Where Does Your Gift Go?

By Julie Rawe

For so long, giving to charity was an act of blind faith. Then came the Internet and Arthur "Buzz" Schmidt to help givers see whether their money was being well spent. When Schmidt left the private sector a decade ago to raise money for an international development agency, he was stunned by how little number crunching potential donors could do. So he struck out on his own, borrowing 50 shoe boxes of microfilm from the National Center for Charitable Statistics, and in 1996 began posting the financial data of nonprofit organizations on the Web. Three years later, the former agribusiness executive started airing Internal Revenue Service Form 990s, which charities are required to file if they receive $25,000 or more in donations.

This opened a realm that had always been unwelcoming to the public. "It was very much a one-way street," Schmidt says of the flow of information from charity to donor. Concerned citizens had to wait eons for the IRS to supply a copy--or had to pester often unwilling nonprofits to disclose their activities. "Charities would leave off attachments or white out people's salaries," says Daniel Borochoff, president of charity watchdog American Institute of Philanthropy. "They can't get away with that anymore."

Schmidt's creation, GuideStar.org has grown into the nation's premier nonprofit database, offering financial information on more than 850,000 organizations. With GuideStar feeding the search engines of such major giving sites as JustGive.org and the Fidelity Charitable Gift Fund, it's small wonder grant seekers are trying to shape up their balance sheets. Schmidt has already noticed fewer math errors. And many groups have transformed their self-descriptions on the heavily scrutinized tax forms from terse one-liners to polished donation pitches.

Broader than it is deep, GuideStar's free database doesn't exactly allow visitors to run their own audit, but it enables analysts to compare charities with their counterparts and helps the IRS develop profiles of tax-exempt organizations that could be up to no good. One red flag: more than a fourth of the 990s submitted in 1997 and 1998 reported zero fund-raising costs, as unlikely as money growing on trees.

"Public trust is the most precious asset these organizations have," says nonprofit adviser Bob Boisture, who notes that the IRS hasn't expanded oversight in more than two decades, despite explosive growth in the charitable sector. That's where Schmidt comes in, using the information superhighway to create a national infrastructure for nonprofits. No more one-way streets.

--By Julie Rawe