Monday, July 19, 2010

Charity Navigator Expands Rating Methodology

The following article is from our July newsletter. We're publishing it here in case you missed it. If you aren't a Charity Navigator newsletter subscriber, then you can sign up for our free monthly email now.

A major step forward in our efforts to revamp our rating system occurred on July 1st. We went live with the Accountability and Transparency methodology, along with showcasing the new information for one organization that we believe is a role model for the sector (look for more charities to display this data starting in August). Accountability and transparency are frequently used terms in our society that have very broad meanings. These terms can encompass everything that an organization reports on to all of its audiences. In the case of charities, these audiences include donors, clients, Board members, government regulators, and independent evaluators like Charity Navigator, among many others. Our focus in this new element to our rating system is on how the charity reports publicly – both on the IRS 990 and on its web site. We consider in our methodology whether the charity is making easily available, information regarding its governance practices, ethical practices, financial information, effectiveness and results.


At this stage, we are not in a position to make a judgment as to the proof of its self reported information, just whether or not it reports anything at all! Sadly, even this minimal requirement is not met by many charities. The tradition of charities keeping information “close to the vest” continues to be a major problem for the sector. With the addition of this new dimension to our rating system, we have the opportunity to showcase the most open organizations and hopefully encourage those who are more secretive to rethink their approach. How can you make a wise giving decision if information about the organization is unavailable to you? Implicit in all of this is our belief that, if an organization is not “donor friendly” and highly open about its activities and internal practices, it does not warrant your support.

Bear in mind that, although the new dimension has now been launched, it may take many months before it impacts the charities' ratings in our star system. That is because we will not be “flipping the switch” on how the charities are scored until all 5,500 of them have been reviewed with this new element. That is a lot of work! In the meanwhile, as each charity is reviewed for Accountability and Transparency, a new tab will go up on their individual page on our site, showing the details of how the charity performed under our review.

This is the first in a three step process to get us to CN 2.0. We have now added the second of three planned dimensions to our rating system (dimension one – financial health, dimension two – accountability and transparency). The next step is to revisit our financial measures to consider whether or not we need to change the elements we consider and the weighting we place on them. We anticipate completing this step will take us through the fall of this year. The final step will be to add a third dimension to our rating system that considers the proof (not just self reporting) of the effectiveness and results of each charity’s work. We hope to have at least a first prototype of this in place by next year at this time.

Related to all of this, I presented at two conferences recently where I discussed Accountability and Transparency, along with our plans to get to CN 2.0. Click here if you would like to see one of the presentations or have a look at the slides. I hope you find the information helpful.

All of us here on the Board and on staff want to give a heartfelt thanks to all of you who responded to our Spring appeal letter in which we asked for your financial support in getting to CN 2.0. As always, you responded tremendously and boosted our spirits as well!

Finally, we want to give a big thank you to our Advisory Panel and Board of Directors for their thoughtful feedback and support. All of your volunteer assistance was instrumental in the development of the new Accountability / Transparency methodology.

All the best,
Ken Berger
President and CEO
Charity Navigator

2 comments:

Mazarine said...

Thanks for writing about the need for more accountability, transparency and financial health at nonprofits. I'm glad you're basing your ratings on this, rather than on some random measure of overhead. Seriously, it's all overhead.

I wrote a blog post about this that I would love to get your thoughts on
http://www.wildwomanfundraising.com/overhead-head-money/

Mazarine

PS. Would charity navigator be interested in sponsoring our fundraising video game?

Ken Berger said...

Mazarine,

Did you see the earlier blog post titled - The Worst (and Best) Way to Pick a Charity This Year - http://www.kenscommentary.org/2009/12/worst-and-best-way-to-pick-charity-this.html

As to sponsoring a video game, we too are a charity and do not have funds to sponsor stuff. Best of luck in your endeavors though!

Ken