Charity Rating Systems and Nonprofit Evaluators? BUZZ! Wrong Answer.
What is the best way for donors to choose a community-based organization to support?
“Charity Rating Systems”? BUZZ! Wrong answer.
- According to a recent comment by Ken Berger from Charity Navigator, “…60% of all the revenues in the sector go to 2/10ths of 1% of all the 501(c)3s.” Berger says, “That is about 2,000 or so organizations. In addition, about 94% of all revenues go to 6% of them.”
- That means that the vast majority of the nonprofit organizations that are at work in your community won’t show up on ratings or top 10 lists even if they are producing outstanding results. For instance, Charity Navigator only reviews ~5,000 of the ~ 1.1 million charitable nonprofit organizations in the United States. In order to be listed, Charity Navigator requires organizations to have more than $500,000 in public support and total revenue of more than $1,000,000 in the most recent fiscal year.
- Most experts agree that the use of “overhead ratios” as an indicator to guide donors has resulted in a mistaken belief that funding “lean” organizations is a better investment than funding organizations who invest in their infrastructure. Yet, most of the existing nonprofit/charity rating systems are still based, in part, on these ratios, and use of these ratios continues to mislead donors and harm the sector as a whole.
What about “Nonprofit Expert Evaluators”? BUZZ! Also wrong.
- In fact, some so-called “evaluation experts” at a new “independent, nonprofit charity evaluator” have only a few years of work experience within the hedge fund industry and have limited experience within the nonprofit sector.
- This can lead to poor advice and reliance by donors on incorrect and uninformed information. For example, this same new evaluator recommends a specific healthcare organization to donors while at the same time saying it has, “little formal evidence regarding the quality and outcomes” of the organization’s programs and believes that they are outside of a reasonable range of cost-effectiveness.
In fact, most rating systems and expert evaluators do not evaluate actual program outcomes produced by the organizations, but instead look exclusively at financial data that is reported on nonprofit tax returns.
There are better ways to choose a nonprofit or NGO to support.
The data points above are included in Ready to Choose a Community-Based Organization to Support? Look Beyond “Charity Rating Systems” and “Nonprofit Expert Evaluators“, a new “tip sheet” designed to help guide donors to better ways to choose which organizations to support. The document is still in draft form, and is being circulated for public input, review and feedback before finalization. Since Third Sector Connector is committed exclusively to helping local community-based organizations thrive, we’re pleased to be part of the growing group of “Supporters of Effective Community-Based Philanthropy” that created the draft and is seeking feedback at our Facebook Group.
Here are some of the current tips for donors who want to support local community-based organizations that are making a difference:
- Reach out to community leaders. Contact program officers at your local United Way or community foundation and ask them which organizations are doing innovative work in your areas of interest (e.g. arts, basic needs, education, employment, environment, children and youth).
- Review nonprofits’ websites, annual reports, and other materials. Locate information about their visions, missions, goals, and programs. Check their rosters of Board members and directly contact any that you know.
- “Google” the organizations that best match your interests. Get on the Web and look for positive press and discover any concerns that have been publicly raised. Do a general web-based search and also search for recent news.
- Make direct contact with organizations. Once you have a few organizations identified, contact staff leaders and ask to be put in touch with one or two current donors who are giving at the level that you intend to give. Ask them what their experience with stewardship has been. Have they received timely acknowledgments of their support? Do they get updates on how the funds were used? Is the staff team responsive?
- Take a field trip. If possible, visit the programs and services provided by the organization to experience their work directly. If it is a direct service program, speak directly with people who have received services to understand their experiences with the program.
- Look for evidence of community engagement, collaboration and impact. Ask for copies of any public planning documents, results from community surveys, and outcome measurement reports. Contact partner organizations and other community collaborators to ask about their working relationships.
- Ask for a copy of the organization’s most recent budget and financial data. If you are making a substantial gift, consider asking your financial advisor to review it and share any questions or concerns with you.
What would you add to this list or change? Either comment below or join the Supporters of Effective Community-Based Philanthropy Facebook Group, and provide your input there.
Further Reading
My worst nightmare is now true: sloppy ratings of nonprofit effectiveness in Haiti by Gayle Gifford (which catalyzed this current initiative)
Beware The Nonprofit Watchdog – Charity Navigator by Don Griesmann
The Overhead Question: The Future of Nonprofit Assessment and Reporting – A February, 2010 conference call sponsored by NTEN. Get the recording here.
Charity Navigator Fixes Its Compass by Dan Pallotta (make sure and read the comments, too)