $100 to this nonprofit, this is how much will actually be used on the programs and this is how much money it costs that nonprofits raise that $100 from you.”
That's got to be something. To me, that's like supporting because if I have some cause that I'm really passionate about, $100 to this one charity has a different impact than $100 to a different charity.
Exactly. I wouldn't ever encourage people—and every once in a while, I encounter someone like this where they'll say, “Oh, I see that this charity spends 81% of their donations and this one only spends 80%. I'm going to give to the one that spends 81%.”
What I tell people is, “Listen. Use the financial efficiency as your initial vetting. Our top-rated charities generally spend at least 75% or more of their budgets on programs and it costs them $25 or less to raise each $100 in cash support. If a charity is top-rated on our site, if it's basically financially efficient, that should be your initial screening process.”If a charity is top-rated on our site, if it’s basically financially efficient, that should be your initial screening process. -L. Styron Click To Tweet
From there, decide, “Does this charity actually operate the programs that are important to me?” I can give you an example. Sometimes there are veterans organizations and that's a really popular cause. That's a pretty easy cause to raise money for, which also means that there are a lot of predatory people who swoop in and try to siphon off that money.
Some veterans organizations, or military-related organizations, provide direct aid to veterans, or they support a military, an independent hospital that helps veterans or that kind of thing. They're actually providing direct aid, or doctors, or support for rent and mortgages, or health care, that kind of thing.
There are other organizations that all they do is they send out a lot of direct mail, where they'll include some kind of call to action, like fly your American flag to show veterans you care and they're allowed to report this as a program expense.
Even though they're asking you for a donation 10 times in this letter, as long as they include some kind of call to action in that letter, there are a couple of very flimsy other elements they need to meet. Basically, we've seen instances of charities spending $6 million or $8 million budget, which is a lot of money every year, just sending out direct mail to people and then in their marketing materials on their website, they say, “Oh, 90% of everything you donate goes to ‘programs.’”
Well, what's in those programs? Are you really helping people? Are you providing direct assistance? Are you providing education? Scholarships? Something that's really legitimate, or are you just really using my donation to send out more fundraising letters or telemarketing calls and it just becomes this cyclical cesspool of fundraising?
It's interesting. As this episode airs, it will be very near Giving Tuesday and we know that in the last two months of the year, giving goes way up to charities where people will try to figure out their tax returns and how much they're going to donate to charity for tax purposes. I think it's just that time of the year where people are just more generous anyway. The automated calls are starting to ratchet up to “Press one if you think firefighters deserve more help.” But I'm like, “I think if I press one, you're going to call me back and ask for money.”
That's absolutely what's going to happen. This year, actually, the Federal Trade Commission in conjunction with—I think it was something like 40 State Attorney General's Offices—something like that—cracked down on about a dozen charity fundraisers or a number of fundraisers that were raising money for about a dozen charities or so, and amounted to about $170 million settlements.
There are basically two elements to it. One was misleading fundraising appeals, misleading marketing, where they said they were doing one thing with your donation and they were doing something else, and that something else they were doing was not good for what you intended your donation to be used for.
Then the self-enrichment element where there may have been something going on where people maybe were claiming their salaries were really, really low, but they were through some other kind of backchannels getting some kind of compensation that wasn't being reported. There were some maybe related party transactions where business was benefiting that was related to one of the board members, that kind of thing. We see that kind of thing go on quite a bit, unfortunately.
I guess if you don't mind, it brings me to kind of another point, which I think is a really hot button issue for a lot of donors, which is that a lot of donors get really, really focused on the salaries of charity executives. I completely understand why, because if you're wealthy, maybe it doesn't matter so much to you. If you're a middle-class person, and a lot of people who donate are just middle-class people, they don't have huge amounts of excess income, but they're compelled to give because they feel what I talked about at the beginning of the show here. They feel like it's their duty to help their fellow man.
