Think before you give: Use your heart and head in making charitable donations

Premier Foundation, based out of Easley, S.C., sounds like a charity worthy of donations. The Christian nonprofit's mission is "to love and serve the impoverished by meeting their physical, spiritual, educational, social, and emotional needs," according to its mission statement.

But of the $390,000 it raised from well-intentioned donors last year, fewer than 12 cents of each dollar went directly to Premier's charitable cause. Its top executive, Gene Krcelic, was paid $121,000 in salary and benefits, eating up 32 percent of the money, according to financial statements filed with the Internal Revenue Service. And just $43,000 was spent on charity projects. The rest of the money went to travel expenses, designing a new website, fundraising and professional fees.

The Premier Foundation is just one of thousands of questionable nonprofits that can make holiday giving a chore. This year, Premier was labeled a "Scrooge" on the 20th annual Angels & Scrooge's list, compiled by the S.C. secretary of state's office. Each year, the office releases a list of the best and worst charities to help donors determine which nonprofits to donate to during the holiday season.

Premier's president, Krcelic, refutes the accusations that it is irresponsible with its donations.

But the secretary of state's office stands by its claim -- and warns that other questionable charities are out collecting money too.

"Anyone looking to make a donation needs to do their research first," said S.C. Secretary of State Mark Hammond, whose office is responsible for regulating the state's public charities.

A review of Beaufort County's 10 largest nonprofits by The Island Packet and The Beaufort Gazette revealed fiscally sound practices for their most recent fiscal year. Each gave more than 70 cents of each dollar to their cause and none used the wasteful fundraising practice of hiring for-profit telemarketers.

So how can potential donors tell the good charities from the bad ones? Philanthropic experts explain how.

LOOK FOR TELL-TALE OVERHEAD AND SALARY COSTS

Donors should understand where charities such as the Premier Foundation went wrong: Spending too much on administrative costs such as fundraising and executive compensation.

The industry standard, set by the Better Business Bureau, dictates charities should spend at least 65 percent of their revenue on direct charitable expenses.

The public can search nonprofits' overhead spending at the S.C. secretary of state's office website, www.scsos.com. The information is also included on nonprofits' 990 forms, the annual reports filed with the IRS. Copies of the forms are accessible for free at charitable-giving websites, including guidestar.com.

If a charity's finances reveal it is spending less than 65 percent on programs, donors should contact the nonprofit and ask for an explanation as well as request copies of the 990s for several years, experts say.

Good reasons may exist as to why overhead costs are high, said Ginny Deerin, a longtime S.C. nonprofit leader who ran for secretary of state in 2014 to replace Hammond. One year of big investments in equipment can easily throw off overhead ratios, making the charity appear substandard, she added.

In other cases, overheads may be high based on the nature of the charity's work.

For example, the median program ratio for art museums is 71 percent, while the median program ratio for food banks is 94 percent, so they shouldn't necessarily be judged side-by-side, according to Guidestar.com's data on national charities.

Equally important is to check out the salaries of the charity's executives and board members. They're listed in part VII of the 990.

If a donor suspects salaries are too high, the Better Business Bureau suggests comparing them to those of executives at organizations of similar size with similar missions.

"Nonprofits need to offer competitive salaries to get the best people," Deerin said. But, she added, if a salary looks high, "it's a good thing to check."

BE RESULTS-ORIENTED

Potential donors should focus on measurable outcomes, according to experts.

For example, a program for early readers should yield improved test scores, not just a long list of students who received tutoring.

Part III of Form 990, usually on the second page of the 990 form, describes the charitable accomplishments each organization performed, how much they cost and whether there were any significant changes to existing programs. This section of the form as well as proof of accomplishments should be able to give donors an idea of the organization's success.

Look for charities that communicate specific goals and a focus on solutions, not just a repetition of the problem, said Tina Gentry, CEO of the United Way of the Lowcountry, one of Beaufort County's largest charitable organizations that funds nonprofits.

"There really is no replacement for getting in there and asking those questions and looking for those concrete goals," Gentry said. "You need to see if it's actually working and feel able to hold them accountable." The United Way looks at the charities' measurable outcomes -- in addition to their administrative costs -- when determining which charities receive money. And it doesn't fund organizations where overhead exceeds 30 to 35 percent.

But Gentry said that when individuals are choosing organizations to fund, they shouldn't use overhead as the sole determining factor. A charity giving 99 percent of its money to its cause, for example, may be far less effective than one investing 15 percent in building its infrastructure, Gentry said.

"If a charity is having phenomenal success in its mission, then does it really matter what it's spending on overhead?" Gentry said. "You often get what you pay for in a nonprofit and, in the end, it is creating change that matters."

DEMAND TRANSPARENCY

Worthy charities welcome questions and are happy to provide documentation of their financial health, including copies of their 990s, say experts.

It's a good sign if they post the forms on a website without donors having to ask.

In addition to the 990 form, another important document to request is a copy of a charity's annual audit, which charities should have performed by an independent auditor, said Gabe Cohen, spokesman for Guidestar.com.

