The Chronicle of Philanthropy
May 16, 2002
A New Jersey nonprofit organization has entered the charity-rating business, and donors can check out the group's findings online. Charity Navigator rates nonprofit organizations' financial health based on both their short-term spending practices and their long-term prospects for success. So far, the organization has evaluated more than 1,100 national charities.
The organization was founded last year by John P. Dugan, a retired businessman.
Trent Stamp, Charity Navigator's executive director, says that when Mr. Dugan turned his sights to philanthropy, he was frustrated by what he perceived as a lack of objective, easy-to-use data that donors could use to help make giving decisions.
To help others avoid such difficulties, Charity Navigator gives the organizations it evaluates overall ratings of zero to four stars, which are determined by taking the groups' scores on short-term spending and long-term viability and comparing them with other charities in their fields.
The organization determines a charity's score for its short-term spending practices by looking at the percentage of the group's annual expenses devoted to administration, fund raising, and programs.
A charity's score for long-term sustainability is based on its revenue growth and growth in program expenses over two years and on how long a charity could maintain its current level of spending using only its cash reserves.
To raise awareness about its service among donors, Charity Navigator has run advertisements in People magazine, Time magazine, USA Today, and the The Wall Street Journal.
Rich Cowles, executive director of the Charities Review Council, a St. Paul charity that evaluates Minnesota nonprofit groups, calls Charity Navigator "a step in the right direction" and says the group has sound thinking behind its approach.
He cautions, however, that donors shouldn't make giving decisions based solely on Charity Navigator's ratings.
"Anytime you reduce organizations to ratings, it becomes simplistic," says Mr. Cowles. "It's important for donors to bear that in mind and use it as a tool."
Mr. Stamp is very clear that Charity Navigator's ratings seek to measure only nonprofit organizations' financial health, and he says that the organization encourages donors to ask charities questions about their programs and goals before making a donation.
"We can tell you how efficiently the Ocean Conservancy is spending your money this year," says Mr. Stamp. "We can't tell you how clean the Ocean Conservancy got the ocean."
To get there: Go to http://www.charitynavigator.org.
Reprinted with permission of The Chronicle of Philanthropy, http://philanthropy.com.
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