Brief profiles of different charity watchdog organizations and what you need to be aware of when selecting a charity or charity watchdog.
CHICAGO — In the swirl of the holiday season, consumers can find themselves flooded with pitch letters, phone calls, food drive appeals and donation boxes for what appear to be legitimate charities.
The decision to donate is often made quickly, for emotional reasons or simply because we are asked — not because we know a lot about the organization’s operations and track record.
Few bell ringers, for instance, are ready to tell you how their charity characterizes the value of in-kind donations on its financial filings, how much its CEO makes each year in relation to heads of similar organizations or how effective the charity is at improving the lives of those it serves.
A growing number of resources are designed to help consumers find the answers to such questions. Still, knowing which service to use can be as hard as choosing a charity itself.
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The sites range from the new GiveWell.org, offering a small number of deeply researched charities, to CharityNavigator.org, with thousands of star ratings for nonprofits based largely on self-reported figures.
In between are greatnonprofits.org, which relies on user reviews; Philanthropedia, which polls subject experts; and CharityWatch, which combines reported numbers with analysis and customized investigations. Other resources include the Better Business Bureau, GuideStar.com and the offices of state attorneys general.
Each evaluator offers a slightly different approach (and some combine reviews with other groups’), but all seem to agree that thoroughly evaluating a wide swath of diverse charities — from animal welfare advocates and education groups to international aid organizations and cancer support providers — is a complicated business.
Self-reported financial filings, for instance, can be misrepresented and can require a fair amount of interpretation and further investigation to assess properly. It can be even more difficult to evaluate the true results of the work that the organization is doing.
“That’s what we lovingly call the holy grail,” said Sandra Miniutti of Charity Navigator, which offers reviews of about 5,500 nonprofits on its site. “It’s really a tough nut to crack, but the positive thing about this sector is that when we entered this marketplace in early 2000, nobody was even thinking about rating results.”
To that end, guidestar.org/”>Guidestar.org (an aggregator of information on nonprofits, which recently acquired Philanthropedia and is partnering with greatnonprofits.org) has launched a section of its site called Charting Impact in which organizations are asked to submit information about their goals and accomplishments that will help them and others assess their effectiveness.
For groups that rely on the money of informed donors, this element of the equation may be more important than ever.
“Charities hadn’t been focused on (reporting results), but the whole conversation has changed in recent years,” Miniutti said. “There is a big emphasis on having charities track their results, measure them, make course corrections based on what they’re seeing and provide that information to the public.”
The information can be key in separating effective charities from the rest of the pack as nonprofit numbers grow and donation dollars don’t.
“We have a million-plus charities in America today,” Miniutti said, “and the level of giving doesn’t really change much from year to year, so we have more organizations fighting over the same slice of pie.”
According to Indiana University’s Center on Philanthropy, giving increases slightly around the holiday season. And while it dropped by about 13 percent in 2008 and 2009, it rose again slightly in 2010 and has remained steady in 2011.
Can donors ever really know exactly how effective their dollars will be in changing lives? Daniel Borochoff, president of Chicago-based CharityWatch — formerly the American Institute of Philanthropy — said he thinks that element may always be somewhat elusive.
“Program evaluation is wonderful,” said Borochoff, whose organization is celebrating its 20th anniversary. “It’s just really expensive and hard to do. And we are prisoners of the information that is available. So maybe the best you can do is base it on the track record of groups that have had accomplishments over time and try to make sure their staff and board are credible people.”
Hope Neighbor, founder and CEO of the philanthropy consulting firm Hope Consulting, said she believes that imperfections in results reporting shouldn’t stop watchdogs and charities from trying to make this area more transparent.
“The field has allowed itself to be stymied at that level, saying that because we can’t make comparable evaluations across the whole field, we can’t do anything at all,” she said. “But if 1,000 charities submitted one piece of information (about their results), that would be more than we have today.”
Another area of charity evaluation that is changing is the emphasis on formulas that rate financial efficiency — such as how much of the organization’s budget is spent on programs as opposed to overhead and staff, how much the CEO is paid and how much money is spent on fundraising relative to the amount fundraisers bring in.
Borochoff, whose CharityWatch considers these factors among others in its 500-plus reviews, agrees these figures don’t paint the whole picture but said he still believes they are valuable and that people who want them ignored might have an agenda.
“There is a movement where people say ratios of financial efficiency are of no value,” Borochoff said. “It’s very convenient because a lot of these are fundraising consultants and they want to keep more money themselves. If there are fundraisers who keep 90 percent of the money, I think they would love if people didn’t look at these percentages because they don’t want to be found out.”
Borochoff also criticizes other charity evaluators for what he calls “robo-ratings” that can mislead donors because they lack detailed analysis.
