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Probing a Charity's Financials

Discerning the financial viability of different nonprofits before making charitable donations.

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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