There's widespread support and high trust in the charity sector, with almost nine in 10 Australians giving to charity annually. But with so many causes asking for support, how do you make sure that what you give actually makes a difference?

What you told us

A CHOICE survey found 81% of respondents didn't know how much of their donation reached a charity's beneficiaries after fundraising costs and overheads were subtracted. But over 90% of respondents said they wanted to know. Problem is it's pretty hard to get that information, and even harder to compare between charities.

Our research found inconsistencies in the cost breakdowns given to charity donors. That is, if they're communicated at all. Sometimes the stats simply aren't available, and there are no regulations in place (in Australia, at least) to make sure charities use a standard reporting method.

Where does the money go?

In some cases charities receive as low as 10% of money raised at fundraising events after total costs are taken into account. On the flipside, we've found examples where close to 100% of money donated made its way to the cause. That's often because the charity's fundraising costs are being subsidised by another part of its operations or business.

Research company Givewell estimates fundraising costs take 19% of any money raised. The Australian Council for International Development (ACFID) says its members spend about 10% on fundraising, plus a similar amount on things like admin costs. A further chunk of money can also be used on overseas admin costs.

Confusing calculations

The Fundraising Institute Australia (FIA), industry academics and experienced players in the sector think the media and donors place too much emphasis on the cost of fundraising (COF) ratios as a measure of a charity's performance.

They say charities calculate ratios in different ways, so they can't be compared on a like-for-like basis.

"We're sceptical of any systems that try to rank charities," says Professor Myles McGregor Lowndes, Director of QUT's Centre for Philanthropy and Nonprofit Studies. "People want to know they're getting bang for their buck, and are becoming more scientific about comparing charities, but accounting and finance are not the only measures."

A second problem with COF ratios is they don't always indicate a charity's effectiveness. One US study found too much emphasis on cost cutting can reduce a charity's effectiveness, rather than enhancing its efficiency.

So how do I choose a good charity?

It really comes down to which causes matter to you most, and which organisations you think will be the most effective.

CHOICE thinks donors have a right to know how much of their money reaches beneficiaries, and to be able to compare charities. But unless standardised reporting is introduced, you'll need to research your chosen charity to see how it compares with other charities.

Charity checklist:

  • If you're making a donation to an overseas aid organisation, check that it's a member of ACFID and, more importantly, a signatory to its Code of Conduct.
  • For domestic charities and commercial fundraisers, ask if they're a member of the FIA.
  • Check the charity is licensed by its state or territory regulator. Each state has different exemptions. In Qld, religious organisations don't need to be registered, for example.
  • Consumer Affairs Victoria lists its registered charities (all the national ones are there), with details of cost ratios and use of commercial fundraisers. You may need to ask the charity to explain their figures.
  • Do your own calculations. You'll need to flick to the end of annual reports for the figures. Compare fundraising revenue with fundraising costs and read the notes to financial statements to see how ratios are calculated.

What's the best way to donate?

The amount of cash that gets through to the cause depends not only on the charity you're dealing with, but also on the channel you use and the type of appeal. Charities have to spend money to raise money, but the costs differ depending on the method they use. Charities often use several different ways to raise funds.

Effective donations

Give directly

"If you want to make a difference, don't wait to be asked and don't wait for the charity to spend money on fundraising. Give, and give as generously as you can," says the FIA.

Volunteering

Volunteering is the perfect way to know you're really making a difference. More than 30% of Australia's adult population volunteers with various non-profit organisations, including charities. They each give an average of 56 hours of their time per year.

If you're interested in volunteering, check each charity's website. Or use Go Volunteer to search for opportunities in your interest area and postcode.

Less effective donations

Charity dinners and balls

Costs for speakers, entertainment, the venue and catering can mean less than half of your ticket price goes to the actual cause asking for money. For example, in 2005, just eight per cent of proceeds from a fundraising dinner for the Children's Cancer Institute of Australia for Medical Research made its way to actual cancer research, due to poor turnout. That's a little different to the 60% quoted in the CCIA's fundraising licence application.

Telemarketers, and those people who hassle you on the street

We've all run the charity gauntlet, trying to bypass a group of on-street fundraisers haggling for donations. The people collecting the cash are often hired by commercial companies, not the charity itself. The same goes for charity telemarketers. These for-profit operators take a big chunk of any money donated, particularly during the first year. Charities do argue this can be cost-effective in the long term if the donor continues to donate over several years.

Claiming tax deductions

Charity donations can be claimed on your tax return if your charity is registered as a Deductible Gift Recipient (DGR). This doesn't affect the amount of money the charity actually receives, just what you're entitled to deduct at tax time.

There are conditions about what you can claim. Donations must be over $2 and you'll need a receipt. Some gifts to DGRs – such as tickets to a charity dinner or ball – also aren't eligible.

You can check if an organisation is a DGR via the ABN lookup website. There's also information about the deductibility of donations at the ATO.