The accounting ensures that the organization has proper oversight. Beware of large charities that don't have an audit or a similar account of finances.

And it may seem overly simple, but be sure to do a quick Internet search to see if a charity has received bad press or negative ratings from watchdog groups for inefficient or deceptive practices, Cohen said.

"It's always a good sign if organizations get their donors financial information as quickly as possible with a good amount of detail," Cohen said.

BEWARE OF FOR-PROFIT FUNDRAISERS

This time of year, many residents will get phone calls from charities, seeking donations.

But experts warn that charities that employ professional fundraisers to cold-call potential donors are relying on an expensive and often inefficient way of raising money.

Some reputable charities may use the practice but often operate at a loss in an attempt to locate new donors they hope will give year after year, according to the Nonprofit Overhead Cost Project from the University of Indiana.

Many charities on the secretary of state's Scrooges list are known for aggressively paying fundraisers millions to build up their donations, while spending little on the cause.

Charities like the Kids Wish Network, listed as a Scrooge this year, show some of the worst kinds of charitable waste. The charit spent only 2.5 percent on direct aid to the families of sick children while pouring $110 million into for-profit fundraisers over the past decade alone, the Tampa Bay Times found in an investigation last year.

On a 990 form, look for the amount a charity spends on professional fundraising amount on Line 16A of the first page, labeled "professional fundraising fees."

"That is where you see some of the worst waste," Hammond said. "It's one reason all professional solicitors have to register with the state."

Only 9 percent of national charities use telephone solicitation, according to the Nonprofit Overhead Cost Project. Though 43 percent use direct mail, most don't mail to strangers who have no connection to the charity or who have not donated before.

So it is unlikely that a charity that fits a donor's priorities will reach out to them.

Philanthropy experts instead suggest that potential donors determine an area of charitable giving that they feel passionately about, such as education or homelessness, and analyze which charity has the most convincing proof of positive outcomes.

"You need to use both your head and your heart," Guidestar spokesman Cohen said. "You use your heart to figure out what causes you care about, but to find which charity has the most impact -- you need to stop and use your head."

Beaufort County's 10 Largest Nonprofits

Beaufort County giving

Data show that the county is a generous one:

• The median charitable contribution in Beaufort County was $3,610 in 2012.
• Beaufort County households gave 3.6 percent of their income to charity, according to 2012 IRS tax returns. The national average in 2012 was 3 percent. Low-income people in the county gave an average of 9.6 percent of their income; people making more than $200,000 gave 3.5 percent.
• There are 319 nonprofits headquartered in Beaufort County as of 2015, according to S.C. secretary of state's office.

Source: Chronicle of Philanthropy's "How America Gives" project

South Carolina's 2015 Scrooges & Angels

South Carolina Secretary of State Mark Hammond recently announced the 20th annual Scrooges and Angels list of 2015. The angels and scrooges were selected -- on a subjective basis -- based on financial reports showing what percentage of their revenue they spent on charitable programs and recommendations sent to the secretary of state.

Angels

• Animal Allies Inc., Spartanburg (92 percent)
• Fostering Great Ideas, Greenville (84.8 percent)
• Hartsville Christmas in April Inc., Hartsville (98.3 percent)
• Honorary Angel
• Harvest Hope Food Bank Inc., Columbia (98.1 percent)
• Hilton Head Heroes Inc., Hilton Head Island (84.3 percent)
• Injured Marine Semper Fi Fund, Oceanside, Calif. (93.7 percent)
• National Arbor Day Foundation, Lincoln, Neb. (89.3 percent)
• Orangeburg/Calhoun Free Medical Clinic Inc., Orangeburg (91.6 percent)
• Pilgrims' Inn, Rock Hill (85.6 percent)
• Share Our Suzy, Columbia (83.3 percent)
• Toomey's Kids, Murrells Inlet (94.8 percent)

Scrooges

• Cars Helping Veterans, a.k.a. Others First Inc., Rochester Hills, Mich. (24.1 percent)
• Healing Heroes Network Inc., Palm Harbor, Fla. (24.7 percent)
• Kids Wish Network Inc., Holiday, Fla. (42 percent)
• The Premier Foundation, Easley (12.2 percent)
• Reserve Police Officers Association, Yonkers, N.Y. (7.7 percent)
• Rock Hill Rescue Squad, Rock Hill (6.4 percent)
• Survivors and Victims Empowered, Manheim, Pa. (30 percent)
• United Veterans Association Inc., Fairfield, Ala. (25.1 percent)
• Vietnow National Headquarters, Rockford, Ill. (7.3 percent)
• Wishing Well Foundation USA Inc., Metairie, La. (4.8 percent)

Follow reporter Erin Heffernan on Twitter at twitter.com/IPBG_erinh.

Previous reports:

• Hilton Head charity named 'angel' on SC nonprofit list, November 23, 2015.
• 'Giving Marketplace' designed to help you help local charities, July 7, 2015.

This story was originally published December 4, 2015 at 12:53 PM with the headline "Think before you give: Use your heart and head in making charitable donations."