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FAQs About the Encompass Rating System

 
 

General Questions About the Encompass Rating System (Beta)

  1. Why did Charity Navigator need to create a new rating system?Answer
    • Many individual and institutional donors rely on Charity Navigator to help inform their giving decisions, yet only a small fraction of the 1.6 million nonprofits operating across the United States are currently equipped with a rating from the organization. This is because eligibility requirements for our existing rating system?the Star Rating System?include a minimum number of years in operation and revenue amount, thereby excluding younger and smaller nonprofits. The new methodology utilized by the Encompass Rating System enables Charity Navigator to rate nonprofits at scale, bringing the impactful work of more than 150,000 newly-rated nonprofits to the attention of donors and providing the assurance that a rating from Charity Navigator bestows.
  2. How does the Encompass Rating System benefit donors? Answer
    • In future versions we hope to add different dimensions of other indicators that go beyond financial and accountability practices. Future versions will include other indicators that we call beacons in the following areas: Impact & Results, Culture & Community, and Leadership & Adaptability. We may also make changes to previous versions as appropriate.
  3. How does the Encompass Rating System benefit nonprofits? Answer
    • Our research tells us that nonprofits overwhelmingly want the visibility, credibility, and legitimacy that a Charity Navigator rating brings. It provides an unbiased, third-party review of an organization's operations and gives donors confidence that their contributions will be used efficiently to help advance the cause they are supporting. The Encompass Rating System allows smaller and more recently established nonprofit organizations that were ineligible for a Star rating to promote their effectiveness to current and potential donors across multiple metrics, enhancing their ability to raise the funds they need to advance their mission.
  4. How did you develop the Encompass Rating System and how will it grow over time? Answer
    • The Encompass Rating System is currently in beta and will utilize a more nimble, iterative process akin to a software development product to allow the tool to grow over time. The tool uses technology to streamline and automate our evaluation process so that we review and rate an exponentially larger number of nonprofits. We also engaged user-experience (UX) and design experts to help develop and deploy a modern, highly-visual and user-friendly digital display that makes the information easy to understand and use for nonprofits and donors. Our team continues to explore technology, collaboration, and partnerships to support the evolution of our process, including considering artificial intelligence and machine learning capabilities that would help us scale but also assure the highest quality of information to our users. We expect to collect information for the additional beacons in collaboration with industry partners already in possession of relevant nonprofit data, as well as directly from nonprofits themselves.
  5. Is there a seal/badge that nonprofits can use to showcase their Encompass ratings? Answer
    • Yes, nonprofits with a rating of 75 or above can download a promotional toolkit that includes a seal, social graphics, and a sample press release and email announcement. To access this, visit your Charity Navigator profile page and look for the call to action to 'Gain access to your rating toolkit'.

Questions About Future Versions of the Encompass Rating System (Beta V1)

  1. If this is version 1 (beta) of the Encompass Rating System, what should we expect in future versions? Answer
    • In future versions we plan to add and evaluate different indicators (called beacons) that go beyond financial and accountability practices. These include: Impact & Results, Culture & Community, and Leadership & Adaptability. We may also make changes to previous versions as appropriate.
  2. When will the next version be released? Answer
    • We are planning on releasing new versions approximately every six months. Each time we release a new version, we will be sure to share notifications in advance.
  3. Who is building the system and selecting measures? Answer
    • Our staff is developing the system with the advice of experts in the nonprofit sector, intensive user testing with nonprofits and donors, and leveraging our Consultative Council of Nonprofit Leaders, and expert nonprofit advisors.
  4. Will the metrics for this first version change over time or just be added to? Answer
    • Our main goal is to modify and revise them over time, while additions will mostly cover different aspects of a nonprofit. However, if future analysis and/or external feedback deems it necessary, we will make changes to these initial metrics.

Questions About Using the Encompass Ratings to Inform Giving

  1. How can donors compare nonprofits when one has been given a Star rating and another has an Encompass rating? Answer
    • Both the Star ratings and Encompass ratings serve as important trust indicators for donors of all sizes. Charity Navigator recommends 3- and 4-star rated nonprofits, as well as organizations earning an Encompass score of 75 or higher (signified with a "Give with Confidence" wordmark). The Star Rating System's Financial and Accountability and Transparency scores do have some parity with the Finance & Accountability score seen in the Encompass Rating System, although the metrics assessed are different. Donors are encouraged to look at different aspects of organizations, including cause area, revenue size, length of operations, and other trust indicators to inform their philanthropic decisions across both rating systems.
  2. Are you recommending nonprofits with a score of 75 or above like you do with 3- and 4-star nonprofits? Answer
    • Yes, organizations with an Encompass rating of 75 or more are signified with a wordmark of "Give With Confidence."
      Please keep in mind that this is the first version of our Encompass Rating System. At this stage, the beta V1 is a basic set of five metrics that we believe consistently apply to a large set of nonprofits. Our Star ratings are made up of 24 metrics and each rating is compiled and reviewed by one of our analysts in detail before being posted on our website. The Encompass Rating System analyzes some of the same information, but will grow to include more information around organizational effectiveness. At launch, there is parity between the two systems, as they are evaluating the same indicators - the main difference is the amount of metrics included (5 vs. 24). A primary impetus behind launching Encompass is to allow our organization to analyze more nonprofits at scale (over 150k more at launch!) in a systemized, automated, and reliable way.
  3. How could a nonprofit have an Advisory but also pass the Encompass Rating? Answer
    • We currently have three levels of advisory (Low, Moderate, High). For our Star rating (CN 2.1) methodology a nonprofit with a Low or Moderate Advisory can have a Star rating, but a nonprofit with a High Advisory cannot. We are applying the same criteria to the Encompass Rating System. Any nonprofit with a High Advisory is not eligible for the Encompass Rating. If a nonprofit with a Low or Moderate Advisory passes the Encompass Rating they will be displayed as such. However, we still suggest that donors review the Advisory and ultimately weigh the severity of the advisory per their own comfortability. This basic Finance & Accountability Beacon indicates that the nonprofit meets basic vitals on both the financial and accountability sides. A nonprofit can meet these requirements but still have an advisory due to another area of concern that is not captured in the Encompass Rating System metrics.

