Charity Begins with a Fiscal Checkup

The Charity Navigator Web site helps you figure out whether a nonprofit has its financial house in order before you make a donation

Especially this year, no one wants to waste charitable contributions on inefficient or unstable groups. So it's fortunate that a Web site has popped up to help figure out which charities have their fiscal houses in order. It's called Charity Navigator, it's free, and, while there's some controversy about it, it's worth your while to check it out at charitynavigator.org.

There, you will see that CN has rated 1,747 of the nation's leading charities. After evaluating several financial measures, CN has awarded each of the charities from zero to four stars. Each also gets its own CN Web page, with its stated mission, plus lots of details about expenses (including the top official's pay), comparisons with peers and links to contact the charities directly. CN also offers searching and screening tools.

Basic data on nonprofits, drawn from the Internal Revenue Service Form 990 that they must file annually, have been freely available online for a few years at guidestar.org. While GuideStar, funded by a group of foundations, covers far more charities, CN stands out by adding free analyses and ratings. John Dugan, chairman of a drug marketing company called PDI, came up with the idea after PDI went public in 1998, and Dugan aimed to step up his giving. Trouble was, he found no handy way to evaluate charities' finances. So, with a $1.5 million grant, he seeded CN. "We don't owe anything to anybody," Dugan said.

Not everyone is entirely happy. What drives CN's ratings are purely quantitative formulas, such as some for working capital, revenue growth, and the part of a charity's budget taken up by overhead costs. CN is "an additional piece to informed giving," said Rich Cowles, executive director of the Charities Review Council, a St. Paul (Minn.) group that evaluates nonprofits in Minnesota. "But it creates a danger because the public wants simple answers, and they're giving a simple answer."

Realities may be more complex. Christine Benninger, executive director of the Humane Society of Santa Clara Valley, a three-star charity in California, said she expects its rating to suffer in coming years as the group shifts its main mission from animal control toward education and adoption. For one thing, its working-capital ratio is certain to fall because it just took $5 million out of its endowment to buy land for a new shelter. And since it will be giving up animal-control contracts with local governments, its revenue growth will also be hit. "Somebody who really doesn't know us will say: `Wow, you've gone from a three-star rating to one star,"' she said. Officials of other charities, including some of the lowest scorers (table), lauded CN's goal but criticized the means as inflexible.

CN's method is so unbending that it won't go beyond data found on the latest Form 990--even to update what it knows is wrong. CN's executive director, Trent Stamp, concedes CN is imperfect and allows there's room for debating better methods. "If [charities] can explain to their donors why we're wrong, and they believe it--great. That creates a dialogue," he said.

In any case, CN already is helping donors. Tim Johnson, domestic capital-markets desk chief at the Federal Reserve Bank of New York, told me he had wanted to donate to a fund focusing on heart disease or stroke. He discovered CN, used it to compare several possibilities, and wound up selecting the American Heart Assn. "It's hard to have a perfect way to rate charities, but because I'm in finance, this made sense to me," he said. "The methodology is transparent, so you can make your own judgment." Before writing checks, it's the least you can do.

By Robert Barker

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