Glossary

Organizations described under Section 501(c)(3) of the Internal Revenue Code are public charities that are tax-exempt and eligible to receive tax-deductible contributions. Their earnings do not benefit private individuals, no substantial part of their activities are used to influence legislation, and they do not participate in political campaigns or political endorsements. All rated charities in our database are classified under Section 501(c)(3) and file Federal Forms 990 with the IRS.

Accountability is an obligation or willingness by a charity to explain its actions to its stakeholders. 

A charity's Accountability & Transparency score, on a scale of 0 to 100, is derived by analyzing 17  metrics that relate to good governance and ethical best practices.  Details on how it is calculated can be found in the Methodology section of the website.

As reported by charities on their IRS Form 990, this measure reflects what percent of its total budget a charity spends on overhead, administrative staff and associated costs, and organizational meetings. Dividing a charity's average administrative expenses by its average total functional expenses yields this percentage. We calculate the charity's average expenses over its three most recent fiscal years.

Defines the organizational grouping in the context of the IRS group ruling.

An alleged charity is any entity that poses as a tax-exempt organization when it is not currently designated as such by the IRS.

The State Attorney General is the chief law enforcer for that district. State Attorney General offices work to protect the rights of charitable donors and regulate charitable organizations and solicitations. You can find a list of office contacts here.

We check the charity's website to see if it has published its audited financial statements for the fiscal year represented by the most recently filed IRS Form 990. It is important for donors to have easy access to this financial report to help determine if the organization is managing its financial resources well. We currently rate charities on whether or not they publish their audit on their website. 

Audited financial statements provide important information about financial accountability and accuracy. They should be prepared by an independent accountant with oversight from an audit committee. (It is not necessary that the audit committee be a separate committee. Often at smaller charities, it falls within the responsibilities of the finance committee or the executive committee.) The committee provides an important oversight layer between the management of the organization, which is responsible for the financial information reported, and the independent accountant, who reviews the financials and issues an opinion based on its findings. We check the charity's Form 990 reporting to see if it meets this criteria.

This metric will be assigned to one of the following categories:

• The charity's audited financials were prepared by an independent accountant with an audit oversight committee.
• The charity's audited financials were prepared by an independent accountant, but it did not have an audit oversight committee. In this case, we deduct 7 points from the charity's Accountability and Transparency score.
• The charity did not have its audited financials prepared by an independent accountant. In this case, we deduct 15 points from the charity's Accountability and Transparency score.

Our analysts check to see if the charity lists Board members on its website. Publishing this information enables donors and other stakeholders to ascertain the make up of the charity's governing body. This enables stakeholders to report concerns to the Board. Charity Navigator does not cross-check the Board members listed on the website with that reported on the Form 990, because the latter often isn't available until more than a year after the charity's fiscal year ends. In that time, the charity's Board members may have changed, and the charity typically reflects those more recent changes on the website.

The IRS requires that any compensation paid to members of the charity's governing body be listed on the Form 990. Furthermore, all members of the governing body need to be listed whether or not they are compensated. It is not unusual for some members of the board to have compensation listed. The executive director of the organization frequently has a seat on the board, for instance, and is compensated for being a full time staff member. However, it is rare for a charity to compensate individuals only for serving on its Board of Directors. Although this sort of board compensation is not illegal, it is not considered a best practice.

We classify charities in eleven groups or Categories based on their respective services. A Category represents a broad area of charitable activity (e.g., Health). We further divide the charities in each Category into smaller groups or Causes. Each Cause refers to a more narrowly defined area of charitable activity (e.g., Medical Research).

Charities are required to list their CEO's name and compensation on the Form 990. Our analysts check to be sure that the charities complied with the Form 990 instructions and included this information in their filing.

The Combined Federal Campaign, the nation's largest workplace giving campaign, offers federal civilian employees, members of the military, and U.S. Postal Service workers the opportunity to contribute to charities. Charity Navigator rates nearly 1,000 of the participating charities. To locate a rating for a specific charity enrolled in the campaign, simply enter its CFC number in the search box. Alternatively, you can limit any search to charities in the CFC by using our advanced search tool or by selecting CFC as a filter criteria on the search results page.

