Charities have a huge responsibility in properly managing and allocating donations received from corporations, businesses and individual contributors. In 2011, the total donations received by charities nationwide amounted to just under $300 billion -- a 4% increase from the previous year. Donations are expected to increase with each passing year, as charities passionately implement and improve programs. Moreover, new charities are coming on the scene with great new ideas. But from a donor’s perspective, regardless of how big, or how helpful programs are, it is felt that a charity must disclose how it uses donated money , and how well its programs are helping people.
What Percentage of Donations are Used for Helping People?
Charities and nonprofit organizations are businesses, and with every business, there are expenses that cannot be avoided. Overhead expenses typically account for the largest percentage of costs associated with keeping a charity in operation. There are other costs that a charity has to cover, such as expenses related to marketing, promotions and advertisements. Most Americans believe that roughly 20 percent of donations received by a charity can be used to cover operational costs, and that the large majority of roughly 80 percent should be used for human services programs. Nonetheless, depending on the charity, the actual portion of funds used for helping people may be more than 80 percent, or less. United Way, for example, has a strict allocation principle of using over 80 percent of donations received for humanitarian projects. The United Way of Sheboygan, disburses 84 percent among its several programs to help people.
Charities may pop up from time to time claiming that 100 percent of proceeds are used for relief efforts. These kinds of claims raise great suspicion, and such charities lend themselves to extreme scrutiny. Any well-thinking person can appreciate that charities use some amount of money for internal purposes, but at the same time, this amount should be much smaller than the portion used for philanthropy.
What’s Involved in the Process of Funds Allotment?
In general, after a charity receives donations, a committee specifically having the responsibility of fiscal management, will go through an intense process to allocate funds for projects. Naturally, this is after the funds to cover the charity’s operational costs and projects costs are separated. The time for allocating funds for human services projects varies. For larger charities, the allocation process can be extremely painstaking because of the numerous programs to fund, each of which falls under Health, Education or Basic Care. Each program has particular goals that need to be met, and stakeholders look with intent for the performance of each.
Charities are Accountable to Donors and Other Stakeholders
A charity’s fiscal team, as mentioned before, has a lot to account for and usually seek the approval of the board of directors before disbursing funds. How well a charity manages money is a major sign of performance which ought to be disclosed to its contributors and other stakeholders. This is why a charity will have meetings at which people associated with the charity are invited. Charities ought to share specific information with its supporters such as charity activities; reportage of its immediate, medium-term and long-term results; evidence of its results; and evidence of commitment to adjust and improve. However, there are other forms of media, such as blogs and newspapers, that a charity will use to keep its supporters updated with the state of projects.
In an age where charities are being launched in record numbers, and receiving massive donations annually, there needs to be a great level of transparency, accountability and commitment. There are several cases in which charities have been caught red-handed for mismanaging money, or using money in non-charitable ways. This is why charities are heavily audited and are required to comply with State jurisdiction. So when you’re looking to donate to charity, do some background checks on the organization. Does it manage money well? Is it listed on the IRS website? And one question to ask yourself is, “Does the charity reflect my personal desire to help people?”