In the aftermath of any natural disaster, it’s humbling to see people from across the country open their hearts and wallets, donating their time, money, and resources to help others in need. We’ve seen it with Hurricane Harvey, and I am sure we will see it again in the face of Hurricane Irma.
But it’s always a good idea to do some research regarding the organizations you support, especially if it’s outside the realm of big-name, national charities. Most people would even be surprised at the amount of information publicly available online through an organization called GuideStar.
GuideStar collects information about nonprofits across the globe and rates them based on their operational transparency. For example, a quick search for “red cross” through their website results in a top hit of Platinum-rated American National Red Cross, which has current year gross receipts of $3.1 billion and assets of $3.2 billion. Its profile also lists annual total number of volunteers, disaster responses, and blood donors.
You can even download a copy of recent tax returns for more detailed financial information, as well as information regarding its board of directors, highest paid employees, and highest paid independent contractors. But there is often confusion about the information provided in these nonprofit tax returns and what it means about the organization.
For example, the president of the American National Red Cross receives annual compensation of over $500,000, which may seem like a lot for a charitable organization. But it’s a huge organization that raises lots of money to help lots of people, and to attract talented leadership, you must offer competitive compensation.
Additionally, from an efficiency standpoint, people fail to understand the difference between a grant-giving organization and an operational organization. Many smaller charities pride themselves in keeping operational costs to a minimum and giving away all the money raised—the president takes no salary, there’s no office, and close to 100% of money raised goes back out the door as a charitable grant.
But some of the most effective charities with the widest reach have the highest operational costs. In fact, for 2015 charitable grants only made up 6% of total expenses for the American National Red Cross. But it’s an operational organization – the charity itself does work across the globe. And to maintain all its programs and function as an organization, it has to spend money internally.
Finally, note that churches do not have to file a tax return, and most will not appear on GuideStar. But that doesn’t mean you shouldn’t support your local church.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.