Checking On A Charity -- Did You Receive A Solicitation or an "Education"
The Attorney General provides Consumer Alerts to inform the public of unfair, misleading or deceptive business practices, and to provide information and guidance on other issues of concern.
Alerts are not legal advice, legal authority, or a binding legal opinion from
the Department of Attorney General.
Checking on a Charity -
Did You Receive a Solicitation or an "Education?"
Donors are always told to be smart - check on a charity before giving. Find out how the charity spends its money and how your donation will be spent. And many donors do check, perhaps by contacting the organization itself for information, or by checking the information on file with the Attorney General's Charitable Trust Section. What most people want to know is: How much does the charity spend on its charitable program or purpose; i.e., program services?
Often the question is answered as a percentage of the charity's total revenue. For example, if an organization had total revenue of $1,000,000 and, according to its financial reports, it spent $750,000 on its charitable programs, its program services expense to revenue ratio is 75%. Many donors would say that this is admirable; for every dollar the organization took in, it spent 75 cents on its charitable purpose.
But, did you know that accounting rules permit a charity to sometimes claim that its mailing or phone call to you soliciting money is itself a charitable purpose? Under certain conditions, if a charity believes that it provided educational information, or in some way furthered its own charitable goals (other than by enticing you to make a contribution), it can count a portion of the costs of its mailing or phone call to you as a charitable program service.
There are some "charities" that have very little "program" other than soliciting funds. You may think in reading the solicitation that you would be helping a charity provide services to cancer patients, or grant wishes to terminally ill children, but in reality the "charitable" program is the solicitation material you are holding in your hand which supposedly "educates" you. While the Charitable Trust Section frequently fights abuses in this area, the best protection is your own awareness.
How Can You Tell?
Look beyond the program services percentage when you call the Charitable Trust Section. Ask for more detailed information. In addition to finding out a charity's program services percentage, ask what portion of its program services comes from these costs. You may also choose to be an even more sophisticated "charity checker" by asking to view the organization's IRS information return, the "Form 990." before giving. If so, you will find this information in Part II of the Form 990 under "Reporting of Joint Costs."
The charity may be claiming in its financial reports that you have been educated. Hopefully, now, you really are.
To check on a charity:
Write or call the Attorney General's Charitable Trust Section:
Department of Attorney General
Charitable Trust Section
PO Box 30214
Lansing, MI 48909