Charitable organization ratings, rankings and reviews provide potential and current donors with information about organization's financial operations and stability. They inform donors about the charity's spending habits, which, in turn, allow donors to make educated decisions about where to spend their money.
Why Ratings Exist
Ratings of charitable organizations exist to provide the general public with knowledge about a charity's finances. This includes identifying the charity's income, business expenses, amount of money it takes for them to acquire donations, how much money is spent on the cause itself and the length of time the charity could exist without acquiring more donations.
This information tells donors how much of their donation will be used to support the charitable cause and what portion of it will be dedicated to the charity's operating expenses. Additionally, it lets donors know whether the charity is financially unstable and likely to close their doors in the near future. In this case, because the donation may not actually reach the intended recipients, the donor's money might be better spent elsewhere.
Top Rating Agencies and Their Methodologies
There are three main charity watchdog agencies: the American Institute of Philanthropy, Charity Navigator and the Better Business Bureau's Wise Giving Alliance. Although each of the agencies uses a different methodology for rating charities, they all utilize the charity's financial documents, particularly the charity's tax return Form 990, as their information source.
American Institute of Philanthropy
This non-profit organization rates all charitable organizations, regardless of whether they are a 501(c)(3). It assigns letter grades from A-F to charities based on their review. The review is based on the charity's fundraising efficiency, available years of assets and the portion of funds spent on the charitable purpose. Generally, charities spending at least 75 percent of their income on the purpose, using a maximum of $35.00 to raise $100.00 and with at least three years of available assets are given 'A' ratings.
The Charity Rating Guide provides the phone number, financial performance numbers and letter grade for each reviewed charity. Donors are also able to compare charities within the same category.
This online organization rates charities based on their organizational efficiency and capacity. Essentially, it compares how much money the charity raises, how it is spent and whether the charity could potentially increase the amount of donations they receive. Charity Navigator analyzes seven areas of a charity's functioning, including their program expenses, fundraising expenses and fundraising efficiency in their review. It assigns a number ranging from 0-10 to each category. A '0' ranking means that the charity fails to perform the specific task category adequately or at all. The organization usually highly ranks charities that spend between 65 to 75 percent of their operating budget on their cause and no more than twenty cents to raise a dollar.
Better Business Bureau Wise Giving Alliance
This agency only rates 501(c)(3) charities. It requires that charities meet a minimum of 20 standards before designating it as a "BBB Accredited Charity." Charities not meeting the 20 standards are not accredited. The Alliance's standards include spending at least 65 percent of total expenses on program activities, no more than 35 percent of donations on fundraising activities and having no more three years of financial resources in reserve.
First-Person Charitable Reviewing
Inside Good allows charitable organization employees, volunteers and donors to review and rate charities with which they have personally interacted. Reviewers are allowed to write a short description of their experience and rate the charity from one to five stars. Users can read the rankings and reviews for free.
How to Find a Particular Rating
Each of the charity watchdogs allow donors to search for a particular charitable organization's ratings on their websites. Alternatively, donors can search for charities within a particular genre, enabling them to find a highly-ranked charity within their interest to donate to.
Prior to donating to a specific charity, review their ratings with at least two of the three watchdog groups. A charity with low rankings indicates that it is not spending its funds wisely. In this circumstance, consider donating to a different charity concerned with the same cause, but with higher rankings. Doing so will ensure that your donation will be put to its best use.