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Tis the season for giving. So, be careful who you give to.

In a recession, with nonprofits desperate for your dollars, it's sometimes harder to tell which groups truly deserve your contributions. These guidelines can help.

By Liz Pulliam Weston Tough economic times mean more people need help. But tough economic times also mean more charities are on the brink as endowments shrivel, major donors cut back and fundraising efforts bear less fruit.
Two-thirds of the organizations polled by charity watchdog GuideStar in October reported increased demand for their services. Yet nearly half of those that rely on year-end giving said they expected donations to drop this year.
Does that mean you should be more sympathetic to the pleas you get this holiday season? Not exactly. If anything, you should be more careful and skeptical than usual, said Daniel Borochoff, the president of the American Institute of Philanthropy.
"Some of the groups are going to have to close their doors" because of the harsh financial environment, Borochoff said. "There will be some desperate behavior (by charities that) will be tempted to exaggerate and mislead."

Unfortunately, there are often are no easy ways to tell the good guys from the bad guys.
Even nonprofits that aren't outright frauds may go to great lengths to conceal how they spend their money. And the watchdogs that are supposed to help us decide typically have vastly different ideas of what's an acceptable practice and what's not.
We'll get to some practical solutions to the problems, but here are just some of thorniest issues you face:
Most charities pretend they don't fundraise. You want the bulk of your donation to go to a charity's programs, not its administrators or fundraisers. To that end, the better-giving guides typically suggest you ask for the charity's Form 990, the Internal Revenue Service form that is supposed to detail how contributions are spent. Yet 64% of the 990s in a 2002 General Accounting Office study (.pdf file) listed no fundraising expenses at all.
Borochoff has reviewed thousands of these forms, and he says many charities misreport their fundraising as "program development," "public education" and other misnomers. As the public becomes more sophisticated about the need for low fundraising costs, the charities get craftier about hiding them.
"It continues to be a problem with groups not counting as fundraising things that really are," Borochoff said.
Regulation is perilously thin. The IRS has redesigned Form 990 to ask more questions about fundraising, executive compensation and other hot-button issues. Charities will start using the new form next year, but the IRS pretty much depends on the organizations to be honest. The tax agency doesn't audit many nonprofits, and the agency staff responsible for handling the Form 990 filings has shrunk even as the number of reports has grown, according to the GAO's report. State regulation is a patchwork quilt, and there are few restrictions on how charities spend their money.
In fact, the Supreme Court recently decided that for-profit fundraisers can legally keep almost all the donations they get in a charity's name, provided they don't actively lie about how much is actually going to the nonprofit.
Even the good guys screw up. Charities that have reasonable fundraising and administrative expenses still manage to blow it now and then. Critics excoriated the American Red Cross when the charity revealed plans to divert money from its Sept. 11 fund to other causes; the charity ended up changing its policy so the money would benefit only victims and their families. The United Way also has had its high-profile embarrassments, including a CEO convicted of defrauding the charity in the early 1990s and a finance officer who pleaded guilty to embezzling $1.9 million to pay for quarter horses.
Sometimes the watchdogs don't agree. The Better Business Bureau's Wise Giving Alliance says the Shriners Hospitals for Children met its standards, but Borochoff's philanthropy institute gave the charity a failing grade for continuing to raise funds while sitting on enough cash to pay for years' worth of programs. The BBB alliance thinks it's OK for a charity to maintain such an endowment to smooth out unpredictable swings in giving; Borochoff doesn't think a nonprofit should hit you up for money before spending what it's got.
Charity monitors also disagree about how much fundraising should cost. The philanthropy institute won't give a high grade to charities that spend more than 25% on raising money, but the BBB alliance thinks 35%, and sometimes more, is reasonable.
Do these difficulties mean that you get to sit on your wallet this holiday season? Hardly. Legitimate charities need your money, and most of us feel some obligation to give back a little of our good fortune each year.
Video on MSN Money

Checking out charities
Here are 3 ways to make sure your donations aren't squandered.

