How is the charity spending your donation?

The Internal Revenue Service, which is one of the most despised government agencies in the world might be doing something right. Since they hand out tax exemptions for legitimate charities, it makes sense that they're going to do more to increase the transparency of those charities.

The tax form filed by charities (Form 990) is getting an overhaul, and it's going to force charities to tell more about how they spend the donors' money. Charities must include two years of financial information (revenues and expenses) and details about their accomplishments during the last year. They must also report information on their fund raising, governance, and compensation of executives and trustees. And as a donor, if you request a copy of the charity's Form 990, they have to show it to you.

This form won't solve all problems, of course. You still should take a critical look at a charity before donating your money. You want to make sure that you're giving money to a legitimate organization that really has (and achieves) charitable goals. Sadly, there are organizations that raise funds mostly for the benefit of the owners and executives, and don't really accomplish anything remotely charitable. One site that helps donors get information about charities is GuideStar, which provides financial reports for free and other information on a subscription basis.

There are now 1.2 million charities registered with the IRS, and they take in almost $2 trillion a year from donors. Consumers definitely need to pay attention before the give away their money. The business of collecting donations can be big business, and you want to make sure that your money is really going to make a difference with a legitmate charity.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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