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What Criteria Must A Charity Meet To Be Rated?

 
 

Currently, there are over 1.57 million nonprofits registered in the U.S. This website includes a listing for each and every one of them, but Charity Navigator’s analysts only apply our objective rating methodology to a subset of those nonprofits. We use the following guidelines for choosing which charities to rate:

  1. Tax Status: The organization must be registered as a 501(c) (3) public charity and file a Form 990. Why?
    • Organizations described under 501(c)(3) of the Internal Revenue Code are public charities that are tax-exempt and eligible to receive tax-deductible contributions. Their earnings do not benefit private individuals, no substantial part of their activities should be used to influence legislation, and they do not participate in political campaigns or political endorsements.
      • We do not rate 501(c) (4) organizations as they are allowed to spend a substantial portion of their revenue on lobbying our government and thus not every donation to them is tax-deductible
      • We do not rate charities that are exempt from filing the Form 990. Many religious organizations, like the Salvation Army, are exempt under Internal Revenue Code from filing the Form 990. As a result, we lack sufficient data to evaluate their financial health.
      • We do not rate private foundations. Private foundations, like the Bill & Melinda Gates Foundation, receive the majority of their money from only one individual, family, or corporation. This differs from the public charities that Charity Navigator rates. Public charities have a broad-base of support from the general public as well as variety of other funding sources. The IRS requires that private foundations file a Form 990-PF which differs from the document public charities file. This makes it impossible for us to compare the financial performance of private foundations to public charities.
      • We do not rate organizations that file the Form 990-EZ. The Form 990-EZ requires less financial reporting than the Form 990, and as such, we would lack important data needed in our analysis.
  2. Revenue: The charity must have generated at least $1 million in revenue for two consecutive years. Why?
    • As our rating system is currently designed, we’re comparing the financial health and accountability & transparency of similar charities to one another. It is our experience that the financial profile and governance practices of small nonprofits tend to be different from the thousands of larger organizations that we currently rate. As such, we have elected not to add small charities at this time.
  3. Length of Operations: The organization must have been in existence, with corresponding Forms 990, for at least seven years. Why?
    • Just as we believe it is unfair to compare small charities against the large ones that we predominately rate, we also believe it is unfair to hold new nonprofits to the same benchmarks expected of established organizations. Newer organizations understandably realize abnormally higher overhead costs in their first few years of existence as they begin their operations. Organizations need to be more established before we apply our metrics.
  4. Location: While we only rate charities based in the U.S. and registered with the IRS, the scope of a charity's work can be international. In fact, we rate more than a thousand charities that have an international aspect to their work.
  5. Public Support: The charity must have at least $500,000 in public support. Public support must account for at least 40% of total revenue for at least two consecutive years. Why?
    • Because our goal is to help individual givers, we rate only those charities that depend on support from individual givers. We do not review charities that receive most of their funding from government grants, or from the fees they charge for their programs and services. (We define public support as the combination of gifts, grants, contributions and membership fees from donors , foundations, and corporations. It can be calculated by viewing page 9 of a charity’s Form 990 and adding lines 1a, 1b, 1c and 1f.)
  6. Fundraising Expenses: The charity must have at least 1% of its expenses allocated to fundraising for three consecutive years. Why?
    • Because our goal is to help individual givers, we only rate those charities that depend on support from individual givers. Charities that depend on the public for support, must fundraise to sustain their operations. Allocating a minimum of 1% of expenses to fundraising indicates that a charity is actively soliciting donations from the general public.
  7. Administrative Expenses: The charity must have at least 1% of its expenses allocated to administrative expense for three consecutive years. Why?
    • Administrative expenses include things such as the cost of general legal services, accounting, office management, and human resources. Mid-to-large sized charities require a strong infrastructure. We only rate organizations who report at least 1% of administrative expenses as it would be virtually impossible to run a charitable operation without incurring such fees.

NOTE: While we strive to rate all different types of charities so that donors with all different types of philanthropic passions can find a charity to support, we’ve determined that some types of charities are not a good fit for our existing rating system. Therefore, we are no longer adding ratings for:

  • Land Trusts Why?
    • Land Trusts have the potential to realize substantial fluctuations in revenue from year to year due to the unpredictable timing of land donations. Our current methodology isn’t a good fit for this type of revenue model.
  • Hospitals and Hospital Foundations Why?
    • Hospitals and Hospital Foundations generate revenue almost entirely through program services, and as explained above, we only rate charities that depend largely on donations from the public.
  • Universities, Colleges, Private Elementary and Secondary Schools, and their Foundations Why?
    • Universities, Colleges, Private Elementary and Secondary Schools, and their Foundations generate revenue almost entirely through program services (tuition) and as explained above, we only rate charities that depend largely on donations from the public.
  • Sorority and Fraternity Foundations Why?
    • Sorority and Fraternity Foundations are funded by their members, rather than general public. We only rate charities that depend largely on donations from the public.
  • Community Foundations and Donor Advised Funds Why?
    • Community Foundations and Donor Advised Funds have the potential to realize substantial fluctuations in revenue from year to year due to the unpredictable timing of donations and payouts from the various funds.

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