The holidays are a time when nonprofits ramp up donation efforts, and people tend to donate more money. However, don't let the spirit of Christmas fool you into donating to just any charity. Some nonprofits might not spend your money the way you expect, or even like. That's why it's important to do your homework before you give.
"A donor should verify that as much of a donation as possible supports the cause or mission the donor wants to support, rather than overhead or marketing," said Stanley P. Jaskiewicz, a corporate lawyer with Spector Gadon and Rosen, PC. Although some operating expenses can't be avoided, Jaskiewicz said a well run charity keeps them to a minimum, and provides full financial disclosure.
More than 1.5 million nonprofit organizations are registered in the U.S., according to the National Center for Charitable Statistics. To help you out, here are seven charities you should stay clear of this holiday season.
Related: 5 Charities Warren Buffett Loves
1. Kids Wish Network
For 18 years, the Kids Wish Network has raised money to grant wishes to children who are dying, or are suffering from a life-altering condition. The organization's website said more than 48,000 children were helped last year.
However, the organization has spent less than 3 cents on the dollar helping children, according to an in-depth report, America's Worst Charities, conducted by the Center for Investigative Reporting and the Tampa Bay Times. The report examined nonprofits' financial data over the last decade. It found that most of the money goes into the pockets of the charity's operators and for-profit companies that are hired to solicit donations.
Kids Wish has paid nearly $110 million of its donations to its corporate solicitors, and another $4.8 million to the charity's founder and his own consulting firms, the report said.
2. Youth Development Fund
The Youth Development Fund is an organization that works to create education programs and services for children, regarding drug abuse, health and fitness for children, according to the website of the Tennessee nonprofit. Rick Bowen is the founder of the organization, which has operated since 1982.
Over the last decade, donors contacted by paid solicitors gave nearly $30 million to the charity, according to the America's Worst Charities report. In return, Youth Development paid the solicitors 83 percent — $22.6 million — of the raised funds.
Bowen's private production company also got paid $200,000 a year to produce videos for "Rick Bowen's Deep Sea Diving," which is aired on a local TV station, claimed the report. The charity reportedly also pays the station to air those segments, with no mention of the charity on the segments.
3. Children’s Charity Fund
Ken Bowron began the Children's Charity Fund in 1994. The former motorcycle mechanic receives a retirement check from the organization, which now operates under his wife and daughter, according to the America's Worst Charities report. Children's Charity Fund also does business as A Child's Wish Association of America.
The report also stated that in 2011, family members were paid more than three times the amount spent on sick children's wishes and medical care. Apparently, state regulators have been scrutinizing the charity since its formation, with the latest incident reportedly involving solicitation issues in several states. The Children's Charity Fund's latest financial statement shows a $23,500 deficit, due to overspending on functional expenses.
4. National Veterans Service Fund
On the National Veterans Service Fund's website, the Connecticut-based nonprofit said that the war is not over for veterans after leaving the battlefield, and that prior to its services, "no health or social system existed for veterans that focused on the whole family and their struggle with a multiplicity of problems."
Donors gave $70 million to the nonprofit in the last decade, according the America's Worst Charities report. The catch: Most of the money went to solicitors rather than to veterans. In fact, the report found solicitors kept a larger chunk of cash over time — 82 percent in 2011.
On GuideStar, a website that provides financial and other information on nonprofits, the charity has a one-star rating. The nonprofit employed five people with compensations totaling more than $350,000 in the 2012 calendar year, according to available financial reports. The president alone made over $92,000 in salary for a 40-hour workweek, along with an additional $30,000 in other compensation.
5. Cancer Fund of America
In May 2015, the Cancer Fund of America was one of four organizations accused by the Federal Trade Commission of "bilking" consumers out of over $187 million — spending money not on cancer care, but personal luxuries and "lucrative employment for family members."
Cancer Fund of America is a Knoxville, Tenn.-based nonprofit founded in 1987. Its mission is to provide aid to cancer victims, hospices, health care providers and other organizations by sending "much needed products free of charge," according to the website.
The CFA said it provides toiletries to patients, wherever their location. The solicitors pulled in millions of dollars every year, according to the America's Worst Charities report — with the CFA's founder and other family members earning a combined salary of $1 million. According to the nonprofit's 2012 financial report, one telemarketer generated over $2.8 million with 85 percent going to personal earnings.
6. Firefighters Charitable Foundation
Firefighters Charitable Foundation formed in 1991 to offer financial support to people who have suffered a fire or other disaster, but according to the America's Worst Charities report, much of the donations went to the solicitors. Solicitors received 90 cents of every dollar raised, leaving 10 cents on every dollar going to direct financial support. Looking at FCF's 2013 990 form, for-profit solicitors generated more than $7.1 million in donations for the organization, and were paid 86 percent of that — over $6.1 million.
7. National Caregiving Foundation
When the National Caregiving Foundation began in 1985, its mission was to provide grants and scholarships for the study of cancer and other diseases, according to the report. In 1996, the Pennsylvania Attorney General cited the organization for failing to fund or conduct research. After a settlement, the Virginia-based nonprofit updated its mission to what it now reads — "to meet both the direct and indirect needs resulting from the impact of catastrophic diseases on our society."
The foundation's website stated that education is a part of its mission. However, the educational component "allows the charity to report some of the money it spends soliciting donations as money spent on charitable work," according to the America's Worst Charities report. Although the organization's reported profit in its most recent 990 form shows more than $1.9 million in revenue, more than $1.8 million went to expenses — that's 96 percent.
Research Before You Give This Holiday Season
Last year, 31 percent of all giving took place in December, according to the Network for Good Digital Giving Index. When you research potential charities there are a few things to consider, according to David Bakke, a financial expert at Money Crashers.
"The charity should have low administrative costs," he said. "At the very least, about 70 percent of the donations should be going directly to the cause in question." The organization should be transparent, and you should be able to easily review the charity's financials online or otherwise, he added.
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