IRS classification of the type of organization; differs slightly from NTEE classification.

Based on the data found in each charity's most recently filed Form 990, we include salary, cash bonuses, and expense accounts when we measure a CEO's compensation. We do not include contributions to benefit plans or deferred compensation that is allocated to be paid in later years. Deferred compensation is often accrued over many years and then is paid as a lump sum in one year. As such, we do include deferred compensation as part of the compensation figure in the year in which it is actually paid out to the employee and/or when it is expensed per the 990..

Many charities use fiscal years that differ from the calendar year. In these cases, it is important to recognize that the CEO’s compensation reported on the Form 990 reflects the CEO’s pay for the calendar year, not the fiscal year. Why? Because the IRS requires that charities report compensation on the Form 990 exactly the same as they did on the W-2 Form (which is based on the calendar year).

Some charities are able to pay their leaders through multiple affiliated organizations. Using information reported on an organization's most recent Form 990, we list an individual's aggregate compensation from related organizations.

Many charities use fiscal years that differ from the calendar year. In these cases, it is important to recognize that compensation reported on the Form 990 reflects the employee's pay for the calendar year, not the fiscal year. The IRS requires that charities report compensation on the Form 990 exactly the same as they did on the employee's W-2 Form (which is based on the calendar year).

Such a policy protects the organization, and by extension those it serves, when it is considering entering into a transaction that may benefit the private interest of an officer or director of the organization. Charities are not required to share their conflict of interest policies with the public. Although we can not evaluate the substance of its policy, we can tell you if the charity has one in place based on the information it reports on its Form 990.

If the charity does not have a Conflict of Interest policy, then we deduct 4 points from its Accountability and Transparency score.

Signifies whether contributions made to an organization are tax-deductible.

An official record of the events that take place during a board meeting ensures that a contemporaneous document exists for future reference. Charities are not required to make their Board meeting minutes available to the public. As such, we are not able to review and critique their minutes. For this performance metric, we are checking to see if the charity reports on its Form 990 that it does keep those minutes. In the future, we will also track and rate whether or not a charity keeps minutes for its committee meetings.

Donors have expressed extreme concern about the use of their personal information by charities and the desire to have this information kept confidential. The exchanging and sale of lists for telemarketing and the mass distribution of "junk mail," among other things, can be minimized if the charity assures the privacy of its donors. Privacy policies are assigned to one of the following categories:

• Yes: This charity has a written donor privacy policy published on its website, which states unambiguously that (1) it will not share or sell a donor's personal information with anyone else, nor send donor mailings on behalf of other organizations or (2) it will only share or sell personal information once the donor has given the charity specific permission to do so.
• Opt-out: The charity has a written privacy policy published on its website which enables donors to tell the charity to remove their names and contact information from lists the charity shares or sells. How a donor can have themselves removed from a list differs from one charity to the next, but any and all opt-out policies require donors to take specific action to protect their privacy.
• No: This charity either does not have a written donor privacy policy in place to protect their contributors' personal information, or the existing policy does not meet our criteria.

The privacy policy must be specific to donor information. A general website policy which references "visitor" or "user" personal information will not suffice. A policy that refers to donor information collected on the website is also not sufficient as the policy must be comprehensive and applicable to both online and offline donors. The existence of a privacy policy of any type does not prohibit the charity itself from contacting the donor for informational, educational, or solicitation purposes.
 

Defines the type of exemption held by the organization.

A charity's expenses include spending on such things as salaries, supplies, equipment, travel, and conferences. They can also include the value of donated goods that a charity distributes.

See also: Program Expenses & Fundraising Expenses

Indicates the primary return the organization is required to file with the IRS.

A charity's Financial score, on a scale of 0 to 100, is derived by analyzing 7 financial metrics.  Details on how it is calculated can be found in the Methodology section of the website.

We check the charity's website to see if it has published its most recently filed IRS Form 990 (a direct link to the charity's 990 on an external site is sufficient). It is important for donors to have easy access to this financial report to help determine if the organization is managing its financial resources well.

IRS classification of type of foundation. This is only applicable to 501(c)(3) organizations.

