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Regarding the Scope of Our Ratings

May 9, 2016

 
 

We believe our ratings dramatically improve the quantity and quality of information available to charitable givers/social investors (hereafter givers/investors). Our ratings provide clear, objective, and reliable assessments of the financial health as well as the accountability and transparency of charities. By utilizing our ratings, givers/investors can learn how a charity compares on these performance metrics with other charities throughout the country. Givers/investors can be more confident that in supporting those charities rated highly by Charity Navigator, they will be supporting organizations that are more  financially healthy, accountable and transparent.

That said, we do recommend givers consider additional factors in deciding whether to support a particular organization. Charity Navigator provides a number of important pieces of this information. However, givers/investors should also seek out additional information from charities directly and through other private and public sources. For more guidance on making giving/investing decisions, please visit our Tips for Donors.

Givers/investors should also recognize that there are a few limitations to our ratings. Most of these limitations result from the fact that the financial information and most of the accountability and transparency information on which we base our ratings is derived from the Form 990 each charity files with the IRS. That information itself is limited in several ways.

First, although we provide the most up-to-date public information available on each charity, charities are given 135 days following the end of their fiscal year to prepare and file their Form 990. Beyond that time limit, many charities request extensions, including an additional four-month time limit, which are automatically approved by the IRS. As a result, organizations often file their 990 eight to ten months after their fiscal year ends. As such, givers/investors should be aware that our ratings are based on information that may no longer accurately describe the current conditions of a charity.

Second, the Form 990 requires accounting practices that differ in certain fundamental ways from those standards known as Generally Accepted Accounting Principles (GAAP). We rate charities based on financial information derived using standards that may be at variance with GAAP.

Third, some well-known charities are actually legally considered a group of separately incorporated organizations. Each of those organizations files a separate Form 990, and we evaluate each of them separately, rather than evaluating them as if they were a single organization. When such groups of affiliates make them available, we use pro-forma consolidated Forms 990, which combines the data of the various affiliates into a single filing and which is based on the accounting standards required by the IRS (not on GAAP). When such consolidated pro-forma filings are not available, we do not use consolidated financial statements. Such statements are based on GAAP standards, which as noted earlier differ in certain fundamental ways from those standards required by the IRS. Using consolidated financial statements would be tantamount to applying different standards to different organizations and we will not do so.

Fourth, the information provided on the Forms 990 is provided by the charities themselves. Insofar as the Form 990 has been filed with the IRS, the federal agency responsible for overseeing the activity of charities, we do not attempt to discern where charities have presented inaccurate or misleading information. Since this is a federal reporting document, it is a crime to falsify the information. We believe that the vast majority of charities strive to comply with the law and therefore file the 990 as accurately as possible. Therefore, we take charities at their word and assume that the information filed in the 990 is true, correct, and complete, to the best of their knowledge and belief, affirmed by the signature of an officer of the organization. We do not accept responsibility for any case where a charity misrepresents its financial conditions in the information provided in its Forms 990.

The final limitation to our ratings is that we do not currently evaluate the quality of the results of the programs and services a charity provides. However, we have developed a methodology for evaluating a charity's results reporting and have begun the process of collecting the necessary data for each charity so that in the not-too-distant future we can also rate charities on their results reporting (see Where We Are Headed). In the meantime, we encourage givers/investors to research a charity's results and to make their own assessments. Again, for more information on making giving/social investing decisions, please visit our giving Tips & Resources.

 
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