As an example, Borochoff cites low ratings from other groups for a charity called the Intrepid Fallen Heroes Fund, which builds hospitals for injured veterans and hands them over to the Department of Defense. CharityWatch gives the group its highest rating, despite the relatively low percentage of budget spent on program costs, because the expense of building the hospital cannot be placed under program costs. It must be filed as capital outlay until the hospital is finished.
Similarly, CharityWatch gives the Salvation Army very high ratings that are based on the group’s annual financial report. But other evaluators don’t review it at all because, as a religious organization, it’s exempt from filing disclosure forms with the IRS that are required of other nonprofits.
One more emerging area of evaluation includes rating charities on accountability and transparency — whether the organization discloses certain types of information and whether it has protections in place for whistleblowers or against potential conflicts of interest.
Charity Navigator has already added such information to its evaluations. CharityWatch will start soon, Borochoff said, adding that the information is helpful but not 100 percent reliable.
“Merely having a policy is not enough,” he said, “because it may not be implemented well. … Still, on our new website we are going to have checkoffs saying whether or not they have a conflict of interest policy.”
Foundations, grant-giving groups and journalistic organizations all make use of the data on these sites, but operators hope more individual donors also will visit.
“Only about 32 percent of donors research their charitable gifts,” Neighbor said. “And for all of those who haven’t, these sites are a good place to start, especially GuideStar and Charity Navigator.”
To Tim Seiler, director of the Fund Raising School at the Center on Philanthropy at Indiana University, the best guide to donating remains the individual’s passions and values.
“They should think about what they care about the most and who is doing work in that area and whose work they’d like to support,” Seiler said. “I favor making your charitable choices by your own values system and the charities that match them.”
Here are some brief profiles of different charity watchdog organizations:
Charity Navigator (charitynavigator.org): Evaluates about 5,500 nonprofits with starred reviews and helpful, graphic-heavy reports that now include evaluations of transparency and links to similar charities. Reports are based largely on self-reported data. In coming years, Charity Navigator aims to add information on charitable program results. People interested in specific categories can find several Top 10 lists of the best and worst charities. Some aspects of the site are free to all users, while others require registration. The site is supported through charitable donations from large donors and individual users.
CharityWatch (charityWatch.org): Formerly called the American Institute of Philanthropy, this 20-year-old organization performs in-depth analysis of about 550 charities. Questions addressed include possible fraudulent valuation of donations, inappropriate categorizations of program expenses and legitimate reasons for seeming financial inefficiency. Lists of top-rated charities can be viewed free, but the group’s full thrice-yearly reports — which feature updates and investigations into wrongdoing in the industry — require a $3 payment for the first sample and then a $40 to $200 yearly membership fee after that. CharityWatch’s work is supported by individual donations.
GuideStar (guidestar.org): This is less a review site than an aggregator of documents on nearly 2 million nonprofits and charities. While the other sites — at their most basic — calculate a grade or star rating for charities based on financial disclosures, GuideStar offers the raw materials for analysis. It’s most useful to those fluent in the language of Internal Revenue Service forms and other financial documents. Some information is available to all users, some to those who register and some to those who purchase premium subscriptions. Funded primarily by subscription and licensing fees as well as a membership program, grants and contributions.
Philanthropedia (myphilanthropedia.org): Acquired by GuideStar earlier this year, this three-year-old site uses subject experts to recommend 364 charities based on quality of services. Nonprofits span 24 categories, and 20 percent of the lists focus on organizations in the San Francisco Bay Area. Thousands of other nonprofits are also rated, but a review can amount to something as short as four words from an area expert.
GreatNonProfits (greatnonprofits.org): Founded in 2007, this site set out to be a sort of Zagat for charities, relying on user reviews to fuel a database of more than 92,000 reviews (one to five stars) of more than 11,000 nonprofits among a list of nearly 2 million (provided by GuideStar) on the site. This method comes with all the pros and cons of user-generated reviews, including high volume but questions about who is supplying them. The site is funded by a handful of foundations, GuideStar, nonprofits and individual donors.
Better Business Bureau Giving Wise Alliance (bbb.org/us/Charity-Reviews): Includes thousands of local and national charity reports based on a review of 20 standards that include transparency in governance, privacy policies and program spending. Those who meet standards are known as “accredited charities” by the group and are eligible to use BBB’s Charity Seal for fees ranging from $1,000 to $15,000. The database is funded by the BBB’s accredited charities and businesses.
GiveWell (givewell.org): This new site focuses on quality rather than quantity, offering nearly a dozen deeply researched analyses of recommended charities out of hundreds that were initially considered. This isn’t the place to check up on that place you just gave money to — unless you are very lucky — but rather a place for choosy donors to find closely vetted nonprofits.