Evaluating Charities Not Currently Rated by Charity Navigator

We have always welcomed feedback from both our users and from charities. One message that we have consistently received, is "please rate Charity X." We've responded by growing the number of charities featured on our site from 1,100 when we launched in 2002 to over 5,300. Our evaluations have helped millions of donors pursue effective philanthropy and influenced billions of dollars in charitable donations.

Although we now rate ten times more organizations than anyone else in America has ever attempted, representing around 85% of giving in the US, we still receive requests to rate additional charities. The truth is that we've already evaluated the majority of the organizations that meet our criteria, but we do realize there are many worthy organizations that we do not currently evaluate. That’s why we’ve created this quick guide to help donors get a basic sense of a charity’s financial health. While there are many more factors that go into a complete Charity Navigator evaluation (see our Methodology section), we’ve pulled some simple, easy-to-find facts that will help you decide which charities deserve your contributions.

Charities that receive over $100,000 in contributions and have assets totaling over $250,000 are required to file with the IRS an annual return that profiles their financial activity for the previous year, called a Form 990. Charities are required by law to make the most recent three Forms 990 available to the public. This guide to evaluating charities not currently rated by us uses the Form 990 (just as we do in our complete evaluations) to review certain elements of a charity’s financial health. To help donors do their homework and make an informed giving decision, we offer the following advice.

  • Is it legit?
    990 Finder
    Find IRS Forms 990 for
    nonprofit organizations.

    Organization Name:


    State:


    EIN: (no dashes)

    Powered by the
    Foundation Center
    foundationcenter.org

    People always ask us, "Is Charity X that sent me an appeal legit"? Often folks confuse "legit" with effective or efficient. But before we get to that, an important first step in reviewing an organization is to determine if it is a bona fide nonprofit. Specifically, you need to confirm that the organization is granted tax-exempt status under section 501(c) (3) of the Internal Revenue Code. This means that the group is registered in the US and that your contribution to the organization is tax deductible. Using the 990 finder, presented here in collaboration with The Foundation Center, you can search by charity name. All charities that file a Form 990 are registered with the IRS and you can be sure they have been granted non-profit status. If you can’t locate their Form 990 on The Foundation Center’s search tool, you can also ask the organization directly for a copy of their letter certifying their nonprofit status or you can do your own research by searching Publication 78 on the IRS website, www.irs.gov.
  • Is it effective?
    Contact the charity directly to assess its goals, accomplishments and challenges. Explore the organization’s website and learn about the programs they operate. Your attempt to communicate with the charity can reveal a lot about the organization. It's a big red flag when an organization refuses to answer your questions or to provide financial data at your request. To help you start a dialogue, we offer 6 Questions To Ask Charities Before Donating. You can also review a charity’s “Statement of Program Service Accomplishments” which is Part III (located on page 3) of the Form 990. This section of the return will describe a charity’s programs and indicates how much money is spent on each program goal.
  • Is it committed to the rights of donors?
    Selling and trading donor's personal information isn't just common practice among large, national charities. Oftentimes, local organizations will swap lists in an effort to expand their donor base and increase awareness of their group. Unless you want to wind up with a mailbox full of appeals, find out if the charity you are considering supporting has a donor privacy policy. Ask to see it in writing and make sure you "opt-out" if it is required.
  • Is it financially healthy?
At first glance a Form 990 is overwhelming; imagine the complexity of a tax return and supporting schedules for an organization with revenue of millions of dollars each year. Well, we’ve made this intimidating process very straight forward with Charity Navigator’s “TIPS” for evaluating charities we don’t currently rate. By looking at four easy-to-find elements of the Form 990, you’ll get a basic sense of the financial performance of the organization you’re looking to support. Remember, this is a simplified evaluation and isn’t representative of the depth that goes into a standard rating – it is merely meant as a starting point for donors to review charities that are not currently included on our site. Now, let’s take a look at each of the four components. We will refer to components by their line number, which indicates where they are located on the Form 990. All elements except for S-Salaries of Note can be found on the first page of the Form 990.

T – Types of Support: Where does the charity get its money from?