The amount spent to raise $1 in charitable contributions. To calculate a charity's fundraising efficiency, we divide its average fundraising expenses by the average total contributions it receives. We calculate the charity's average expenses and average contributions over its three most recent fiscal years.

This measure reflects what a charity spends to raise money. Fundraising expenses can include campaign printing, publicity, mailing, and staffing and costs incurred in soliciting donations, memberships, and grants. Dividing a charity's average fundraising expenses by its average total functional expenses yields this percentage. We calculate the charity's average expenses over its three most recent fiscal years.

The twelve month period defining a charity's annual cycle of activity, at the conclusion of which a charity (if it isn't exempt from doing so) files an informational tax return Form 990 with the IRS. A charity can designate any month as the beginning of its fiscal year. We commonly refer to a charity's FYE (fiscal year ending), the month, day, and year when a charity's fiscal year ends. For example, we would refer to a fiscal year ranging from July 1, 2001 to June 30, 2002 as FYE 2002.

Grantmaking organizations primarily fundraise for the Cause in which they are classified. Although these organizations may provide some direct programs and services, they make grants to other entities that carry out the work.

Typically, organizations within the same Cause area operate similarly to one another when it comes to their financial structure. However, we have identified a number of organizations, namely grantmakers, that are similar to one another in the way they function financially, but working across different Causes. In order to better compare their financial health, we have identified these Grantmaking organizations and compare them to each other, rather than to other organizations in their Cause.

Grantmaking organizations primarily fundraise for the Cause in which they are classified. Although these organizations may provide some direct programs and services, they make grants to other entities that carry out the work.

Typically, organizations within the same Cause area operate similarly to one another when it comes to their financial structure. However, we have identified a number of organizations, namely grantmakers, that are similar to one another in the way they function financially, but working across different Causes. In order to better compare their financial health, we have identified these Grantmaking organizations and compare them to each other, rather than to other organizations in their Cause.

Name of the group to which an organization is a part of. Only applicable if an organization has an affiliation to a group.

A High Concern CN Advisory highlights a proven or confirmed allegation against a charity or an employee of a charity that is serious both in nature and scope. These advisories should be viewed with a high level of scrutiny and concern.

The presence of an independent governing body is strongly recommended by many industry professionals to allow for full deliberation and diversity of thinking on governance and other organizational matters. Our analysts check the Form 990 to determine if the independent Board members are a voting majority and also at least five in number.

A key element of Charity Navigator’s mission is to contribute to an increase in the number of informed charitable givers/social investors, and to the depth of their knowledge.

But what does it mean to be an informed charitable giver or social investor? We believe it means:

• The person giving considers the impact of their donation;
• That although a donor may be drawn to a charity by an emotional connection, they will also seek out information about that charity;
• The donor will be aware of and utilize information intermediaries such as Charity Navigator in making their charitable giving decisions;

This term refers to the policy of removing transactions between component organizations in the consolidated financial statements of an organized comprised of multiple entities. It is done to ensure an accurate accounting of an organization's revenue and expense, as a payment made from one entity to another will show up on each's individual financial statement or tax form but does not reflect an actual source of additional revenue or expense for the consolidated organization as a whole.

For consolidated ratings on Charity Navigator, the pro-forma consolidated 990 used to produce the rating includes an accounting of these intercompany eliminations, in order to ensure that this document, like the consolidated financial statements, does not inaccurately state transactions between component entities as revenue and expense for the consolidated organization as a whole.

Consistent with Generally Accepted Accounting Principles (GAAP), some organizations report a portion of their specific joint costs from combined educational campaigns and fundraising solicitations as program costs (those that follow SOP 98-2 or ASC 958-720-45). The IRS requires that these organizations disclose the allocation on the Form 990. In most cases, but not all, charities utilizing this technique allocate a small percentage of their solicitation costs to program expenses from fundraising expenses.

Donors should have the information they need to make informed giving decisions. Observations demonstrate that in many cases it is simply not clear to donors that their donation may be used for educational/awareness campaigns, as opposed to providing direct services. Our main concern is not that organizations are misreporting joint costs (in fact, they are required to identify some of these costs in their joint costs), rather, that the information is not clearly indicated to the donor.

