Non-Profit Ratings – What to Look For When Donating

charity-ratingsHow many times have you wondered about where you’re donated money goes?

If you’re like me, it’s probably pretty often. We’re often at least somewhat curious how that money is spent and want some assurance that the money is going to the people that need it most. Enter non-profit ratings.

Several sites now rate charities on a variety of factors, but I’ve spent a lot of time poking around Charity Navigator, which has a wealth of information on charities.

Here’s some great information you can find on Charity Navigator to make up your mind about which charities to donate to.

Overall Charity Ranking

Charity Navigator assigns non-profits an overall rating of up to 4 stars based on a variety of factors. This number is available at the top of each charity’s page, so it’s likely the first thing you’ll see. This is a composite of several factors, which I explain in more detail below. But if you’re interested in just a quick look, the overall ranking will give you a decent idea of Charity Navigator’s opinion of that not-for-profit.

Programming Expenses

Programming expenses are among the most important of the non-profit rating components. This is where the bulk of the money should be going (as opposed to other expenses). Don’t get confused: the higher percentage, the better in this category.

The people at charity navigator expect non-profits to spend at least two-thirds of their total budget in this category. They explain this by stating that “We believe that those spending less than a third of their budget on program expenses are simply not living up to their missions. Charities demonstrating such gross inefficiency receive a 0-star rating for their Financial Health.”

The charity I looked up (Enterprise Community Partners), spends about 83% of their expenses on programs, so they pass this standard.

Administrative Expenses

Administrative expenses fall into the non-profit ratings by measuring how much of the budget staff and other related costs consume. It’s defined as “This measure reflects what percent of its total budget a charity spends on overhead, administrative staff and associated costs, and organizational meetings. Dividing a charity’s administrative expenses by its total functional expenses yields this percentage.” Obviously, the lower the administrative expenses, the better.

For Enterprise Community Partners, this percent was just under 15% to put them in the top tier in terms of administrative expenses.

Fundraising Efficiency

Charity Navigator also assigns non-profit ratings based on fundraising efficiency. It’s great if a charity can fundraise a lot of money, but it hopefully doesn’t have to spend a lot of money to bring in these funds.

The site defines fundraising efficiency as “The amount spent to raise $1 in charitable contributions. To calculate a charity’s fundraising efficiency, we divide its fundraising expenses by the total contributions it receives.” Enterprise does very well in this category by spending only 3 cents to raise one dollar.

Working Capital Ratio

Charity Navigator also provides the working capital ratio of each charity to indicate how long they could sustain their expenses based on their current assets. This is generally an indicator of how healthy an organization is.

In the case of Enterprise Community Partners, they have a very healthy working capital ratio of 3.47 years.

Other factors

There are plenty of other factors in the Charity Navigator profile to look at. This includes information found on their Form 990 (which all non-profits must provide to the IRS each year). Other budget and expense information for previous years is shown, too, including the CEO’s salary. (Warning: If you’re wary of CEO compensation, many nonprofit CEOs make low to mid six-figure salaries. I don’t have a problem with that if all the other financials check out, but that’s a debate for another post.)

One last feature that’s helpful is a quick comparison of similar charities and how they rank compared to the one you’re viewing. All these tools make evaluating a charity much simpler than trying to do your own detective work.

‘Top 10′ Lists

Charity Navigator also includes non-profit ratings in the form of Top 10 lists with a variety of themes. You can simply check out the Top 10 Super-Sized Charities, which includes the Red Cross and Dana-Farber Cancer Institute.

A more intriguing option is the Top 10 Charities Overpaying for their For-Profit Fundraisers, where you can see that the Disabled Police Officers Counseling Center spends an alarming 91.2% of their budget on fundraising expenses. Yikes!

Aside from finding the bad apples, these lists can be great for finding new charities to donate to, too. If you’re worried about CEO pay, check out the 10 Highly-Rated Charities with Low Paid CEOs.

I should note that not all charities are included in Charity Navigator (the one I appear at is not), but a lot of the largest ones are covered.

Do you check charity ratings before donating? What factors do you look for?

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photo by: Kelly Exton

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Comments

  1. prairieecothrif says:

    I actually try to donate to places that aren’t registered. Sure I don’t get the tax breaks but I find my money actually goes to the issue at hand. Often small non-profit groups can’t afford to register or don’t want to because they lose their freedom of speech. I always look to see where my money will go if I donate.

    • @prairieecothrif That’s interesting, and something that I never really considered. I feel like it’s not that common where I live, but maybe I’m wrong. I would definitely consider that as well, especially if I thought it would be even more helpful!

  2. moneycone says:

    Charity Navigator is an excellent resource to see how much of your donation is actually used to help the needy. With the recent SK fiasco, makes more sense to check out this resource before making a donation.

  3. It’s also worth mentioning that there are plenty of other non-profits that you can donate to that aren’t necessarily charities (such as non-profit theatres or other arts groups).

  4. lizzoogal says:

    While I fully agree that donors and volunteers need to be educated about the charities they support, I don’t think that relying on an organization’s financial ratios is the best way.
     
    I intern at GreatNonprofits.org (www.greatnonprofits.org), which is a site that has a different perspective of nonprofit evaluation. It’s the largest online database of user-generated reviews of nonprofits. On the site, donors can see a new dimension of the impact of the nonprofit – through the eyes of a parent whose child received tutoring, the ex-felon who got job training, or the volunteer who helped write advocacy newsletters. These first-hand experiences do far more than a Form 990 to help donors see the on-the-ground work of the nonprofit.
     
    Don’t hesistate to contact me – elizabeth@greatnonprofits.org – if you have any questions about the site or our methodology.

  5. We often refer people to Charity Navigator as well. It’s seems to be one of the best resources online for charity evaluation.
    http://www.nationalchristian.com

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