AMERICANS give $124 billion to charity every year. But many wonder just how their donations will be spent.
A recent Gallup poll conducted for the Council of Better Business Bureaus found that 67 percent of Americans feel that charities do not provide enough information to help donors make decisions. Many are ``very concerned'' that charities spend too much on activities, such as fund-raising, that are not directly related to their causes.
``Many charities do good work and do it effectively, but many do not,'' says Daniel Borochoff, founder and president of the American Institute of Philanthropy.
The newly formed AIP aims to hold charities financially accountable and inform donors before they get out their checkbooks. ``You have a right to know which charities spend money wisely,'' Mr. Borochoff says.
Borochoff was a Wall Street analyst and then an analyst for the National Charities Information Bureau (NCIB) in New York before starting up the nonprofit AIP, based in St. Louis. He is often referred to as the Ralph Nader of the philanthropic world.
AIP has come out with a ``Giver's Charity Rating Guide'' that lists 300 popular charities and how well each manages its donations. The guide answers such questions as ``What percentage of donations is spent on actual programs?'' and ``How much does it cost to raise $100?''
It also gives a letter grade to each charity, judging them strictly by their financial performance. The Red Cross, for example, received an A+. About 92 percent of donations that go to the Red Cross are spent for charitable purposes.
In general, what's reasonable for a charity? According to AIP, 60 percent or greater of total expenses should go to actual charitable programs; $35 or less should be spent to raise each $100.
AIP is not alone in its quest for financial accountability among charitable groups. However, while some other charity watchdogs and ``giver's guides'' tend to pass along financial information supplied by the charities themselves, AIP conducts an in-depth analysis of audited financial statements and tax forms.
Unfortunately, current regulations allow widespread abuse, such as ``number juggling'' and ``creative accounting,'' Borochoff says.
Less-respectable charities might have highly paid executives, lawyers, accountants, and even image consultants. They might spend huge sums on fund-raising, or they might solicit money - ``We desperately need your help'' - while hoarding millions in the bank.
In one worst-case scenario, AIP found a charity where as little as 1 percent of donations were spent on bona fide charitable programs.
Douglas Williams, director of the Office of Charities Registration for the State of New York, applauds the efforts of charity watchdogs, including AIP, NCIB, and the Better Business Bureau.
``One of our greatest regulatory tools is public disclosure,'' Mr. Williams says.
* AIP offers the Giver's Charity Rating Guide, along with the Charity Watchdog Report, for $3. Write to: American Institute of Philanthropy, 4579 Laclede Avenue, Suite 136, St. Louis, MO 63108-2103.