Editor’s Note: One need only scroll through the birthday fundraisers on their Facebook feed to realize that charitable donations have become a popular alternative to traditional gift giving. But much like you wouldn’t purchase a new TV without first seeking reviews and comparing brands, charities are worth looking into before you make a donation.
Americans are among the most generous people on the face of the earth. According to Giving USA 2019, prepared by the Indiana University’s Lilly School of Philanthropy and published by the Giving USA Foundation, individuals, bequests, foundations, and corporations gave an estimated $427.71 billion to U.S. charities in 2018. The vast majority of donations (68 percent) came from individual donors, who contributed $292.09 billion.
More than 38 million people, or more than 15 percent of the population over 18 years of age, claimed at least one charitable donation on their 2018 tax return. In addition, more than a quarter of all Americans volunteer each year at our nation’s charities — roughly the equivalent of five million full-time employees.
While there is huge support for our nation’s charities, there is very little awareness among the general public as to the economic clout, enormous growth of the philanthropic sector, or the process by which charities are granted and maintain their privileged IRS nonprofit status.
The nonprofit sector includes more than 1.5 million organizations and employs nearly 13 million individuals. Our nation’s charities employ more than 10 percent of people in the U.S. The nonprofit sector ranks third among the top three employers in country, trailing only retail and manufacturing. More civilians are employed at our nation’s charities than in the federal and state governments combined.
Charitable activity contributes $900 billion to the U.S. economy and accounts for an astonishing 10 percent of the economic life of the country. The nonprofit sector represents around 2 percent of the nation’s Gross Domestic Product. (GDP). This exceeds the GDP of all but six foreign countries. According to Ken Stern in With Charity for All, “Charities take in over $1.5 trillion each year in revenue and have assets approaching $3 trillion.”
The nonprofit sector is growing at an astronomical rate. The number of charities more than doubled from 1995 to 2010. From 2001 to 2010, the number of charities grew by more than 48 percent. There are more than a million charities today. That’s more than one charity for every 300 people.
There are more than 2,500 nonprofit organizations operating within Mercer County and almost 35,000 in New Jersey. According to the New Jersey Center for Nonprofits, “Over 1.6 million people volunteer at New Jersey non-profits annually, providing over 225 million hours of service valued at more than $5.3 billion.”
The Urban Institute indicates that nationwide we adding more than 50,000 new charities each year. Most nonprofits are small, with annual expenses less than $500,000. Only four percent of all charitable organizations had annual expenses over $10 million.
While the majority of nonprofits are operating effectively and efficiently, there are thousands of nonprofits that are operating in an ineffective and inefficient manner, and there is no mechanism in place to weed out charities that are performing poorly. Unbeknownst to most Americans, there are no entry barriers to forming a non-profit (the IRS approves 99.5 percent of all applications) and no systematic evaluation of the performance of nonprofits against established standards or best practices.
Again according to Ken Stern, “Unlike private corporations that respond to market signals and go out of business when they fail, nonprofits organizations have a very low barrier to entry … and once established rarely die.” Once a nonprofit receives IRS tax-exempt status, there is no federal, state, or local government agency that regulates, supervises, or oversees them. More specifically, there is no government entity that keeps any record of what nonprofits do or don’t do. Once you get approved as a tax-exempt entity you have that status forever.
Our nation’s charities should be subject to the same kind of regulatory scrutiny that our nation’s schools, colleges, hospitals, financial institutions, and many businesses are subject to. Whether this oversight should be a provided through a peer review or a newly created governmental or quasi-governmental entity is a subject for further study and additional debate.
In the years to come, as government continues to extricate itself from providing all kinds of assistance to the truly needy, America’s nonprofits will be taking on more and more of the burden for caring for our nation’s health, education, and welfare needs. To more effectively meet the growing need, we should consider establishing a credible system for objectively evaluating nonprofit performance and determining which charities need to disband and/or be told what they need to do to keep their privileged non-profit IRS status.
In the meantime, as we approach the holiday season we all will be inundated by requests from charities to support their work. A couple of tips for evaluating charities not familiar to you that are seeking your support:
1. Review the charity’s current IRS Form 990, which provide the public with financial information about charities (must be filed by all charities with annual income of $25,000 or more);
2. See if the charity is rated by Charity Navigator (compare it against comparable types of area nonprofits);
3. See if one of your friends/neighbors/colleagues is familiar with the charity or volunteers there and obtain their opinion of the services provided; and
4. Arrange to visit the charity and check out how clients are treated and what services are provided. If the charity can’t come up with a really good reason why a visit is not possible, don’t give.
To secure a copy of a charity’s 990 form type in “XYZ Charity 990 Form” in the query box in your preferred search engine and you will usually find multiple ways to access the charity’s 990. A couple of million nonprofit 990 forms are available on GuideStar (www.guidestar.org). You can also ask a charity for their 990.
Stoolmacher is president of the Stoolmacher Consulting Group which has worked with 100 charities over the past 35 years in the areas of fundraising and strategic planning. www.startasoupkitchen.org/irwin-stoolmacher.htm.