I understand why people are focused on salaries, but here's the problem. A charity competes with the private sector for competent people. When I look at tax filings, it's actually a red flag to me when I see vastly underpaid officers working in a charity, because you have to ask yourself, “OK, this person claims to be working 40 hours a week, 50 hours a week for this nonprofit as the president, and they're claiming that they only get paid $20,000 a year to do it?”
Often, what I've found is that well, they're getting a $20,000 salary from the charity, but it turns out their brother owns the fundraising company that's charging the charity $8 million a year to do the fundraising.
We saw an instance of a leader and founder of a nonprofit animal charity that had designed a logo for the charity 20 years ago. He decided that he needed to get paid every year for the charity to use this logo. Between that licensing fees and the rent he was getting for letting the charity use part of his house as an office, which was his decision, by the way, it was something close to a million dollars that he was claiming that the charity owed him in payments plus interest. I think the interest was billed at something like 7%. I'd have to double check.
There are a lot of ways for bad actors to get around reporting all the compensation they're receiving from a charity. I would say short, use common sense. If the woman running your local cat shelters is paying herself half a million dollars a year, that's inappropriate. If someone's running an international charity that requires maybe a medical degree and an MBA, you can't hire someone like that for $40,000 a year.
The good rule of thumb is don't just focus on that, that salary is the single variable and deciding if a charity is good or bad. Look at the context. What kind of person would have to be hired to really do this job well and to really accomplish as much as possible with the charity's resources? If that person is getting market rate, and they're doing a great job, then your donation is going to be well worth it.
I always think that if this person were the CEO of a private entity that was getting paid by the government, let's say to do these same things, would that salary be appropriate? If you're running, like you said, a multinational charity that's flying products all over the world, you've got to know all the different laws and what you can and can't bring into the country, how to organize transportation, that starts getting pretty complex and potentially more difficult than making sure puppies have food.
Exactly, and you need a competent person so that they can be a good steward over all the other charity’s resources and all the other donations they get. The other issue is that how many people are there in the US who are so independently wealthy that they could afford to—with a master's degree level of education, for example, or advanced degrees, or 20 years of experience—work for free for $20,000 a year full-time at a nonprofit? You know what I mean. There just wouldn't be enough people who would fit into that category.
I would just say, I know it's tough for some people and I do understand why, but just try to have a reasonable attitude about the salary issue. Imagine if you get a competent person at a charity who could maybe double the impact of the charity because they're just so much more competent and experienced. Then your donations are going to double the number of kids who get fed or double the number of whatever that's supplied. It's really more about if the person is making a good impact due to their experience and competence, then you can decide, “OK, my donations are well worth helping to pay for that.”
I've heard the same thing about people that are in-charge of the fundraising department, and that sometimes, they get paid fairly well, but if they can double or triple the charity's revenue by costing a little bit more, that might be a worthwhile trade-off for the charity.
It depends on the context because you have to look at the overall context of how big the charity is. If the fundraiser salary makes up half the budget for the year, that's not going to be a good deal. You often see fundraisers like that at big art museums, or hospitals, or something where maybe they're getting paid half a million dollars a year, but they're bringing in $10 million, $20 million a year of donations.
Then if you look at the $100 million budget of that museum or something, then it's OK. In that context, it's actually not a significant part of the budget and they are more than paying for themselves.
Yes. It's one of those tricky things where the payroll number itself can be misleading as to what's going on.
Yeah. That's why context matters so much.You just have to put a little more thought into not being so absolute and really looking at the bigger picture.
From a consumer’s point of view, are there particular red flags that we should be watching out for as we come into the season of giving?
Absolutely. There are so many. We probably don't have time to go through all of them. One thing is to avoid high-pressure tactics. You can imagine me working in this field for 20 years now. I absolutely can't stand it when I'm in line at the grocery store. You have your stuff and you're just trying to get home. You've worked 10 hours.
