How to Identify if a Charity is Legitimate and Uses Donations Effectively
We all work hard in life. Whether it’s paid work, study, volunteering, raising kids – life is a challenge. It’s also extremely rewarding, and good times with friends and family make it all worthwhile.
But what about those less fortunate than us? Like it or not, there is inequality in life.
And one way we can even the scales is by donating to a worthwhile charity. But it’s hard to figure out the best charities to donate to.
Some charities take donations but have such high running costs that a significant amount of each donation is absorbed into administration, marketing, and other head office running costs.
That’s why we’ve put together this useful article, so you can identify if a charity is legitimate and uses your money effectively.
Running a Charity Costs Money
The first thing to note is that running a charity does cost money. Charities employ staff, who need to be paid for their hard work.
They also need to pay rent on office space, and bills for utilities and internet, like any other business.
So we’re not saying a charity should operate for free, because that’s not practical or possible.
But that said, there are ways to see if a charity utilises donation money effectively.
Read Their Annual Reports
All charities are required by Australian law to publish an annual report each year, which includes detailed financial statements.
These financial statements will show all income and all expenditures, with either a net loss or net surplus each year.
Ideally, a charity’s annual report should show them close to breaking even.
If they have a large surplus – into the hundreds of thousands or even millions, you may find yourself asking why that money wasn’t put into charitable efforts. If it’s sitting there in the bank and earning the charity interest, that’s a good sign that they are not using donations effectively.
If They Have a Bloated Management Structure
Some charities have large, bloated management structures. This means that they have lots of middle managers and senior managers, usually in head office functions like finance, accounting, payroll, marketing, IT and more.
Now, again, charities need staff to operate. But if they have lots of managers, this is a lot of money being spent on staff that isn’t going to people in need.
How to Spot a Scam or Fake Charity
Unfortunately, some unscrupulous people will prey on goodwill and set up charity scams and fake campaigns.
There are some telltale signs to watch out for to avoid these bandits.
Gofundme, while being a useful platform, is commonly used by scammers. Don’t give to a Gofundme unless you know the person running the campaign.
Also, when you see an ad for a charity on social media such as Twitter or Facebook, look for the blue verified tick. This means the company or organisation has been verified by the social media network and is likely trustworthy.
Avoid pages with only a small amount of likes, or who otherwise seem untrustworthy. Follow your instincts here.
In this helpful article, we’ve shared a few strategies to determine if a charity is using your donation effectively, and not absorbing too much money into administration and management.
Remember to read the charity’s annual report, and keep a close eye on their financial statements.
We’ve also shared how to spot a dodgy scam fundraising campaign, so you can stay safe online while donating.
Keep these tips in mind when you are donating to worthy causes, and you’ll make sure your dollars go to where they’re needed the most.