Saturday, July 10, 2010

Charity Navigator Upgrade

One of my favorite resources to check prior to donating to a new charity is Charity Navigator. They rate non-profits on a four-star rating system. Each organization has an overall rating, which is obtained from evaluations of two sub-categories:
  • Organizational Efficiency
  • Organizational Capacity
New Accountability System
This week, though, Charity Navigator announced an upgrade their site involving a new rating system which begins to add a dimension of accountability that has been missing from the existing rating system. Here is a description of the new accountability and transparency system and the factors that will now contribute to their analysis.

The first charity that they've rolled out with this new accountability rating system is Nurse-Family Partnership. Their only negative mark on accountability is that the organization does not post their latest Form 990 (the form that non-profits must file with the federal government) to their website, which is an ethical best practice but not an actual requirement for non-profits.

Issues with Current System
There are still some issues with the current evaluation system, of course, as with any evaluation process. For example, Heifer International has a bit of a hit on the site, having only a three-start rating, in part because:
  • The CEO makes a fairly large salary ($258,246)
  • They spend a large percentage of their budget on fundraising (16%)
  • They don't have a big Working Capital Ratio (they couldn't run off of their savings if donations dried up)
However, when you consider that this charity is a massive international project, requiring a substantial amount of coordination among diverse groups, the CEO's salary doesn't necessarily seem out of line. And they don't have much working capital because the majority of the money is immediately spent on livestock, per the organization's mission. Their expenses are directly linked to the donations, in other words, and if donations dried up, then the purchase of animals would also slow down in proportion. The work of education and the Pass on the Gift program would continue in these cases, but the purchase and distribution of livestock would cut back significantly, so they'd last a lot longer than their current financials would really indicate.

The current rating system doesn't take all of this into account, and there are other issues - some of which are even more important - which have been left out.

Other Non-Profit Vetting Resources
Guidestar - Guidestar's mission: To revolutionize philanthropy and nonprofit practice by providing informaiton that advances transparency, enables users to make better decisions, and encourages charitable giving.

GiveWell - GiveWell attempts to look beyond the financial data, to evaluate organizations on how well they effectively accomplish their mission. I admit, I haven't delved into this site too much. They are, admittedly, fairly strict in their evaluations - of the over-400 charities they have evaluated, only 11 have received any stars in their rating system.

Philanthropedia - Philanthropedia brings together experts in fields such as climate change, education, and microfinance (as well as some San Francisco Bay Area local issues) to evaluate charities seeking to have an impact on these issues. They have created "Expert Mutual Funds" based on these suggestions, which have distributions among the top organizations for each issue. Donations to a fund are split accordingly among the various individual organizations, but you only have to worry about going one place to donate (which also helps keep track of things for tax purposes, if you happen to itemize your deductions).

Other Resources of Note
Charity Navigator Blog
Tonic - Getting the Most Bang for Your Charitable Buck
Newsday - State eyes possible fraud in car donation charities