Take a look at lines 1a through 1d, line 2, and line 3. These lines represent different ways charities can earn revenue. Some charities rely heavily on program service fees, such as tuition at a school (line 2), membership dues (line 3), or government support (line 1d) while others survive almost solely on individual contributions (line 1b). Those charities that need private support to provide programs will have the largest amount listed on line 1b: Direct Public Support. Those with larger amounts on other lines are less dependent on individual donations as they have income from other sources. Having multiple sources of revenue can be beneficial for a charity; if an organization experiences a low fundraising year it can draw from other revenue sources to sustain its programs. If a charity has no revenue listed on line 1b, however, it may not even be prepared to accept private contributions

.

I – Increasing over time: Is the charity expanding or shrinking its programs?

Part of our evaluation factors in a charity’s performance over time. We believe charities should be consistently growing both their revenue and their expenses. By comparing line 12 – Total Revenue on the most recent Form 990 with the total on line 12 from older Forms 990 you can get a sense of how quickly the charity is growing revenue. By repeating this test for Total Expenses-line 17, you can evaluate whether the charity is expanding or shrinking its programs. As a charity raises more money through contributions, they ideally will also be spending more on programs and ultimately serving more people. Also, the charity must expand spending to maintain their current programs to keep up with inflation alone. While the growth doesn’t need to be drastic, no increase would indicate that services may be falling short of the pace of inflation and therefore not as effective.

P – Program Expenses: How much does the charity spend on its programs?

Our research shows that most charities spend at least 75% of their expenses on program services--things that directly serve their mission or purpose. In other words, at least 75% of dollars spent by the organization should go directly to fund the services and benefits that the charity provides. A simple math calculation will help you determine the percentage for any charity. From the most recent Form 990, take the amount on line 13: Program Service Expenses and divide that by the Total Expenses listed on line 17.

For example, if a charity lists $800,000 on line 13, they spent that dollar amount on programs during that year. Their total expenses, line 17, are listed as $1,000,000. Therefore, $800,000/$1,000,000= 0.800. Multiply this by 100 to get a percentage, or 80%. As a frame of reference, seven out of ten charities on our site spend at least 75% of their expenses on program services. A charity that spends below 75% on programs underperforms most charities we evaluate, so if this is the case, be cautious and seek more information directly from the charity.

 S – Salaries of Note: Is the charity compensating its executives appropriately?

We consistently see discussions of CEO compensation in the comments section of our website. As there are many opinions on what level of compensation is appropriate for the leader of a non-profit, we don’t offer specific guidelines about a “good” or “bad” salary. Our research – based on 5,300 of the largest charities in America – shows on average a CEO annually earns about $150,000, representing around 3% of an organization’s total spending. It is important to remember there are many factors that go into determining appropriate executive compensation; salaries tend to vary with geographic location, size of the organization, and type of work performed. When you review staff compensation for any charity, be sure to consider how these factors might affect the salary amounts.

You can see how any organization compensates their CEO by reviewing Part V-A, found on Page 5 of the Form 990 or Schedule A, page 1. Here the compensation of Current Officers, Directors, Trustees, and Key Employees is reported. The CEO might be identified as Executive Director, President, CEO, or other similar title. Some charities attach an additional sheet of paper if they cannot fit their list of employees in the space provided. In that case, refer to the statement number indicated in the space of Part V-A on page 5. All statements, ordered by number, are found at the end of the Form 990. In some cases there may be no CEO salary listed. It is rare that an organization can perform without any paid leadership, so be sure to contact the charity directly and inquire further if they do not report executive salaries.

 

We hope this guide will help you make informed giving decisions about charities that aren’t currently on our site. The absence of a particular charity from our website should not be interpreted to mean that the group is unworthy of public support. Many of these groups provide programs and services that the less fortunate in our communities depend upon. On the other hand, no matter how noble the charity's cause – whether that is feeding the poor, sheltering the homeless or caring for the elderly – it doesn't mean that we should automatically open our wallets wide. Remember a true Charity Navigator evaluation considers many additional factors when completing a rating, and if you’d like to see a complete evaluation of an organization, you can always suggest a charity. In the meantime, by doing your homework and following this step-by-step guide you can be confident that you are giving wisely.