Therefore, in the analysis of an organization that reports Joint Cost Allocations on their tax return, the process includes reviewing the main programs of the organization (as reported in the return), as well as a review of the organization’s website. In those situations where it is clear to potential donors how their money will be used and that joint cost activities have a role in the charity’s mission, we use the joint cost numbers as they are reported on the tax return (specifically, on page 10, Line 26) in our analysis of that charity’s financial performance. In those where it is not clear, we reallocate the portion of joint costs that is reported as program expenses into the fundraising expenses.

If one of the rated charities on our website reports Joint Cost Allocations, here is what they would need to do in order to receive an exception to our JCA adjustment policy:

• Clearly describe the programs that include the Joint Cost Allocations on the tax return (page 2 of the Core Form)
• On the organization’s website:
  • Describe the activities that include Joint Costs and be very clear about how a donor can typically expect their donation to be spent.
  • Explain the programs and services the charity offers, whether direct services, educational mailings, awareness campaigns etc.

It is important for donors and other stakeholders to know who runs the organization day-to-day. Charity Navigator does not cross-check the leadership listed on the website with that reported on the Form 990 because the latter often isn't available until more than a year after the charity's fiscal year ends. In that time, the charity's leadership may have changed and the charity typically reflects those more recent changes on the website.  In other words, since the Form 990 isn't especially timely, it can not be used to verify the leadership information published on the charity's site.

This is the month and year of the nonprofit’s most recently filed Form 990.

Part of our goal in rating the financial performance of charities is to help donors assess the financial capacity and sustainability of a charity. As do organizations in other sectors, charities must be mindful of their management of total liabilites in relation to their total assets. This ratio is an indicator of an organization’s solvency and or long term sustainability. Dividing a charity's total liabilities by its total assets yields this percentage. 

Making loans to related parties such as key officers, staff, or Board members, is not standard practice in the sector as it may divert the charity's funds away from its charitable mission and can lead to real and perceived conflict-of-interest problems. This practice is discouraged by sector trade groups which point to the Sarbanes-Oxley Act when they call for charities to refrain from making loans to directors and executives. And the IRS is concerned enough with the practice that it requires charities to disclose on their Form 990 any loans to or from current and former officers, directors, trustees, key employees, and other "disqualified persons." Furthermore, some state laws go so far as to prohibit loans to board members and officers. And although employees and trustees are permitted to make loans to charities, this practice can also result in real and/or perceived conflict of interest problems for the charity. Furthermore, it is problematic because it is an indicator that the organization is not financially secure. 

A Low Concern Advisory highlights actions or circumstances that should be regarded with caution due to their nature, seriousness, and scope. These advisories point to questions about best practices and organizational mismanagement, but are not criminal in nature.

A material diversion of assets is any unauthorized conversion or use of the organization's assets other than for the organization's authorized purposes. This includes, but is not limited to, embezzlement or theft. It can also call into question a charity's financial integrity. 

A Moderate Concern CN Advisory highlights allegations being made against a charity or an employee of a charity that have not been confirmed yet, which is why these advisories are of moderate concern. Advisories at this level may also contain some concerns related to the Form 990 and financial audit reporting issues.

Registered name with IRS.

Keep in mind that some organizations actually operate under a DBA (Doing Business As) name. In the not-too-distant future, both the charity’s registered name and DBA name will be provided.

 A diversion of assets – any unauthorized conversion or use of the organization's assets other than for the organization's authorized purposes, including but not limited to embezzlement or theft – can seriously call into question a charity's financial integrity. We check the charity's last two Forms 990 to see if the charity has reported any diversion of assets. If the charity does report a diversion, then we check to see if it complied with the Form 990 instructions by describing what happened and its corrective action. This metric will be assigned to one of the following categories:

• There has been no diversion of assets within the last two years.
• There has been a diversion of assets within the last two years and the charity has used Schedule O on the Form 990 to explain: the nature of the diversion, the amount of money or property involved and the corrective action taken to address the matter. In this situation, we deduct 7 points from the charity's Accountability and Transparency score.
• There has been a diversion of assets within the last two years and the charity's explanation on Schedule O is either non-existent or not sufficient.  In this case, we deduct 15 points from the charity's Accountability and Transparency score.