You want to go home, and they're like, “Do you want to give $5 to the starving children?” The thing is, “No, not until I have time to check out this charity. No, I don’t.” Or someone who's fundraising on the street with their clipboard, and they're like, “Hi, we're from this charity, please give us money.”
Absolutely take the literature from them, but then don't donate right there. Go home and come to charitywatch.org, see if that charity is operating efficiently and effectively. If it is, then great, please go on their website and make a donation. The high-pressure tactic is something to look out for for people who need to maintain good boundaries and be willing to say no in the moment.
And you only have so much money to donate. You want to make sure that you're donating to charities that you're passionate about, not because someone was pressuring you to give to this charity versus that charity.
Exactly. Some of these fundraisers, it's like they've studied a thousand years of psychology. They really know how to make people feel guilty. Keep in mind, you're being put on the spot. A lot of these fundraisers, they have a whole script of if this person says no this way, this is what you say back. If they say no for this other reason, this is what you can say. They are experts, and they're up against you, a person who was just going about your day.
So, just be like, “Hey, I love to give to charity. I'm interested. I'll take a pamphlet. I am not donating today.” If they don't respect your boundaries, then you don't need to respect theirs. You can walk away. It's just important to know how to say no in that moment.
That's always been one of my policies is that I don't respond when someone comes to my door. When it hits me outside of a grocery store, I get a phone call. I don't know that you're really representing the charity that you claim to represent. I'm not going to hand over money to you, because I don't know who you are and I don't know who your charity is. There are charities I give to and that's what I'm going to do. Sometimes people are very accepting of that. Other times, people are not so accepting of that.
Exactly, but they don't have to accept it or not, right?
It’s not up to them.
You can close the door. Another thing I wanted to point out, another tip, basically, this is a tough one and it's along the same lines. A lot of charity fundraisers, even for the good charities—it's not even necessarily the outright scammers or the really terrible ones—they are trying to connect with you on an emotional level. They're trying to tell you a story. They're trying to compel you to donate.Charity fundraisers are trying to connect with you on an emotional level. They’re trying to compel you to donate. -Laurie Styron Click To Tweet
They'll tell you a story of a very sad child who needs eye surgery, or kittens that were almost drowned in a river and were rescued, or a veteran who lost a limb defending our country. It's great if you are someone who is affected by that. It means you have empathy, and that's a good thing. You have to separate the feeling from the resulting action, though. That's really, really important. Use that feeling to promise to yourself that you are going to donate to that cause at some point.
It doesn't mean you have to donate to that specific charity. It doesn't mean that you have to donate right at that moment when they're on the phone, when you open the letter, when you get approached on the streets, or when you see a crowdfunding campaign on social media. You really need to take that emotion, use it as a catalyst to definitely make a commitment to be a giver, to donate something to a charity that has a cause that's really important to you. But you don't have to donate to that specific one.
Just stop and say, “OK, I opened this letter, I'm seeing pictures of abused horses.” Hey, if that inspires you to want to help abused horses, just come onto our site and or do some research on your own. We have a lot of resources on our site for charities that maybe we aren't able to rate because we can only rate so many because it's very time-intensive. We have resources on our website resources for donors page where people can learn how to do some research on their own as well.
Just stop, don't necessarily write a check or go online and make a donation to that specific charity. Check out other charities that were working in that cause or similar causes. Then go ahead when you feel good about that you have found a good charity to donate to then make a donation to that one.
You talked about crowdfunding. I've always been really leery about any crowdfunding I hear. I've seen too many news stories about someone starting some crowdfunding thing, raised a quarter of a million dollars, and then you find out later on that whatever they were claiming was the issue, that they weren't injured in a fire, they're just scamming and they've just now picked up a quarter of a million dollars. What do you do with crowdfunding?
