Holiday giving? Don't pick a charity by financial statements alone

When it comes to charitable donations, Canadians seem to have become so fixated on picking a charity based on its administrative costs that they may be overlooking the impact the agency has, one umbrella organization says.

“What we are witnessing is that more and more Canadians are using one measure to determine the value of a charity,” said Bruce MacDonald, president of Imagine Canada. That measure is how much of a charity's revenue goes to fixed or administrative costs versus what goes out to people in need.

Mark Blumberg, a charity lawyer who runs a website dedicated to informing Canadians about charities called Smartgiving.ca, agrees. It may be the easiest measure to look at, he says. But he also cautions it is the "most misleading."

Many Canadians donate around the holiday season, whether as a gift on behalf of a loved one or acquaintance, or as an end-of-year donation. An Imagine Canada survey found 62 per cent of Canadians intend to donate to a charity over the holidays.

But charity experts caution that Canadians shouldn’t part too easily with their hard-earned cash without doing some research first. Here are their tips for donating smart during the holiday season.

Registered and accredited

If five minutes is all you have, do some basic research. The first thing to do is check whether a charity is registered, which allows it to issue official donation receipts for tax purposes, and requires it to spend a certain minimum amount on their programs.

More than 86,000 registered charities exist across the country, and the Canada Revenue Agency maintains a database that you can search.

Only a small portion of those charities seek out accreditation or certification by groups like Imagine Canada or the Better Business Bureau. Imagine Canada lists 120 accredited charities, while the Better Business Bureau has about 140. 

MoneySense magazine also puts out an annual list of graded charities. 

Volunteer

“People don’t like to hear that,” said Blumberg, but volunteering first can be one of the most effective ways of sussing out how well a charity runs itself and whether it aligns with your own philosophies.

He acknowledges that it doesn’t work in every situation or with every charity, but it's worth trying if you have time.

Research, research, research

If you value your money, five minutes of research isn't going to cut it. Spend some time looking at charities. Consider choosing fewer charities instead of handing out $10 or $20 to multiple agencies. 

If you are hearing things that don’t sound right or make sense, check it out.- Bruce MacDonald

Try to figure out whether the charity fulfills its mandate.

Look at their website, annual reports, impact studies and evaluations for indications of how well the charity does what it vows to do.

Search Imagine Canada's Charityfocus.ca website. It features documents from about 1,000 charities.  

Look at the financial statements

Yes, take a look at the financial statements. Just don’t let this be the only thing you do.

"For me, it’s about 20 per cent," said Blumberg. The T3010 that registered charities must provide the Canada Revenue Agency is a good starting place.

The statement tells you the group's affiliations with other charities, its revenues and expenditures, as well as information on fundraising costs and compensation amounts. 

But Blumberg warns donors to make sure to think of the overall context when looking at costs. For example, don’t judge solely on compensation costs that appear pricey. Perhaps the organization hired a neurosurgeon or other specialist to help with their research priorities, a cost that may be worth it. 

Donate directly

It’s best to donate directly either by mailing a cheque or paying online via a charity's website.

Solicitors coming to your door may or may not be legitimately collecting for a charity. But even if they are legitimate, notes Deborah Brady, president of the Better Business Bureau in Western Ontario, you don’t know what percentage of the donation the solicitor is keeping.

"A lot of times there are people hired by agencies that do solicitation, but they keep the lion's share of the funds," said Brady. They may pocket up to 90 per cent of your donation, she says.

Ask what’s needed

Around the holiday season, many people like to give toys and food, but tread with caution when donating specific items. "Do a little research and find out what the charity needs," advises Brady. A local agency running a toy drive may be well covered for children, but desperately need items for babies or toddlers.

Your gift "will have more impact if you’re investing where the need is greatest," says Brady.

Avoid scams, but don’t worry too much

Everyone’s heard of the some charity-related scams, but Blumberg notes they’re not as common as you think.

Still, don't feel pressured to donate on the spot. Donate later once you’ve done your research. “If you are hearing things that don’t sound right or make sense, check it out,” said MacDonald. 

Don’t wait until next year

Canadians are typically very generous during the holidays, but beware that your last-minute donation may not create the best situation for charities.

Many charities receive up to half of their donations in December, says Blumberg, and that creates cash-flow issues the rest of the year. So, try to set up a monthly donation. It’ll be much more appreciated.