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Probing a Charity's Financials

Discerning the financial viability of different nonprofits before making charitable donations.
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For many business owners, it often seems impossible to discern the financial viability of different nonprofits. Despite the relatively loose financial-disclosure rules that govern nonprofit organizations, Jerry Wisotsky, owner of Imperial Litho/ Graphics, a Phoenix-based printing company, applies his financial savvy to decisions about his corporate-giving program, which donates 5% of profits each year. Here's how:

* Request the charity's latest annual report. Then read it as you would if you were considering making an investment. The key numbers to focus on here are cash-flow oriented: various expenses (program services, general administrative overhead, and fund-raising), as well as beginning-and end-of-year fund balances.

* Evaluate the percentage of donor dollars spent directly on program expenses. Wisotsky sets his standards high, donating only to charities in which the percentage is at least 75%. Nonprofit consultants and watchdog organizations generally recommend that a minimum of 60% of donor dollars go to program expenses.

* Confirm 501C3 status. To make sure your donation is tax deductible, you must confirm that the nonprofit has 501C3 status, the IRS's term for tax-exempt nonprofit organizations. If the annual report doesn't confirm 501C3 status, request a copy of IRS documentation from the nonprofit.

* Check out the charity's track record. Consult either your branch of the United Way or your local Better Business Bureau. Problems to watch out for include high-pressure or deceptive fund-raising approaches and failure to respond to donor requests for follow-up information.

-- Jill Andresky Fraser

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