The National Taxonomy of Exempt Entities (NTEE) is a system developed by the National Center for Charitable Statistics (NCCS) and the Internal Revenue Service (IRS) to classify nonprofit organizations.

We assess three key indicators to determine how well a charity can sustain its efforts over time: average annual growth of program expenses, working capital ratio and the ratio of total liabilities to total assets. We issue a rating in each category, as well as a rating that combines a charity's performance in all three categories.

The compensation paid to Board Directors; persons earning as much or more than the chief executive; former chief executives still on payroll; relatives of key decision makers (such as Board members, founders and officers); and persons holding honorary titles within the organization.

Further, if a charity does not disclose the compensation of the chief executive, we report the compensation paid to the person responsible for running the day-to-day operations of the organization. Also, we list other highly compensated employees who may assume functions traditionally performed by a chief executive officer.

Many charities use fiscal years that differ from the calendar year. In these cases, it is important to recognize that the employees' compensations reported on the Form 990 reflects the employees' pay for the calendar year, not the fiscal year. Why? Because the IRS requires that charities report compensation on the Form 990 exactly the same as they did on the employees' W-2 Form (which is based on the calendar year).

The scale below shows how a charity's overall rating is derived from its overall score.

4-Star: >90
3-Star: 80 to 90
2-Star: 70 to 80
1-Star: 55 to 70
0-Star: < 55

A charity's overall score, on a scale of 0 to 100, is derived by analyzing the charity's (1) Financial Health and (2) Accountability and Transparency performance.  Details on how it is calculated can be found in the Methodology section of the website.

This process indicates that the organization has a documented policy that it follows year after year. The policy should indicate that an objective and independent review process of the CEO's compensation has been conducted which includes benchmarking against comparable organizations. We check to be sure that the charity has reported on its Form 990 its process for determining its CEO pay.

This measure reflects the percent of its total expenses a charity spends on the programs and services it exists to deliver. Dividing a charity's average program expenses by its average total functional expenses yields this percentage. We calculate the charity's average expenses over its three most recent fiscal years.

Providing copies of the Form to the governing body in advance of filing is considered a best practice, as it allows for thorough review by the individuals charged with overseeing the organization. The Form 990 asks the charity to disclose whether or not it has followed this best practice.

If the charity has not  distributed its Form 990 to the board before filing, then we deduct 4 points from its Accountability and Transparency score.

Any combination of gifts, grants, contributions and membership fees from the general public (donors), foundations and corporations. Note: We do not include government funds when discussing public support.

These IRS documents are the sources of the data displayed for the Unrated Organizations on Charity Navigator's site.

Charity Navigator's ratings measure the  financial health and Accountability and Transparencyof charities. We assign every charity ratings ranging from 0- to 4-stars for its Financial Health, Accountability and Transparency, and Overall Rating. Our ratings indicate how well a charity meets industry-accepted standards and how well it compares with the other charities we evaluated.

Such a policy establishes guidelines for handling, backing up, archiving and destruction of documents. These guidelines foster good record keeping procedures that promotes data integrity. Here we are reporting on the existence of a policy as reported by the charity on its Form 990.

If the charity does not have a Records Retention and Destruction Policy, then we deduct 4 points from its Accountability and Transparency score.

This is the month and year on a ruling or determination letter recognizing the organization's exempt tax status.

Codes which define the category under which an organization may be exempt from taxes.

Transparency is an obligation or willingness by a charity to publish and make available critical data about the organization.

This policy outlines procedures for handling employee complaints, as well as a confidential way for employees to report any financial mismanagement.  Here we are reporting on the existence of a policy as reported by the charity on its Form 990.

Determines how long a charity could sustain its level of spending using its net available assets, or working capital, as reported on its most recently filed Form 990. We include in a charity's working capital unrestricted and temporarily restricted net assets, and exclude permanently restricted net assets. Dividing these net available assets in the most recent year by a charity's average total expenses, yields the working capital ratio. We calculate the charity's average total expenses over its three most recent fiscal years.