Understanding Charity Navigator’s Rating System

Maintaining the financial vitality of a charity is essential for delivering high-quality programming and services. A combination of effective fundraising, solicitation of government grants, and program service revenue drives stability. However, it also requires an expense management policy. Charitable organizations must ensure too much funding does not go to administrative and other expenses to maintain a strong finance score.

This makes telling the organization’s story in multiple ways through words, imagery, and numbers important. Nonprofit organizing today requires that organizations pay special attention to services like Charity Navigator. Understanding the criteria used to rate organizations is essential—both for current supporters and individual donors seeking top rated, highly impactful nonprofits.

Charity Navigator ratings are vital for any charity navigator nonprofit seeking to build donor trust and demonstrate transparency. What is Charity Navigator? It’s a charity navigator rating system that evaluates accountability & finance, leadership & adaptability, culture & community, and impact & results.

Understanding charity navigator ratings helps nonprofit organizations improve their financial statement audits, manage total revenue effectively, and demonstrate financial health. WhippleWood CPAs summarizes key points below. These insights help clients, prospects, and others navigate the navigator’s ratings and overall rating system.

Rating System Overview

Accountability & Finance

This information evaluates evaluate governance practices and financial health. It identifies transparent, efficient, and sustainable charities. Using information disclosed on IRS Form 990 and other sources, this rating provides information on how organizations operate. It shows how donations are being received.

Key metrics include financial statement audits, board compensation, loans to related parties, whistleblower policies, CEO salary, and more. Financial metrics include the program expense and fundraising expense ratios. Evaluators examine these closely. The charity navigator rating system and charity navigator charity ratings assess the size of the organization and its financial reporting practices.

Organizations should maintain audited financial statements and track sources of revenue carefully. This supports transparency and builds donor confidence through strong ratings.

Leadership & Adaptability

This section evaluates leadership capacity, strategic development, and the ability to adapt to change. Organizations with a focused mission, clear strategic plan, and capable leadership are more likely to adapt. Three metrics are evaluated: strategy, leadership, and adaptability.

Criteria include the mission statement, vision, investment in leadership, and external focus on mobilizing the mission. This information is gathered through details provided on the charity navigator site. Strong charity nav scores in this area demonstrate organizational resilience.

Culture & Community

This section evaluates a charity’s overall culture and connection to the individuals and communities served. Organizations that listen to constituents and leverage collected feedback build and sustain a diverse, inclusive, and equitable workplace.

Engagement is determined by information provided by the charity. This includes the How We Listen and Equity Strategies section of the organization’s profile. The charity navigator vs charity watch comparison often highlights how different rating systems weigh cultural factors.

Impact & Results

This section evaluates the direct impact of programming relative to the costs needed to run them. Publicly available information determines impact. The evaluation assesses how programs have affected people’s lives. It also reviews the ability to meet mission-driven outcomes and cost benchmarking.

Evaluation methods vary by charity type and constituents served. Financial counseling programs measure success through participants’ FICO score increases. Navigator charities ratings in this area show real-world effectiveness. High scores demonstrate tangible community impact.

Donor Evaluation Guidance

Organizations need an Impact & Results or Accountability & Finance score to receive a Charity Navigator rating. The absence of this information does not necessarily mean donors should not consider these charities.

What is charity navigator looking for? To assist donors in evaluating a charity, Charity Navigator has provided guidance on critical areas to review. This includes financial health. Donors can find the needed additional information on the charity’s IRS Form 990.

Program Expenses

Most charities spend at least 70% of expenses directly on programming. This means an organization should not spend more than 30% of total expenses on administration, fundraising, and other areas. Program expenses demonstrate how effectively the organization uses donations.

The charity score and rating score depend heavily on this metric. Organizations should track program expenses carefully and ensure the statement of revenue accurately reflects allocations. This period of time review helps maintain strong charity navigator charity navigator ratings.

Types of Support

To understand the types of support an organization receives, simply look at the Statement of Revenue. The details will indicate what type of support is most heavily relied upon. This may include membership dues, individual donations/contributions, fundraising, program service revenue, and more.

Multiple sources of revenue are ideal. If one source declines, the organization can draw from other sources.

Executive Pay

For most organizations, average CEO compensation is in the low to mid-six figures. To determine executive pay, search for information on the Compensation of Officers, Directors, etc. All organizations must report on IRS Form 990 the CEO’s pay. They must also report any current officers making over $100,000 annually.

High executive pay can be a concern for many potential donors. However, it is important to consider the location, size of the organization, and work performed. The nonprofit rating system accounts for these factors in charity navigator charity ratings evaluations.

Professional Fundraisers

Another critical area to evaluate is professional fundraisers. Does the organization use them? Check Form 990, Part 1, Line 16 to find out. This section provides a breakdown of costs and lists such expenses.

Using professional fundraisers to generate revenue is not necessarily bad. However, watch for red flags.

If the charity spends heavily on outside fundraising with little going towards programming, this is concerning. The fundraising expense ratio directly affects the overall charity navigator rating system score. High fundraising costs lower ratings.

Contact Us

Donations and contributions are essential to fundraising for many organizations. Understanding the rating criteria used by Charity Navigator and individual donors is critical. This knowledge helps you improve your ratings and attract more support.

Have questions about improving your ratings? Need help with:

• Financial statement audits and reporting
• IRS Form 990 compliance
• Charity Navigator rating strategies
• Tax or accounting issues for nonprofits

WhippleWood CPAs can help. For additional information, please call 303-989-7600. We look forward to speaking with you soon.