Ensure your donation dollars are used effectively and efficiently

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A reader recently asked me for advice about charitable giving. As many of us donate at this time of year, it’s a timely question, and I do have some thoughts to share.

How do you ensure your hard-earned money is used effectively and efficiently by charities? One way is to check their financial statements. Canadians gave $13 billion to charities and not-for-profits in 2013, according to Statistics Canada’s General Social Survey; 47% of donations were from those of us 55 and over. And all that money must be accounted for.

An organization’s balance sheet will show the net result of its operations to date, either a surplus or deficit, depending on whether funding has exceeded or lagged spending. Organizations with a large surplus may not need your support; those with a large deficit may use your funds to cover outstanding bills. A large deficit can also indicate an organization has not been run well.

An income statement will show spending by expense type (for example salaries, rent and travel) but it’s generally more informative to look at spending by activity. Look for a separate statement or graph that shows this breakdown. For example, a health charity may spend money on research, patient support, fundraising and administration. The relative spending on each category may influence your decision to donate.

Whether an organization publishes financial results is a good test of its transparency, but if the thought of digging into the numbers makes your palms sweat, there is help. Organizations like Charity Intelligence provide ratings (though mostly of larger charities) while Smart Giving’s website has tips and insights to help you give wisely.

A key factor to consider is how much organizations receive from other sources, such as government grants, fundraising events and other donors. Religious organizations receive the biggest slice of the donation pizza (41%) followed by health charities other than hospitals, which receive 13%. Environmental charities take home just 2% and social justice organizations (those involved in advocacy, law and politics) receive only 1%.

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