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Mellody Hobson talks about philanthropy in today’s “Money Mondays” segment.

A Florida newspaper and the Center for Investigative Reporting recently put together a list of the nation’s worst charities. Before we get into specifics, I have to stress that this list of the “worst charities” focuses on nonprofits on the fringes—they are NOT the norm, and in fact, some fundraising professionals criticized the study for discouraging philanthropy.  But even if the industry as a whole is run by true do-gooders, there are some pretty rotten apples in the bunch: The ones at the top of the “Worst Charities” list spent more money on operating costs and solicitors than on the causes and people well-meaning donors thought they were trying to help.

But aren’t their rules in place about how much they can spend on that?
Unfortunately, the answer is no. States have different laws, but no State can mandate that a certain percentage of the funds raised go to the organization’s charitable activities, because fundraising appeals are protected free speech. States can, however, insist that the charity or its fundraiser tell the truth when soliciting funds.

Watchdog groups say no more than 35 % of donations should go to fundraising costs. And there is no standard for how much should be spent on direct cash aid.

What so-called charities topped the list of the worst?
The worst is a charity called “Kids Wish Network” which raised millions in the names of kids dying from disease and their families. Those kids got about three cents of every dollar raised. Three cents! And part of the reason this charity has continued to raise money is because the name “Kids Wish Network” sounds very similar to the “Make a Wish Foundation”—a very reputable charity that donates from 78-88% of every dollar (depending on the state) directly to granting wishes.

Next on the list of the worst, the Cancer Fund of America collected $98 million in donations last year, but according to the IRS, patients received less than a million in direct cash.  Hopping on the “sound-alike” bandwagon, The Children’s Wish Foundation reportedly spent about $3.6 million granting wishes to terminally ill kids in 2010, but it paid professional fundraisers nearly $6 million. The American Breast Cancer Foundation appealed to donors by promising to pay for breast cancer screenings, but 75 cents of every dollar raised went to professional fundraisers. This list is getting depressing, but I’ll finish with this: The Firefighters’ Charitable Foundation purports to provide financial assistance to those affected by fire or disaster. From 2002-2011, it raised $64 million in donations. Guess how much went to solicitors? $55 million. Less than ten cents of every dollar went to those in need.

This kind of phony philanthropy isn’t too common?
These are extreme cases in which solicitors were paid on a percentage- or commission-basis, a practice which is prohibited and considered unethical by the Association of Fundraising Professionals and most of the charitable sector.

That said, the numbers are stunning: Of the $1.3 billion raised by the 50 worst charities, almost $1 billion was paid to companies that do their fundraising. The majority were police, fire and veterans-focused charities, then cancer and other diseases, then kids.

What should I take away from the study?
People love to give—it makes you feel good. I am a HUGE proponent of giving back to the community, and I think the main takeaway from this study is to be an informed donor.

What are the steps to being an informed donor?
First, take your time to vet the organization you want to support. This is particularly important if you are considering giving to a new or unfamiliar charity.

You can do that very easily online. Websites like Guidestar.org, charitynavitator.org and the Better Business Bureau are just a few of the sites that can do the all the background-check work for you.

Another rule of thumb is not to be fooled by charities with worthy-sounding names, or names that might sound similar to other organizations.  Some questionable charities create names that are intended to sound like other well-known charities to mislead potential donors.

Next are the phone rules: If you’re dealing with an aggressive telemarketer, be wary: The faster the pitch, the more you should just say no. First, ask if he or she is working for a percentage of the funds raised, is paid a set salary or fee or is a volunteer. If the telemarketer is taking a percentage of funds raised, hang up the phone. If not, ask what portion of your donation will actually go to the charity, and finally, ask how it will affect local programs.

Every nonprofit has salary, overhead and fundraising costs. People are generous, and there are so many worthwhile causes and extraordinary charities that donors can support.  That why in an ideal world, it’s best to personally know the cause you want to support. Before making a gift, offer to volunteer your time to learn more about the organization and how it is run. And remember, even if you don’t have the financial resources to help, you can still make a difference with good old sweat equity.

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