November 10, 2002
by Bruce Mohl
In a report on the financial health of the nation's charities, a New Jersey watchdog group has given relatively low grades to one out of every four Boston-area nonprofits it analyzed. Charity Navigator (charitynavigator.org) reviewed the tax filings of 1,700 charities nationwide. Of 53 in the Boston area, the organization said 73 percent were in exceptional or good financial health. The remaining 27 percent didn't fare as well, with 19 percent receiving two stars, meaning ''needs improvement,'' and 8 percent garnering either one or no stars, meaning ''poor'' or ''exceptionally poor,'' respectively.
Satellife, a Watertown charity that uses a satellite to provide an e-mail link to doctors in the developing world, was the lone Boston-area charity to receive a zero rating. Charities receiving one star included SADD - Students Against Driving Drunk, the AIDS Action Committee, and the Boston Latin School Association.
Boston-area charities receiving two stars included Boston Public Library, United Way of Massachusetts Bay, WGBH Boston, Peabody Essex Museum in Salem, Museum of Fine Arts, EcoTarium in Worcester, and Sabre Foundation in Cambridge.
Tufts University was the top-ranked Boston-area charity, with four stars and a score of 68.5 out of a possible 70. The Medford university's score was three points higher than that of Harvard University, which reported the highest total revenue ($4.57 billion) of the 1,700 charities reviewed.
Several of the local charities that received lower ratings took exception with Charity Navigator's approach, which focuses on short-term spending practices (fund-raising, program, and administrative expenses) and long-term sustainability (revenue and expense growth). They said Charity Navigator failed to take into account unique funding situations or relied on dated information.
Satellife, for example, received no stars primarily because of declining revenues, reduced spending on programs, and relatively high fund-raising, and administrative expenses.
But Satellife executive director Holly Ladd said Charity Navigator's analysis failed to include a large gift that came in after the charity's latest Internal Revenue Service filing, which would have improved the nonprofit's rating considerably. ''The story here is we're moving in the right direction,'' Ladd said.
Similarly, Michael Duffy, executive director of the AIDS Action Committee, said the IRS filing analyzed by Charity Navigator is now 18 months old and of relatively little importance to a donor trying to decide now where to put his or her money.
Still, Duffy applauded Charity Navigator's efforts to apply private sector financial analysis to the nonprofit sector. ''I think it's good that nonprofits are held accountable,'' he said, adding that his organization is working on cost-cutting initiatives.
SADD in Marlborough was singled out by Charity Navigator as the third most inefficient fund-raiser out of the 1,700 surveyed. SADD spent 76 cents for each dollar it raised. Its fund-raising expenses of just over $3 million dwarfed its program budget of $1.4 million.
''I'm not surprised,'' said Penelope Wells, SADD's president, when asked about the one-star rating. ''It's really because we rely on telemarketing.... It's an expensive way to raise money.'' Two charities, WGBH and the Boston Latin School Association, said their scores suffered largely because of revenue fluctuations that had little to do with their overall financial health. WGBH, for example, tends to receive large grants that are reported to the IRS in one year and then spent over the course of many years. In comparing tax filings over a three-year period, as Charity Navigator does, this funding pattern looks like a revenue decline.
Similarly, a capital campaign by the Boston Latin School Association in 1999 inflated revenues that year and made it appear revenue had declined in subsequent years.
Andrew S. Griffiths, vice president and chief financial officer of WGBH, sent a strongly worded letter of protest to Charity Navigator last week, saying its analysis ''is very misleading and may damage our future fund-raising efforts.'' He urged the organization to revise its analysis or else pull WGBH from its database.
Jim Gard, finance director for the Latin School Association, said overall he found Charity Navigator to be a useful tool. But he said would-be donors need to dig deeper in some cases to avoid being misled. ''I like the approach, but it has limitations,'' Gard said.
Trent Stamp, executive director of Charity Navigator, acknowledged revenue swings can distort a charity's financial performance. ''But it works both ways,'' he said. ''You get the benefit of it one year and the downside of it another year. That doesn't mean our system is somehow flawed.''
Stamp said prospective donors should use Charity Navigator as a starting point for investigating a charity. ''Objections to our methodology are typical of an industry that has done all it can to resist oversight and external evaluation,'' he said.
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