Today, there are many charity watch organizations providing information on nonprofits – and you can count on prospective donors to use them. But who are they and how are their charity ratings composed? This article covers 4 of the well-known ones: Charity Navigator, CharityWatch, Guidestar, and GreatNonprofits. Each provides valuable information to philanthropists looking to make a financial contribution to a charity. Here's a basic primer on each:Charity Navigator
Charity Navigator is one of the largest and oldest evaluators of charities. The organization was founded by Pat Dugan, an entrepreneurial philanthropist who had been giving to a well-respected - but ultimately, financially flawed - 501c3. He realized that, at the time, it was difficult for donors to understand where their donations were really going. He established a nonprofit to provide a free, easy-to-understand, 4-star rating system based on Charity Navigator's reviewers using formulas with data from the charity's tax filings with the IRS. The idea was to make it an unbiased evaluation and strictly about the numbers – providing facts on a charity's financial health, not just emotional claims – making it about "intelligent giving". How and where the donations are spent is a big part of this analysis:what is being spent on programs;administrative expenses;fundraising costs; and"fundraising efficiency" - how much do you spend to bring in a $1 of donation?
In 2011, the criteria expanded to include "Accountability and Transparency" of the charity. This is information extracted from a charity's IRS Form 990 and information on your website (governance; independent audits; etc.). The focus is around the charity's obligation and willingness to expose their business practices to the public – the good, the bad and the truly ugly -- and your responsiveness in answering the public's questions about those practices.In 2013, they added a third dimension into the mix: "Results Reporting". It is just what it sounds like – for dollars invested what were the results of your programs and services? Since not all charities currently collect or provide that data, Charity Navigator isn't including it in the scoring yet, though does make what data they do have today available for informational purposes. Once they have collected this information from all the charities they review (goal date: 2016), this will become another piece of the formula that is used to analyze and report on each charity.Who do they evaluate? Realizing that there are millions of charities, they focus their evaluations on 501c3 organizations which meet all the following criteria:are required to file a Form 990 (not 990-PF's so no family foundations)bring in more than $1,000,000 per year total revenue in most recent fiscal year with more than $500,000 coming from individual givers (not including fees from services or government grants)provide 7 years of Forms 990 to Charity Navigator to evaluateare US-based charities registered with the IRS, though scope of charity work can be internationalwho actively solicit donations (so if zero dollars spent on fundraising, not eligible to be reviewed)
Charity Navigator wants donors to follow their own "philanthropic passion", so they don't discriminate what types of charities are reviewed, as long as each meets the above criteria.
They currently rate approximately 8,000 charities on their website and over 7 million people have visited the site to-date to learn more about those organizations. The ratings and underlying data for a nonprofit are available online and free to the public. They are well respected for many reasons, especially for the fact that they are transparent and forthcoming about their own organization's business practices and financials. To learn more about Charity Navigator, please visit: http://www.charitynavigator.org/