Last Updated: January 9, 2009
In the wake of the alleged Ponzi scheme by Bernard Madoff, plenty of Americans will likely want to know how the money they give to charities gets invested. But what's the best way to vet a charity? How can you make sure the money you give won't disappear in another Ponzi scam? The Wall Street Journal recently suggested the following tips:
- Look for transparency. A truly transparent charity will provide key financial data on its Web site, including its annual report, an audited financial statement and its Form 990. If you can't find the form on its Web site, try GuideStar.org, which collects financial data from nonprofits.
- Find out how much the charity is investing — and with whom.
- Ask who is giving the charity financial advice. You want to know who is on the board and, most important, if there is an independent investment committee.
- Pay close attention to who is on the committee, especially the chairman. Ask if the members are related to each other or anyone at the charity by blood, marriage or business ties. Make sure that the board has an independent outside investment consultant.
- Look for a written conflict-of-interest policy. Any transactions that a charity has with a business owned or controlled by a board member should be disclosed.
- Check out the group's auditors. Are they licensed?
- Watch for diversification. Just like any conservative investor, charities shouldn't have all their eggs in one basket.