Evaluating Charities Not Currently Rated by Charity Navigator
Charity Navigator uses the Form 990, a public tax return that each organization files annually, to complete each of its financial evaluations (see our Methodology section). Here are some simple steps to help you to evaluate a charity that we have not rated. (to find out why a charity is not in our database click here: Frequently Asked Questions)
Using our charity search, enter the name or EIN (Employer Identification Number) of the charity you'd like to learn more about. If the organization doesn't appear in the "Rated" listing, click the "Unrated Organizations" tab and then click on the name of the organization to view their IRS profile. You'll find links to their Forms 990 near the bottom of the page.
There are three main things to look at when evaluating a charity:
- Financial health of the organization
- Accountability and transparency
1. Examine the charity's financial health
(Starting in 2008, the IRS introduced a new design for the Form 990. If you need to examine an older version of the Form 990, you can find the information at the bottom of each paragraph.)
Program Expenses: The majority of charities listed on our site - seven out of ten non profits - spend at least 75%of their expenses directly on their programs. That means the organization should spend no more than 25% of their total expenses on administrative overhead and fundraising costs combined. To determine the percentage going to programs for the charity you are reviewing, scroll to page 10 (Statement of Functional Expenses), find Line 25 (total functional expenses). Divide column B (program services) by column A (total expenses) then multiply by 100. The resulting figure is the percentage that organization is spending directly on their programs and services. For a more detailed break out of the program expenses, review the "Statement of Program Service Accomplishments" located on Page 2, Part III.
(For an older version of the Form 990: To determine the percentage going to programs, take the amount on page 1, line 13 (Program Service Expenses) and divide that by the Total Expenses listed on line 17. Statement of Program and Service Accomplishments' is located on Page 3, Part III)
Executive Pay: Our research - based on the analysis of thousands of mid to large charities in America - shows that the average CEO compensation is about $130,000 annually. On page 7 of the Form 990 (Compensation of Officers, Directors, etc.) organizations are required to report the CEO's pay and any current officers making over $100,000 annually. As you examine salaries, keep in mind that a variety of factors impact pay including geographic location, size of the organization, and type of work performed.
(For an older version of the Form 990, you can review the CEO's compensation on Page 5, Part V-A or Schedule A, Page 1.)
Growth of Revenue and Program Expenses: Determine if the charity you are considering supporting is expanding or shrinking over time. You can quickly do this by comparing page 1, line 12(Total Revenue) of the current year with the prior year (s), then do the same with the Total Expenses- page 1, line 18. While the growth doesn't need to be dramatic, charities that fail to grow at least at the rate of inflation are in fact shrinking and thus cutting the very programs that you want to support.
(For an older version of the Form 990, you can locate Total Revenue on page 1, line 12 and Total Expenses on page 1, line 17.)
- Professional Fundraisers: If a nonprofit uses a professional fundraiser, then be aware that part of your donation (usually a considerable amount) will go to that for-profit fundraising firm and not to the charitable programs/services that you intend your donation to fund. You can determine if a charity uses professional fundraisers by examining the charity's Form 990 in Part I, line 16a, column b and in Schedule G (which offers a more detailed breakdown). If the charity is spending a lot on outside fundraising firms with little going towards its charitable mission, then you may want to look for another charity to support. For more information on this topic, see our tips for What To Do When A Charity Calls and our Top 10 list of Charities Overpaying their For-Profit Fundraisers.
- Fundraising Costs Allocated to Program Costs: Joint costs, reported in Part IX, line 26, refer to activities that combine educational campaigns with fundraising. Joint costs can disguise a charity’s true fundraising costs and inflate its programs. You can see the amount of joint costs in a nonprofit's program expenses by dividing line 26, column b by line 25, column b (total program expenses). You may want to consider supporting another charity if this ratio is high.
Types of Support: Take a look at lines 1a through 1g (on page 9, "Statement of Revenue") to learn about a charity's funding sources. Some charities rely heavily on membership dues (line 1b), or government support (line 1e) while others survive almost solely on individual contributions and fundraisers (line 1f; 1c) and still others depend on program service revenue (line 2g). Having multiple sources of revenue can be beneficial for a charity. For example, if an organization experiences a drop in donations from individuals, then it can draw from other revenue sources to sustain its programs. If a charity has no revenue listed on line 1f, then it may not even be prepared to accept private contributions.
(For an older version of the Form 990, take a look at lines 1a through 1d, line 2, and line 3. These represent different ways charities can earn revenue.)
2. Check for evidence of the charity's commitment to accountability and transparency
The best charities are transparent and accountable to the public. You should be able to see evidence of this in the information they provide on their web site. Can you readily find information about the charity's staff and Board of Directors? Did the charity publish its financial information such as its most recently filed Form 990 or audit?
Read the news
Check the charity's recent media coverage through Google news or another similar service to see if the charity has been involved in any questionable practices.
Look at pages 3-6 to see if the charity is committed to best practices. For example, does it have a conflict of interest policy? Does it have a whistleblower policy? Does it have a process for setting the CEO's pay?
3. Investigate the charity's results
Learn about a charity's accomplishments, goals and challenges by reviewing its website and/or talking with staff. They should be able to tell you about the quality and depth of their results as well as their capacity to continue to get these results, not just the number of activities or people served. This is critical step, after all, the charity's ability to bring about long lasting and meaningful change in the lives of people and communities should be the key reason for your financial investment. You can use the following questions as a guide.
Alignment of Mission, Solicitations, and Resource Allocation. Does the charity actually do those things that it tells you about in its solicitations? Following a “truth in advertising” principle, look for signs that the charity dedicates both money and staff time in ways that are consistent with what their stated mission is, and with how they represent themselves when seeking donations.
In a full 990, on page 2, Part III: Statement of Program Service Accomplishments, charities report their largest programs, and the funding allocated to them. You should determine if the funding allocation reported here seems properly aligned with what the charity says they do on their web site (especially their Donation page).
- Clear logic for achieving results. Does the charity clearly explain what the problem is it intends to address and how it will do so? There are four simple questions to consider here. Does the charity’s statement of how their work leads to results seem plausible and reasonable to you? Do they talk about how much of their service is required in order to produce the results? Do they show any evidence that demonstrates that their approach is effective? Do they tell you what data will indicate that their program is working, and have a plan for collecting that data?
- Information from external validators. Has the charity’s approach been reviewed or written about by an objective third party? If they have a report from an organization that focuses its attention on results, that could potentially provide a vote of confidence in the organization.
- Constituent Voice. Does the charity receive feedback from its constituents (those people it serves - clients, consumers, beneficiaries, etc.) and use it to improve the quality of services? Look to see if there is any sign that the organization collects and publishes feedback from its primary constituents (beneficiaries, clients, end users, consumers… etc.) For many direct-service organizations, the primary constituents are clear; for others, the relevant parties may be peers, related parties, policy makers, etc. Who they are is something that you should be able to determine based on the organizations logic for achieving results.
- Published evaluation reports. Does the organization have an independent third party formally evaluate their efforts with some regularity (at least every 5 years) and make those results publically available? Do they explain what they learned from the evaluation and what, if anything, they are changing as a result?
We hope this guide will help you make informed giving decisions about charities that aren't currently on our site. Remember a true Charity Navigator evaluation considers many additional factors when completing a rating. By doing your homework and following this step-by-step guide you can make informed choices about your philanthropic endeavors.