With Memorial Day just around the corner, Americans will pause to remember members of the military who have died serving our nation. For many, Memorial Day is not just a long weekend – it’s an opportunity to remember the fallen by opening up their wallets in support of charitable organizations that serve veterans and first responders. While we tip our hat to those organizations – and other worthy causes not related to military service – we believe this is a good time to ensure your charitable investment is actually reaching those you want to help and directly impacting their lives.

Charitable Intelligence Lesson #1: “Not All Money Goes Where You Think”

Last November, the Tampa Bay Times evaluated the last 10 years of federal tax filings for thousands of American charities and ranked the 50 worst charities in the country in terms of percentage of revenue going as direct aid to fund programs and activities. As we discuss below, this is not the only way to evaluate a charity’s effectiveness, but the findings were still shocking. Of those 50 “worst charities,” 19 were groups associated with veterans or first responders. Incredibly, for one of those groups, zero revenue was spent in direct aid to those they claimed to support. The “best” of those 19 charities involving veterans or first responders spent a disgraceful 10.5 percent of their revenue in direct aid. Where does this money get spent? According to the Tampa Bay Times report, the largest amount of money – often more than 85 percent – goes to fundraising. For instance, one veteran-related charity raised over $18 million, but spent nearly $16 million on solicitors alone – that is over 88 percent of the charity’s revenue spent on trying to raise more money. After the charity’s overhead costs were factored in, only 2.9 percent went to direct aid. Compare that to a great charity like Puppies Behind Bars – which teaches prison inmates to raise service dogs for disabled veterans – that uses more than 85 percent of its revenue on delivering programs and services.

Charitable Intelligence Lesson #2: “Know What to Look For”

According to the charity watchdog group, Charity Navigator, 70 percent of charities spend at least 75 percent of their budget on direct aid. If a charity is spending less than that, you should take a much closer look at the organization before opening your wallet. If they are spending less than one-third of their budget on direct aid and programs, they are so inefficient or poorly managed that they are likely not living up to their mission at all. Additionally, three top charity watch groups – The Better Business Bureau Wise Giving Alliance, GuideStar and Charity Navigator – stated in an open letter that using overhead costs alone is a poor measure of performance and efficiency. They emphasized that other factors should also be considered, such as transparency, governance, leadership and results. In short, there is a lot of information an intelligent donor should evaluate before making a contribution. This evaluation is arguably even more crucial for corporations and high-net worth individuals, who usually have a lot of zeroes in their checks and may have a brand to protect.

Charitable Intelligence Lesson #3: “Use Tools to Evaluate Charities”

This may seem like a lot of legwork before writing a check, but there are a number of reputable organizations that conduct these evaluations for you, or provide the tools for you to make your own intelligent donation. Three of the better known groups, as previously mentioned, are:

  • Better Business Bureau Wise Giving Alliance: The BBB measures a charity’s efficiency based on 20 different standards of accountability relating to governance, effectiveness, finances and fundraising.
  • Charity Navigator: The nation’s largest charity evaluator examines over 7,000 charities, ranking each on their financial health, accountability and transparency.
  • GuideStar: This group does not rank or evaluate charities, but instead collects, organizes and presents information to the public so that individuals can make their own determination.

Charitable Intelligence Lesson #4: “Sometimes You Have to Take a Closer Look”

If you or your organization are making a major donation, or associating your brand as a major supporter of a charity, you may want to consider a deeper due diligence – just as you would for any other major investment. This could reveal, for example, that a CEO’s compensation is disproportionate to the size of the charity, or the charity is simply a nepotistic tool for management to hire relatives and friends, as was found to be the case for many of the worst-ranked charities.

Charitable Intelligence Lesson #5: “Don’t Stop Giving. Just Start Giving Intelligently”

In 2012, Americans donated over $316 billion to charities, according to Charity Navigator. But giving is not enough. Starting this Memorial Day, put in the extra effort to ensure that you are giving to those organizations that will make the most of your investment and your generosity.