Pace of Giving Slows: Donors Scrutinize Charities
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The American Red Cross has received nearly 80 percent of the $800 million contributed to Hurricane Katrina relief, according to the Chronicle of Philanthropy, which tracks post-disaster relief total, the Washington Post says, but the pace of giving has begun to slow. The Red Cross estimates that all of the money raised so far will meet only one-half of their needs.
US charities have begun to focus on accountability, in part because of concerns about misspent funds in the past. The Red Cross, for example was criticized for spending only a portion of the funds from the Liberty Fund, set up after September 11, to help the families of the victims, according to the Wall Street Journal. All of the money collected for Katrina will be spent for the hurricane victims, the Red Cross has announced.
Many charities including the Red Cross publish their specific disaster relief activities on their web sites. The Red Cross “does have procedures in place to account for spending on this and other disasters, but over the last two weeks we’ve given guidance to our chapters to focus on service delivery” rather than “counting beans”, Kara Bunte, spokeswoman for the Red Cross development, told the Washington Post.
Charities are also releasing data on how efficiently they distribute aid, according to the Wall Street Journal. Results vary, the Journal says, with the Red Cross reporting that it spends $6 to prepare and deliver each meal and the Salvation Army, a decentralized organization, reporting that it spends $3.
Charity watchdog groups like Charity Navigator  and the Better Business Bureau Wise Giving Alliance  provide donors with recommendations for charities and details on how money is being spent, the Journal reports. In addition, these groups provide donors with information that will help them to avoid scams.
The small amount of detail generally reported by charities results in part from the lack of governmental reporting requirements, according to charity watchdogs, the Washington Post reports.
“The market dictates what charities report and what they don’t . . . but the government demands nothing” beyond an annual informational return, said Trent Stamp, executive Director of Charity Navigator, according to the Post.
Charity Navigator rates organizations like the Red Cross according to criteria that include revenue growth and working capital. “At its most general level,” Charity Navigator says on their web site, “our rating system is relatively simple. We base our evaluations on the financial information each charity provides in its informational tax returns, or IRS Forms 990. We use that information to analyze a charity's financial performance in . . . key performance categories.” The broad areas of financial health that they base their ratings on are Organizational Capacity and Organizational Efficiency, their web site says.
Because the Salvation Army is exempt under Internal Revenue Code from filing Form 990 as a "church or convention or association of churches." Charity Navigator says that they “lack sufficient data to evaluate their financial health.”
Relief organizations will need to support Katrina victims for months and perhaps years according to the Burlington Free Press. Patrick Rooney, director of research at the Center on Philanthropy at Indiana University recommends that donors set up a giving plan. Setting up a plan forces the donor to “think hard about the kinds of charities that merit your support.”
Vehicles for planned giving can include the charitable remainder trust, the charitable lead trust and investing in charitable gift funds, Michael Kitces, financial planner for Pinnacle Advisory Group told the Free Press. These options can offer important tax and estate-planning benefits, Kitces said.