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Global philanthropy is on the rise as Americans gave $23 billion to international causes in 2011, a 7.6 percent increase from the previous year. Yet, without proper due diligence, there is no guarantee that funds will be used responsibly.
Fortunately, there are steps people can take to learn about foreign charities before sending money overseas.
A charity’s track record should be the first thing a donor examines, says Leslie Lenkowsky, a professor with the Center of Philanthropy at Indiana University, Bloomington, Ind. If it’s filled with accomplishments and has a long history, that’s a positive sign.
In addition, the board of directors should be composed of individuals with reputations independent of the charity, meaning their reputations shouldn’t rest solely on previous work they may have done for the charity, Lenkowsky says.
Digging into an organization’s financial records is another way to validate its legitimacy. The amount of money allocated to administrative costs versus funds used directly for the cause is worth a close inspection, but should be interpreted cautiously, since charities have different administrative needs at different times in their histories. Individuals can visit websites such as GuideStar and Charity Navigator to access non-profits’ financial data, Lenkowsky says.
“Overhead for U.S. charities is up to 25 to 35 percent of the organization’s budget, but one always has to take into account the circumstances under which a particular charity is working,” Lenkowsky says. “Charities in difficult terrains like Afghanistan will have to spend more on security costs to run their programs. In the international arena, there is no single standard.”
Donors should also ensure they are getting the best currency exchange rate possible when converting funds for philanthropic donations. If a donor has flexibility around the timing of a donation, he or she may choose to wait until the conversion rate is more favorable — to maximize the amount of a contribution. Individuals can typically sign up for email market rate alerts through their online foreign exchange providers.
Individuals should also find out whether the charity has any ties to organizations labeled as terrorist groups by the U.S., Lenkowsky says. In the post-9/11 era, the U.S. Department of Treasury has restrictions regarding where citizens can give to charity. “The penalties are sharp for people who make large donations to those groups,” he says. The consequences can range from hefty fines to jail time or both, he says. Donors can visit the Department of Treasury online to see if specific charities have been designated as terrorist organizations.
Other signs of a suspicious charity are negative reviews on charity evaluation websites, such as GiveWell, bad publicity and unsolicited emails, says Christopher Hill, chief experience officer of London-based Hands Up Holidays, a company that combines luxury travel with volunteering and philanthropy. Donors should also be wary of recently established charities with bank accounts that are connected to an individual rather than the charity itself. To learn more about corruption in global humanitarian aid, donors can visit Transparency International.
Once individuals have chosen where to donate their money, they should weigh the financial benefits available to them. Although there are generally no income tax deductions for individuals who make cross-border donations, it’s possible to qualify for gift or estate tax deductions, says Doug Varley, an attorney at Caplin & Drysdale in Washington, D.C.
Individuals seeking those deductions should call the Internal Revenue Service (IRS) or check the IRS website to verify the organization’s 501(c)(3) status and ensure it qualifies as a charity under U.S. law, Lenkowsky says.
If donors are looking to receive estate, gift or income tax deductions, Lenkowsky says they may want to choose international causes that have a U.S. branch and send money via the affiliate.
Whether the donation in question is large or small, it’s important to always remember the adage, “If it looks too good to be true, it probably is.” By applying a critical lens to looking at the charity, individuals can ensure their funds make it into the right hands.
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