Charity Navigator Announces Changes to Its Ratings System

In an effort to provide a more accurate picture of how a charity performs over time, Charity Navigator is changing the way it rates nonprofits, the New York Times reports.

Based on an analysis by Charity Navigator staff in collaboration with a task force of financial experts from the nonprofit sector, starting Wednesday the popular charity-rating website will adjust the way it assesses a nonprofit's long-term financial health. Going forward, for example, it will calculate its rating of a nonprofit's program, administrative, and fundraising costs by averaging data from the organization's three most recent fiscal years, instead of the most recent fiscal year. The site also will drop a measure of primary revenue growth that it decided was less than relevant and will add a measure that takes into account the ratio of a charity's liabilities to assets.

The site also has tweaked the way it evaluates a charity's administrative expenses. Under the current system, only charities with zero overhead expenses can earn a top score of "10," while under the new system charities can score a "10" if they score within a given range for their type of organization. The change will make it easier for charities to avoid having to "starve themselves" so as not to appear as if they are spending excessively on overhead, said Elizabeth A.M. Searing, an assistant professor at the Rockefeller College of Public Affairs & Policy at the University of Albany and a member of the task force.

The Times also reports that nearly three-quarters of charities on the site will see no change in their overall ratings under the revised system, while about 19 percent will see their ratings go up and 8 percent will see them revised lower. The way a nonprofit's "accountability and transparency" is calculated and the zero- to four-star scale for a nonprofit's overall rating will remain unchanged.

The revised system means donors "can have even greater confidence in the financial health of the charities they choose to support," said Charity Navigator president and CEO Michael Thatcher. Still, added Thatcher, "[t]here's always going to be someone who's unhappy."

"Charity Navigator Tweaks Its Rating System." New York Times 05/27/2016.