Friday, December 18, 2009

More Isn't Always Better

Followers of Charity Navigator know that we have often noted how easy it is to create a new nonprofit. We've long lamented the fact that the size of the nonprofit sector has ballooned in recent years, yet the amount of money flowing into the sector hasn't kept pace. A recent article in the New York Times by Stephanie Strom details just how dramatic the growth has been and backs up our claim that the IRS hands out nonprofit status like people giving candy to babies.

Here are some highlights from the article:
  • New charities are created every 10-15 minutes.
  • Last year, the IRS approved 99% of applications for charity status.
  • There are 1.1 million charities in America.
  • In the past decade, the number of charities has grown 60%.
The above situation prompted, Rob Reich, associate professor of political science at Stanford, to say the following about the IRS review process, “it just seems utterly implausible that anyone can be doing due diligence in any way that constitutes a serious review of the applicant, let alone keeping an eye on them after they are approved.” And Dean Zerbe, who was previously tax counsel to the Senate Finance Committee , said he believes that we need to find a way to encourage those who wish to create new charities to take steps to ensure that their 'new' group isn't going to offer duplicative services.

The moral of this tale for donors is that just because a group is a bona fide nonprofit doesn't mean that it is effective, ethical or efficient. Be sure to do your homework and check out a charity before you give.

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