Keep your cash in good hands

If you have the time and inclination, there are plenty of ways to check out a charity, and I'll give you some suggestions below. If you're in a hurry, though, here's a down-and-dirty giving guide that will all but ensure you don't give money to the wrong folks:
Hang up on telemarketers. It may seem convenient to give over the phone, but it's a bad idea in so many ways. Not only can you be easily scammed giving your credit card number to a stranger, but any charity that pays telemarketers is probably spending too much on fundraising.
Ignore pleas to help cops and firefighters. Scams abound in this corner of the fundraising world. As Borochoff points out, it's not the old days when the widows and children of these public servants were routinely left penniless. These days, their benefit packages are typically some of the best around.
If you really have your heart set on helping your local firefighters or cops, be proactive: Take the time to call the department, find out if it has an official foundation or benevolent fund, and send your money there. If you want to deduct your donation, make sure you're not sending money to a union lobbying group or a fund that benefits specific people.
Continued: Bogus charities for veterans

Be wary of pleas for veterans. The bad guys know that sympathy is high for those fighting our wars and are more than willing to turn that against us by making heart-rending appeals for bogus causes. If you want to benefit veterans, consider donating to one of the charities that rates an "A" from the philanthropy institute:
Avoid car donation charities. This is another really awful idea for virtually everyone except the for-profit junkyards and auction houses that process the cars -- and that benefit handsomely from your donation. The charities receive as little as $100 per car, and the IRS has significantly tightened the rules on how much you can deduct (you're usually limited to whatever the car sells for at auction, which may not be much).

Of course, you may not get a write-off at all; only people who itemize their deductions can take a tax break from donating their cars. That means most taxpayers aren't eligible, since they take the standard deduction.
Pick from the philanthropy institute's "top-rated" list. The institute is probably the hardest to please of the charity watchdogs. You can find its list of top-rated charities online.

Still reading? If you've hung around this long, you may have the tenacity needed to thoroughly investigate a charity on your own. But don't expect the process to be simple. How you can investigate on your own

Your first step is to make sure you know the charity's exact name and the address of its headquarters. It's easy to get confused by sound-alike names.
For years, I thought Save the Children was the sponsorship charity that flunked watchdog standards, when, in reality, it's Feed the Children that ran afoul of the philanthropy institute. You wouldn't want to confuse the Cancer Fund of America, which recently settled a deceptive marketing case with the state of Georgia, and the Cancer Research Institute, which gets high marks from charity monitors.
A genuine charity or law-abiding fundraiser should be willing to send you the information you request, and most will send you their latest IRS Form 990 filings on demand. If a charity balks, you can pretty much strike it from your list of potential beneficiaries.

"A legitimate charity will be happy" to provide information about itself, said Bennett Weiner, the chief operating officer for the BBB alliance. "The questionable ones won't. They just go on to the next caller." How to get charity data quickly and cheaply

Charities are allowed to charge a nominal fee to copy their 990s. If you want a cheaper or faster look, here are a few places to try:
  • GuideStar has data on more than 850,000 IRS-recognized nonprofits and posts 990s for many. Access to 990s is available with free registration.
  • The IRS doesn't have 990s available online, but you can write to the agency's Ogden, Utah, service center and request them, Weiner said. While you're waiting for the report to arrive, you can check Publication 78 to make sure the charity is properly registered as a tax-exempt entity.
Video on MSN Money

Checking out charities
Here are 3 ways to make sure your donations aren't squandered.

As I've noted, you may not get the straight scoop about fundraising from a Form 990, but you should be able to see in general how a charity says it is spending its money -- and how much it pays its top five officers.
Borochoff also recommended asking the charity for a copy of an audited financial statement. These, he contends, are tougher to fudge than a 990, although they also may be tougher for a layperson to decipher.

What if you decide you could use some help? Here are some possible sources:
  • The American Institute of Philanthropy's Charity Rating Guide gives letter grades (A through F) to 500 of the better-known nonprofits and is available for $3. Send a check to the organization at P.O. Box 578460, Chicago, IL 60657.
  • The BBB's Wise Giving Alliance has reports for more than 600 charities on its Web site. As I said, the BBB standards are often looser than philanthropy institute's, and there are no letter grades. Charities either meet the BBB standards or they don't.
  • GuideStar offers financial summaries and other data to help consumers investigate and compare charities, but it is not a charity watchdog. GuideStar's position is that donors can use its databases to decide for themselves.
Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
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