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 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 evaluate
- are US-based charities registered with the IRS, though scope of charity work can be international
- who 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/
Self-described "charity watchdogs", CharityWatch was initially founded as the American Institute of Philanthropy. Their mission is to help donors make informed decisions – getting below the surface of self-reported finances to what is really going on with donations made to charities – maximizing the effectiveness of every dollar contributed to a cause. Ultimately, they want Americans to give to charities who use the money wisely and do more good in the world.
Their approach is researching and investigating in order to evaluate how efficiently nonprofits are run and donor dollars spent. It is not strictly about the "financial ratio", but what lies underneath including identifying any holes in the reporting and what funds they are holding in reserve. The President of the organization, Daniel Borochoff, has an MBA and degree in accounting and experience on Wall Street as an analyst, and well understands the complexity of finances in the nonprofit world. He and his team use their skills to dissect the financials on the 600 or so charities they analyze. They look at:
- tax forms
- financial statements
- annual reports
And if they have any questions or detect potential gaps, they directly quiz the nonprofit.
CharityWatch evaluates social welfare advocacy groups and religious charities which aren't always eligible to be evaluated by other charity rating organizations. Some examples of these types of organizations could include: ACLU; League of Women Voters; NARAL; Human Rights Campaign; Sierra Club; and, the Salvation Army.
The rating system is an easy-to-understand grading system ("A+" through "F"). To provide more insight on certain organizations, they provide two ratings. Specifically, the formula for that organization may have one element -- such as a large amount of dollars in reserve or in an endowment for a long period of time – skewing their total score, so CharityWatch presents the score without that element in the formula to give donors more insight. The scores are available to approximately 9,000+ "members" who pay a small fee every year to receive the "Charity Rating Guide & Watchdog Report" multiple times per year, though they do publish the "top charities" (those with A's & B's) list for the general public on their website.
As in any industry, whistle blowers are not universally loved, but are respected for exposing questionable activities. CharityWatch is that organization for the nonprofit world and is focused on worthy charities receiving donations to make the world a better place. To learn more about CharityWatch, please visit: http://www.charitywatch.org/
Another well-respected and established organization providing information to enable better giving, GuideStar is a little different than the other organizations. It has a similar mission of encouraging better giving through information, but provides transparency into the numbers in a "neutral" way. This is a "just the facts" kind of approach, gathering and sharing the information on all 1.8 million IRS-registered nonprofit organizations. The goal is to provide as much information as they can so that a donor can make his or her own determination of where to donate money. The elements provided on each nonprofit can include:
- Verification of registration with the IRS
- Financial data: Annual Revenue and Expenses, including IRS Forms 990 and independent audit reports
- Mission Objectives
- Impact Summary: from the nonprofit
- Individual reviews from those who've volunteered information on the nonprofit either directly through GuideStar or through the partner organization, GreatNonprofits (more on this organization later)
This information can then be used by both the nonprofit to encourage prospective donors, and, by donors to best determine who should get their money. Most information is available free online to website visitors. Additional information, plus data in downloadable formats, are available by subscription.
GuideStar has established itself as a "go-to" for many commercial businesses and foundations when they want to quickly get information on a nonprofit. For example, Google's giving arm – Google Grants – uses the GuideStar list to verify the existence and registration status of each nonprofit applying for a grant worth $120,000 per year of free Adwords advertising. Because of this reliance by grantmakers, it is important to nonprofits to insure their information is up-to-date and as complete as possible in the GuideStar database. To learn more about GuideStar, please visit: http://www2.guidestar.org/Home.aspx
One of the newest charity ratings organizations in the mix, GreatNonprofits, has quickly grown to be one of the leaders in ratings and reviews of nonprofits. With over 3 million site visitors and 13 million visits to-date, the impact potential on giving is great. The difference from some of the other sites is that these are first-person stories and reviews of nonprofits (over 40k added in 2014 alone). These are the insights made by volunteers, program participants, clients, donors and others who interact with your nonprofit. Reviews can be posted via multiple ways, including by text message ("SMS"). This is social media at work informing decisions for donors.
GreatNonprofits was founded with the idea to be to nonprofits what Zagat is to restaurants – helping highlight the great work of the best charities. These nonprofits may be grassroots, local organizations or some of the largest providing services nationally or internationally – their impact can be felt and reported on through GreatNonprofits. A nonprofit can establish a free profile page on the site and let their constituents, clients, donors, volunteers - and others who care about them – know about the page and those folks can contribute reviews. Your nonprofit can use the profile page as a way to highlight what is happening at the organization, linking it to your own website, Facebook page or other social media sites, soliciting support and donations.
GreatNonprofits has partnered with several organizations to share reviews collected, including GuideStar (as noted above), JustGive and GlobalGiving. GreatNonprofits provides a megaphone for the voices telling the stories of the impact you deliver to them. To learn more about GreatNonprofits, please visit: http://www.about.greatnonprofits.org/
All of these organizations are focused on encouraging donations to nonprofits doing their best work to improve our world. Do you need some help making your fundraising and marketing communications efforts more effective and cost-effective?
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