OK, crowdfunding. Well, I actually talked to The Washington Post this week about crowdfunding, specifically. They contacted me about a social media influencer. I think he was a comedian, a young guy, 26 years old. It's great when the young people want to get involved in charity, of course. He was really moved by the plight of the civilians in Afghanistan fleeing the Taliban. He wanted to help with evacuation efforts, so he went and he started a crowdfunding campaign on one of the crowdfunding sites.
He had an initial goal of about half a million dollars or so. He met that within a short amount of time. By the time all was said and done, he had raised over $7 million. The problem—I don't know for sure, but he seems like he was a well-intentioned guy. Here, you have someone who's not even outright trying to scam you. You have someone who appears to actually be well-intentioned, but he doesn't have the expertise or experience to understand how to evacuate civilians from a foreign war-torn country that's just been taken over by the Taliban.
The thing is, he had projected that it would cost about $1,500 per civilian to evacuate. Each person to pay for a seat on the plane, by our calculations, the number of people that were helped from that cost almost $12,000 for each person who was evacuated. What I'm describing to you is almost the best-case scenario of someone who actually wanted to do something great and just got in over their head.
There was another example last year of this poor boy—I think it was in North Carolina—who was shot while playing in his front yard—a five-year old boy. Of course, you can imagine the outpouring of donations that were made in response to that tragedy. He’s such a young, innocent child in his front yard playing and being murdered. He was shot in the head, and it was just awful. You can understand what an emotionally charged incident that is, and how people are just like, “Take my money.”
The grandmother had started a legitimate GoFundMe campaign. I think her initial goal was to raise about $5,000 for the funeral. Probably, she raised way more than that. Probably, the people who donated were OK with that. They were thinking, “My God, this poor family. Hey, even if they got a lot more money than they had needed initially, that's all right. I just hope it makes them feel better a little bit.” That aspect was all right.
Then there were more than a dozen fake campaigns that were just started by random people, not associated with the family in any way, that were just posting similar stories and claiming to be raising money to help the family, and that's not what was happening. They were fake. Most of them were fake. I think that GoFundMe did intervene at some point and they tried to take some of the pages down or did take some of them down. They also tried to—from some of those accounts that got shut down—did try to get some of the money.
It's just impossible. Those platforms are not designed before the fact to vet every individual who goes on there and creates an account. Sometimes if there's enough media attention on a fake campaign after the fact, some of these crowdfunding platforms are able to shut things down and salvage some of the money or whatever. It's really not the best way to give.
I think there's another really important point here, which is that when you donate to a 501(c)(3) registered public charity, you have the ability—this is also what we do at CharityWatch—to go to the IRS website and make sure that it's a legitimate registered charity. You have the ability to go on federal websites and access their annual tax filings.When you donate to a 501(c)(3) charity, you can go to the IRS website and make sure it’s a legitimate registered charity. -Laurie Styron Click To Tweet
Now, you might not have expertise to interpret them, but the information is there. You have the ability, in many cases, to go to state websites and access the state-level filings, so you can see who's on the board and all kinds of other information. When an individual person is raising money on a crowdfunding platform, they're not subject to any of these filings and regulations and annual reporting. It's really not much different than just handing cash over to someone on the street.
That's why I think that anonymity of being online poses such a problem for people because I'm willing to bet that your average person, when they're asked for money by a very needy homeless person, who probably could really use your help, the average person, they avert their eyes, they walk by, and they're like, “I can't give to everyone who asks me on the street.” That same person will go home and make a donation on a crowdfunding platform for more money than the person on the street was asking for, just because there are some pictures and a sad story. You really need to keep your emotions in check in these situations.
Our advice at CharityWatch is that it's best to cut out the middleman when you can. Obviously, there are stories of individuals raising money for a very tragic event. When someone's raising money, and they're saying, “I'm raising money, and I will be donating it to a charity.” Well, then what's the point of this middle person? I mean, it's great.