Questions About Criteria and Methodology of Encompass Ratings (Beta V1)

  1. What are the ratings criteria to be included in the Encompass Rating System Beta V1? Answer
    • For this first version, we are only considering nonprofits that have e-filed their last three IRS Form 990s (the 990 EZ or 990N is not sufficient). Due to the sheer number of nonprofits, we can only glean e-filed 990 data at this time. In addition, we are using three-year averaging for the Program Expense Ratio, which is why we must have three.
  2. How often will new nonprofits be added? How often will ratings update? Answer
    • With the launch of the Encompass Rating System, our goal is to rate as many nonprofits as possible. To be eligible, an organization must have e-filed three years-worth of IRS Form 990s (990 EZ or 990N is not sufficient) with the IRS. Nonprofits do not need to request a rating?it will be issued automatically. As we acquire newly published e-filed full 990s we will update scores for organizations, including newly-eligible organizations because they have reached the requirements of three years of e-filed 990s.
  3. What metrics make up the V1 of Encompass ratings? Answer
    • The increased adoption of e-filed 990s (the IRS tax form that tax-exempt organizations must file annually) has made the data required to develop ratings more accessible. Each rating category (beacon) utilizes a different methodology.

      As additional beacons are deployed we will communicate details on their methodology. In Beta V1, the only top level indicator evaluated is the Finance & Accountability Beacon (Charity Navigator calls these indicators "beacons"). As such, there is a 1:1 relationship between the Finance & Accountability score and the overall score.

      The initial Finance and Accountability beacon is determined by five metrics:
      1. Program Expense (25 points)
        The Program Expense Ratio is determined by the amount an organization spends on program expenses as a percentage of its total expenses. This data is an average of an organization's three most recent 990 forms. A ratio of 70 percent or higher earns an organization a passing score from Charity Navigator. Nonprofits that fall below 50 percent will receive zero points for all financial metrics (Program Expense and Liabilities to Assets) - donors expect that when they support an organization, most of their charitable gifts impact programs. The data we reviewed for all eligible nonprofits (including ones that passed and failed) included over 150,000 nonprofits of all types. This data showed that 85% of the organizations had a three year average program spend of 70% or higher. Per that data we deemed that setting the bar for this metric at 70% was appropriate.
      2. Independent Audit or Financial Review (25 points)
        Organizations with a total revenue above $1 million are expected to have completed an independent audit. This indicator is not factored into the score given to organizations with less than $250K in total revenue and is removed from the scoring methodology. Nonprofits with a revenue between $250K and $1million are expected to have completed a formal audit, review or compilation.
      3. Board Composition (25 points)
        An organization must have at least three board members. 50 percent of those members must be identified as independent (i.e. not employed/receiving a salary from the organization).
      4. Liabilities to Assets (15 points)
        The Liabilities to Assets percentage is determined by total liabilities as a percentage of total assets. This information is secured from the organization's most recent 990 form. Charity Navigator looks for a percentage of less than 50.
      5. Website listed (10 points)
        The organization must have a website listed on its 990. This is an accountability and transparency measure; nonprofits act in the public trust and reporting publicly on activities is an important component of our rating.
      Additional beacons are being deployed every six months over the next 18-24 months.
  4. Why are some metrics worth more points than others? Answer
    • We determined that certain metrics were more important than others in regards to nonprofit effectiveness and weighted them accordingly.
  5. What constitutes an overall passing score? Answer
    • 75 is the overall passing score. Charity Navigator believes that donors should feel confident in giving to organizations with a passing score. A score of 75 or above indicates that a nonprofit is effective and transparent in the areas being assessed, based on Charity Navigator's criteria. These organizations will receive the 'Give with Confidence' attribution on their Charity Navigator pages.These organizations have also earned the right to display the badge on their website and share it with supporters. If a rated nonprofit has not earned the ?Give with Confidence' designation due to an overall score of below 75, we recommend that donors examine the underlying data within each metric and look for other trust indicators to feel confident in supporting the organization.
  6. How and why did you choose these metrics? Answer
    • Most of these metrics came from our Star Rating 2.1 methodology and research shows that these are basic vital indicators that can be applied to a great number of nonprofits.
  7. Why are there less metrics compared to Star ratings? Answer
    • Our Beta V1 of the Encompass Rating System is launching with the goal of scaling Charity Navigator's ratings to a much larger set of nonprofit organizations. In order to scale, we had to ensure that the metrics accurately applied to a large number of nonprofits. Certain metrics that we considered had too many nuances and so they could not be applied broadly.
  8. Will you consider amending or adding to these metrics? Answer
    • We will collect feedback and make additions/alterations as we continue to experiment with new metrics. We will be guided by the feedback we receive from a variety of stakeholders including sector experts, nonprofit representatives, and donors via interviews and surveys.
  9. Why are you only launching with one beacon? Why didn't you include or take into account "XYZ" metric? Answer
    • Our priority is getting important information into the hands of donors as soon as possible so that they can make informed giving decisions and consider highly impactful smaller, more recently established nonprofits in their philanthropic decision-making process. Because we had the information for our Finance & Accountability beacon ready to go, we decided to go ahead and make it available as a resource. We felt this was especially important in this moment when nonprofits (many of them less established) are doing remarkable work responding to the critical issues of COVID-19 and racial justice. It didn't make sense to us to hold back information that could guide philanthropic decisions and give small, more recently established nonprofits the opportunity to obtain a greater level of philanthropic support during a critical time.
  10. How will the effects of COVID be considered in ratings? Answer
    • An internal working group at Charity Navigator has already begun researching this and we will be sure to make any needed and appropriate changes/adjustments or both the 2.1 Star rating and the Encompass rating methodologies as appropriate.

