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. Consumer Alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.
Donors are regularly told to be smart – to research a charity before giving and to learn how the charity will spend your donation. And many donors do check, perhaps by requesting information directly from the organization itself, or by checking the information on file with the Attorney General's Charitable Trust Section. What most people want to know is: How much of my donation will go toward charitable programs or purposes; 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, the percentage of program services expense out of its revenue 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 solicitation mailings and phone calls themselves constitute a charitable program? 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 fact, the "charitable program” is the solicitation material itself, which you are holding in your hands and which supposedly "educates" you. Although the Charitable Trust Section fights abuses in this area, the best protection is your own awareness.
In researching a charity, look beyond the program services percentage. Ask for more detailed information from the charity regarding its specific programs and how much it spends on these programs. In addition to discovering 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 return, the "Form 990", before giving. This information is found in Part II of the Form 990 under "Reporting of Joint Costs."
Lastly, you are always welcome to check on a charity by writing or calling the Attorney General's Charitable Trust Section:
Department of Attorney General
Charitable Trust Section
P.O. Box 30214
Lansing, MI 48909