If there's someone that has a little bit of fame, whether they're an actor, singer, or they're a social media influencer, they can leverage their fame to bring attention to a cause, and say, “Hey, this is a terrible thing, or that we're trying to solve climate change, or this or that or the other. Please donate to this charity that I'm partnering with.” That's an awesome thing. That's a great way for someone like that to use the fame that they have for a good cause. There's absolutely no reason that you should first donate to them, and then wait around to see if that money eventually gets to the charity that they're purporting to raise money for. There's really no function that they're serving in that situation.
I think with crowdfunding, my perspective has always been, I don't give to any crowdfunding campaigns where I don't personally know the individuals involved. If it's a friend of mine and their child is sick and they're raising money for treatment, OK, I feel fine about that. But if it's, “Well, I saw this situation, and I'm going to post it on my Facebook page, everybody should give to this.” I'm like, “No, I don't know who that is. You don't know who that is. We have no idea if it's a real cause or not.”
Exactly. That's a good rule of thumb. I know that there are a significant percentage of donations that are actually made to people the donors know. It's sort of like a way for the recipient to save a little face by maybe not in such a direct way asking for money. It's a difficult thing to ask for help for a lot of people, so if a crowdfunding platform can facilitate that, it serves as a bit of a social lubricant where your friends and family can support you without you feeling embarrassed to ask them in a direct way, that's great. If you're donating to someone and you're positive that it's a legitimate campaign, then that's a perfectly fine use of a crowdfunding site.
Are there any other red flags that we should be watching out for?
There are a lot, so you just stop me when we run out of time. Another popular one is donors love to see charities that say, “We will spend 100% of your donation on XYZ.” It sounds great, right? It's not logical. You're a charity, you have to pay for rent, utilities, insurance, salaries, and this and that, how are you possibly spending 100% of all donations on saving puppies if you have all of this overhead? It doesn't really make any sense. But people see that we spend 100% of your donation and they get really excited. “Oh, great, my donation won't be wasted.”
When you dig into it, usually the charity equivocates. But then what it comes down to is they say something to the effect of, “Well, we got one of our wealthy board members to pay for all the overhead so that your donation can be used just on saving sick puppies.” This is just a marketing spin. They could just as easily say the opposite, because money is fungible. They could say, “100% of your donation is going to pay for overhead so that 100% of our wealthy board members’ donation can be spent on saving sick puppies.” Then you'd say, “Hey, wait a minute, that doesn't sound like a good deal.”
I didn't want my money to go into overhead. I want it to go into the puppies.When you see 100% of your donation goes to something, it’s not real. Don’t believe it. It’s definitely not real. -Laurie Styron Click To Tweet
Exactly. The thing is that this is a marketing spin. When you see 100% of your donation goes to something, it is not real. It is not real, don't believe it, it's definitely not real. What you want to make sure, as I said earlier, is that a reasonable amount of your donation goes to the programs, that a charity has reasonable overhead, that they're being a good steward of your donations, that they don't have extremely high fundraising costs or management expenses, and that they are spending the majority of your donation on the programs that you want to support.
Is there a threshold between these numbers, seems to be in most cases? Obviously, there are going to be fringe cases on both ends. What's that range where CharityWatch thinks that this is the generally acceptable percentage of money that goes to overhead?
On our website, we have a sliding scale. We rate charities on an A+ to upscale. You can decide for yourself if a charity you get to see if that's good enough for you. Especially if there's a more controversial cause, those are more expensive to raise money for. If a charity like that gets a B- rating, it might still be worth supporting, because it's one of the few groups out there serving an underserved population.
The highly rated charities spend about at least 75% of their cash budgets on programs, and they keep their fundraising costs down to about $25 or less to raise $100. But it is on a sliding scale so obviously, the A+ groups have much better ratios than that. I would say, because you started mentioning statistics, basically, and this is another tip that I think is really important for people.
I mentioned at the beginning of our talk here that the whole purpose of why CharityWatch was started was because there was just no information on charities out there back in 1992, because the Internet didn't exist yet. Now we have the opposite problem. Every year, there's some new website that claims to rate charities or that charity.
