What is a charity?
It's important to understand what a charity is. In the United States, a charity is legally considered a "Not-for-Profit Corporation". The main differences between a Not-for-profit Corporation and a typical for-profit Corporation (like Nike or Walmart) is that Not-for-profit Corporations (ie. charities) must be established for a specific Purpose, and the yearly Net profit of the charity must remain within the organization to be used to further their Purpose. In a for-profit Corporation, the corporation's Board of Directors and shareholders divide the corporation's Net yearly profits among themselves. This means that in a corporation, board members and shareholders make money when the corporation does well. In a charity, board members are volunteers and do not earn money for fulfilling their duties as a board member. However, a board member can be paid for any professional services they provide to the charity that fall outside of the duties of a board member. When a board member is employed or contracted by a charity, the Board of Directors must be careful to follow their "Conflict of Interest" policy closely.
It's important to note that because charities are a type of legal corporation, they have the same and often more complex legal, business, and accounting requirements compared to for-profit corporations. While Non-Profit fraud and corruption definitely happen, I think the majority of the time legal and accounting mistakes are unintentional. These mistakes are a result of underpaid, under-qualified, and overworked employees trying to make sense of very complicated federal, state, and IRS laws and requirements. Just like it is impossible to run a corporation using only volunteers, it is impossible to successfully run a charity using only volunteers. Charities need to hire educated and qualified employees to successfully achieve their Purpose, and in order to do that, charities need to offer them competitive salaries to recruit the best and brightest. You may scoff at this, but ask yourself this question: If you had 2 job offers, Company X offering $100,000 per year with benefits & Non-profit Z offering $40,000 per year without benefits, both job offers have the same hours, workload, and responsibilities, which one would you choose?
Competitive staff salaries = more educated, qualified, and satisfied employees = fewer mistakes and more successful and effective programs = better world.
The problem with "fake" charities
Let me begin by clarifying what I mean by a "fake" charity... I've seen and heard many charities that are operating completely within the law referred to as "fake". These are the charities that I'm addressing in this article... I am not referring to charities that are illegal or breaking laws... I am only referring to legal 501(c)(3) charities that have been accused of being "fake." A charity that receives 501(c)(3) status from the IRS does not pay taxes, and all donations that are made to the charity are tax deductible. It's no easy thing to swindle the IRS out of tax money. As a Chicago native, my first thought is to remind you of what happened to Al Capone... The truth is, most of the charities that have been called "fake" by the media are actually completely legal and operating within the law. Maybe the laws should change, but that's a conversation for a different day.
I think the root of the problem of "fake" charities is this:
1.) Misconceptions: The general public has a misconception about what charities are. Charities are not bake-sales, food baskets, or volunteers playing with poor children; these are examples of services or programs that charities provide. Charities are Not-For-Profit Corporations. Anyone who has ever worked for a corporation understands the vast amount of work that is involved in successfully operating a corporation.
2.) Branding, Marketing, & Raising Awareness: Frequently donors and the public assume that a charity provides services and programs for the problem that the charity is "raising awareness" about. Often, charities that "raise awareness", achieve this by throwing fundraisers and charity events about a problem or cause.
Most people assume that when they attend an event about a specific cause, their donations go towards programs and services that benefit that cause. However, unless the charity specifically says otherwise, donations made to organizations that "raise awareness" go towards the charity continuing to "raise awareness". They do NOT go to programs or services that help the problem or cause...
For example: When donors find out that the donation they made at a charity event for AIDS, is actually going towards throwing future parties about AIDS and not towards providing HIV medication or funding HIV research, donors and the public feel deceived.
This is the number One (pun intended) reason that charities are called "fake" even though they are operating completely within the law. Donors are responsible to find out before they donate, what their donation will be used for. Never assume that because you've heard of a charity or it's popular among your friends that your donation will be used the way that you want it to be used. It's branding. ALWAYS ASK.
3.) Confusing Terminology: The Non-Profit sector has created its own definitions and terminology to describe specific activities and programs within the field. These terms and phrases are frequently used, but they are not often truly understood by the general public.
For example: "Raising Awareness" sounds like a really important and complicated thing to do. I will not weigh in on the importance or difficulty. However, I will tell you that more often than not, when an organization says they "raise awareness" about something, it means they throw parties about it to raise money to continue to throw parties to "raise awareness".
If you haven't read my previous article, "Decoding Non-Profit Terminology", I recommend looking it over before you continue reading.
Bottom Line: Never assume. Always ask!
7 questions to ask before donating
1. What does the charity specifically do? What programs and services does the charity provide?
Examples of BAD responses:
a.) "Empower at-risk children"
b.) "Provide education programs"
c.) "Raise awareness"
d.) "Do capacity building"
These answers are too VAGUE. You need to know exactly what they do.
Examples of GOOD responses:
a.) "Empower at-risk children between ages 0-6 by providing them with free preschool education."
b.) "Do capacity building within the community by providing free training to parents and community leaders about the importance of preschool education and provide the community with free preschools."
c.) "Do technical capacity building by providing a free year-long Teacher Training program to the community that will train up to 50 new preschool teachers in each community."
d.) "Provide education programs to at-risk children between ages 0-6 years that focus on helping the child develop fine and gross motor skills, develop social and emotional skills, learn to read, and learn to count, add, and subtract."
2. How does the charity specifically provide their program or services?
3. Where does the charity provide their programs or services?
4. How long does the charity provide these programs or services to each recipient?
5. Is this program or service sustainable? Does the program or service address the root of the problem, or does it provide temporary relief of the problem?
Example - Malnourished Children
Temporary Relief: An organization that provides shipments of food to poor families in Kenya.
Sustainable Solution: An organization that provides seeds and sustainable farming technical training to the parents of the children.
Example - Poor Quality or Lack of Education
Temporary Relief: An organization that brings volunteer teachers from abroad into the community.
Sustainable Solution: An organization that provides Teacher Training to members of the community.
6. What has the charity already accomplished?
7. What are the charity's current and long-term goals?