Donating money to an organization is not something that most people take lightly. We work hard for our earnings and when we donate, we want those donations to actually benefit the cause we are supporting. With the plethora of nonprofit organizations out there, sometimes it can be daunting to figure out which organization will best use the donation. Does the nonprofit fit within my values? Are they transparent? Is my money going to the programs, to pay the salary of an employee, or to help support a new location? Does the organization use my donation efficiently? Finding answers to these questions can sometimes be difficult—that is where Charity Navigator comes into play. Since its inception in 2001, Charity Navigator has aimed to provide an unbiased evaluation of 501(c)(3) nonprofit organizations in order to help donors make more educated decisions when making contributions. Charity Navigator is a website that compiles information pertaining to nonprofit organizations’ financial activities, practices, purposes, and programs, and translates this information into a numerical score. The score demonstrates how efficiently a charity is likely to use a donor’s gift – and Charity Navigator’s ratings tell donors how well the organization has sustained its programs and services over time and their level of commitment to good governance, best practices, and openness with information.
To determine the numerical score of an organization, Charity Navigator focuses its analysis into two categories: (1) the financial health of the organization; and (2) the transparency and accountability of the organization. Within these categories, Charity Navigator uses criteria such revenue, length of operations, location, public support, fundraising expenses, and administrative expenses, excluding land trusts, hospitals (and related foundations), colleges, donor advised funds, fiscal sponsors, and sorority and fraternity foundations to evaluate nonprofits. For more information on how an organization’s score is calculated, click here.
If your organization wants to raise its Charity Navigator rating, it can focus on either of the two categories. With respect to the financial health rating, the charity can raise its score by: (1) increasing the percentage of total expenses that are spent on related programs and services; and (2) improving its working capital ratio (a measure of working capital divided by total expenses). With respect to the transparency and accountability ratio, the charity can raise its score by making more organizational information (such as company policies, salaries of executives, or board meeting minutes) available to the public, or to involve an independent governing body in the organization.
For example, the Make-A-Wish Foundation of Minnesota (MAW) has an overall score of 75.80/100 earning it 2 out of 4 stars on Charity Navigator. MAW has 97.00/100 and 4 stars for its accountability and transparency, but a 65.91/100 and 1 star for its financial rating. In contrast, the nonprofit Community Volunteers in Medicine (CVM) has earned a perfect score of 100 and 4 stars in both categories. Comparing some of their key financial numbers, we can see that CVM uses a higher percentage of its expenses for the programs and services it delivers than MAW does, 90.8% compared to 70.7%. MAW uses nearly 20% of its total expenses on fundraising, compared to CVM spending less than 5%. If MAW lowered the amount of money it spent on administration and fundraising, raising the proportion of expenses used for the programs and services it provides, it could raise its financial score. CVM also uses 2.77% of its total expenses for leadership compensation, compared to 5.3% for MAW. If MAW lowered this amount, it would help to increase its financial score, which in turn would raise its overall score and rating.