There are a couple of good groups out there. There's CharityWatch, of course, and we're very proud of our work and transparent about our work. There's another group called GiveWell. They do really big, big work internationally. They only sort of recommend a few charities per year, but they really dig into the impact, so that's a good one. There's another one called Animal Charity Evaluators for people who want to donate to animal groups. Then of course, charitywatch.org.
There are a lot of other big data websites that claim to rate tens of thousands of charities or hundreds of thousands of charities. Typically, these groups are structured in one of two ways or a combination of the two. They're either letting the charities rate themselves, meaning they're really more of a trade association. There's one website where if you create a profile on their site and you just add information to your profile, suddenly you can go from a bronze rating to a silver to a gold to a platinum rating by the next day.
No objective third-party financial analyst has dug through these financial things to see if it’s real what they're saying. It's just that, “Oh, they added all this information to our site.” It's not that there's a problem with a site like that existing. It's just that it's a problem if donors think that someone has vetted that information when it hasn't been vetted. That's where the problem is.
There are other big data websites that basically pull the self-reported information from charity tax filings, then they spit out pie charts and percentages and things. These are really popular, because of course, if you're not actually really adequately vetting any information, of course, you can rate 100,000 charities. You're just taking what the charities tell you at face value. You're just saying, “Hey, this is what they said, and here's a pie chart, or whatever, or some qualitative information that the charity provided about their own impact.”
Another tip is that when you're doing your research, including when you're encountering some of these types of websites, find out did a qualified financial analyst looked at any of this stuff? What is the process here? Is this just a computer running something through a formula?
At CharityWatch, we've caught a lot of situations where a charity might get 4 stars or platinum status or top 10 charities or something, then we found that this charity is really only spending 10% of your donation on their programs.
That's the thing. There are a lot of these big data sites. Just make sure that you understand what is really being looked at and how it's being vetted before you rely on that to make your donating decision.
You also said to make sure we're giving directly. Don't go through third parties to donate.
Exactly. I know that your whole theme of the podcast here is talking about fraud. I imagine that you have a lot of advice on the same topic, which is that the more hands your money goes through, the more hands your data goes through, the more your data is exposed to more people, more places, and more websites.
The same thing with the more places or people your money is exposed to. People are getting a cut. People are going to get a cut so if it's going through a lot of hands, by the time your donation ends up doing what you want it to do, there's going to be, in some cases, very little of it left over. Like I said, with crowdfunding, if some person is saying, “I'm raising money to donate to some charity,” just go to the charity’s website and donate yourself.
Another issue with, again, even if you have a perfectly legitimate crowdfunding campaign, or a perfectly legitimate fundraiser, who is absolutely going to pass that money onto the charity, sometimes these middlemen hang on to the donation for a long time.
Even if it does eventually get to the charity, sometimes some of these third-party platforms have some rule where it's like, “Oh, well, we only transfer donations over once the donations reach a certain total amount, then we make a transfer” or something. Sometimes there are just details there where it can be different.
There are too many examples to go through all of them, so just cut it out. Cut out the middleman. Just go right to the charity site and give a donation. Get your receipt. It's just a lot easier and cleaner.Cut out the middleman. Just go right to the charity site and give a donation. Get your receipt. -Laurie Styron Click To Tweet
It's one of those, “Oh, wait, we need to wait 30 days to make sure all the transactions are clear. In the meantime, we're going to invest the money and get a 2% return on it. Eventually, we will get it to where it's supposed to go.”
Exactly. If they're for-profit companies, or even if they're like nonprofit platforms, in order to exist, they have to take some fee. The thing is that you just don't know. I mean, charities, of course, internally, even if you donate on their site, they probably have some small processing fee like 3% or something where they have to pay for the lockbox or they have to pay for the credit card processor. It's usually a few percent. But if you give through a third party, you might be paying 5% and then another 3% for that charity is paying so before you know it, like 10% of your donation is gone or more.