Detailed Questions About How Nonprofits Can Manage Their Ratings

  1. What steps can my organization take to be considered for an Encompass rating? Answer
    • To be rated for our V1 beta, organizations must have three years of e-filed IRS Forms 990. Please e-file the full IRS Form 990 every year (not the 990 EZ or N).
  2. Does having an Encompass Rating System exclude my nonprofit from having a Star rating in the future? Answer
    • No, it does not. We will continue to rate nonprofits that meet the criteria for a Star rating regardless of their Encompass rating status.
  3. Can an organization with an Encompass rating of 75 or above be eligible for a Hot Topic list? Answer
    • At this time, we're faced with technology limitations that prevent us from including nonprofits with Encompass ratings in our Hot Topics. Only organizations that receive a 3- or 4-star (CN 2.1) rating will be considered for Hot Topic lists. But this is something that we are considering in the future as we roll out future versions of the system and as we reduce technological limitations.
  4. How can my organization dispute our Encompass rating? Answer
    • The first version of our Encompass ratings are fully automated from 990 data. Nonprofits are welcome to submit a question via our help center. As the data being analyzed is what was submitted to the IRS, organization's should not expect a change until a new 990 is submitted to and released publicly by the IRS.
  5. Can my organization have an official representative to manage our page per this new rating? Answer
    • Unfortunately, we do not currently have a nonprofit portal available for nonprofits with Encompass ratings, but we will be adding this feature in the future. Please note: Nonprofits accessing their Encompass rating toolkit have the ability to share contact information with us. By providing this information, it allows us to contact you in the future.

Detailed Questions for Nonprofits with Current Star Ratings

  1. Is my nonprofit's current Star rating affected by the Encompass Rating System? Answer
    • No. Encompass ratings are completely independent of Star ratings. The Encompass Rating System will have no impact on the 9,000 organizations that currently have a Star rating from Charity Navigator. At the time of launch, the Star Rating System remains the more fulsome system in terms of analyzing finance and accountability and transparency, while the Encompass Rating System will begin to explore other areas of organizational effectiveness that make comparing organizations easier. For the foreseeable future, the Star ratings will remain in effect for the 9,000 organizations currently evaluated by this system. As we build out and finalize future versions we may apply those metrics to the Star rated nonprofits. We will give notice to all the nonprofits before those versions go live.
  2. Are Encompass ratings more/less valuable than Star ratings? Answer
    • At this stage, the beta V1 is a basic set of five metrics that we believe consistently apply to a large set of nonprofits. Our Star ratings are made up of 24 metrics and each rating is compiled and reviewed by one of our analysts in detail before being posted on our website. The Encompass Rating System analyzes some of the same information, but will grow to include more information around organizational effectiveness. The Star rating is more robust than the Encompass Rating Beta V1 at this time.
  3. Why aren't these metrics being used in 2.1? Answer
    • Four of the five Encompass Rating metrics used in Beta V1 beta are used in the 2.1 Star rating methodology. They have been slightly adjusted to account for the broader base of nonprofits that they are being applied to.
  4. Can my organization have an official representative to manage our page per this new rating? Answer
    • Unfortunately, we do not currently have a nonprofit portal available for nonprofits with Encompass ratings, but we will be adding this feature in the future. Please note: Nonprofits accessing their Encompass rating toolkit have the ability to share contact information with us. By providing this information, it allows us to contact you in the future.

Please Note: As we continue to receive questions and feedback on this new system we will add to this FAQ anything that is not currently covered.

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