All to processing fees.
That's exactly right.
A number of charities that I give to will disclose, though. “Hey, if you send us a check, the processing fee is much less than if you go through our credit card processor who wants 2.5%, 3.5%, whatever the percentage is.” I've seen a number of charities disclose, “These are the fees that we pay on the different ways that you can send us money.”
Every charity is going to have some fees. It's just about if they're reasonable. That’s the important thing. That actually brings me to another good point, so I'm glad that you brought this up. Sometimes, and God bless them, you have these little old ladies who call us up. We love our members and our donors, and we're so happy we can help. They'll call and they'll have a giant pile of donation requests that they got in the mail over the past month or two. They say, “I'm on Social Security. I really can't afford to make big donations, but I'm just going to send every one of these places $5.”
The problem is that, if you send tiny donations like that to a lot of charities, every single one of those donations is going to have some flat fee plus some variable fee taken out of it. Whereas if you just pick one or two of those charities and send them $25 or $50 or a little more, then the total amount of your donation going to fees is going to be much less.
Sending $5 to a charity, the chances that much of that will be left after all the fees is pretty low. It's really better to just wait, so you have a little bit more and donate a larger amount to one organization, one or two.
That makes sense. They have to send out a receipt and set you up in their system and maintain whatever data that they’re obligated to maintain. All that costs money.
Right. Of course, you can't blame charities for this. Charities exist because they rely on donations to support the organization. If you end up in their donor database, even responsible charities that may only solicit you two or three times a year, the amount of money they're going to then pay to solicit you the next year and the next, even if you don't give anything—they're sending out letters, they're paying administrative assistants, they're paying their mail house, the postage, this and that—they're going to continue to solicit you. Before long, they have spent $25 soliciting you for that $5 donation that you gave two years ago.
Everyone is well-intentioned here. I'm not even talking about fraudulent groups. Everyone's well-intentioned in the situation. It's just that a donation of that size doesn't typically end up doing a lot of good. If you've really only got $5 and you want to donate something, give it to a neighbor who needs a meal. Just give it to someone who you can see right away that it's going to help them out in some way.
I think that is an awesome way. I think that's an awesome place to close out. There are always good things that you can do around your neighborhood. If you don't trust organizations to use their money, then go cut your neighbor's lawn. There are things that you can do, even if you don't have money, that you can help out your community.Absolutely. At CharityWatch, we do focus on fraud. We also recommend a lot of great nonprofits, too. But we do focus more of our time on trying to prevent people from donating to fraudulent or inefficient groups. I do want to say that the reason we do what we do is so that people can maintain trust in charities and trust in the nonprofit sector. Please believe me when I say that the vast majority of charities out there are good. People are working really hard, people are very dedicated, often they're underpaid, and they're doing a lot of great work.The reason we do what we do is so that people can maintain trust in charities and trust in the nonprofit sector. -Laurie Styron Click To Tweet
Ideally, if you can, donate to charity and also cut your neighbor's yard. I'm in no way discouraging people from donating to charity. I'm just saying make that little bit of research you do before you donate part of your giving, part of how you give back, and part of your commitment to being a good steward to your fellow man, especially during this holiday season when we should all be in that spirit of giving back.
Absolutely. What is CharityWatch’s website again?
It's charitywatch.org. I want to mention quickly, because we have a lot of elderly people who maybe aren't so savvy with the Internet, we do actually put out a publication twice a year. Paper publications. If you're someone who's older and you don't necessarily like going online, you can contact us to find out how you can get one of our publications.
Absolutely. We'll get that information from you, and we'll link it in the show notes as well.
OK, great. Well, it was so nice to talk to you. Maybe we can do it again sometime. I hope the two of us have been helpful to some donors today.
I'm sure it has, Laurie. Thank you so much for coming on the Easy Prey Podcast.