Charity Navigator Seeks Feedback Ahead of Changes to Financial Ratings

As Charity Navigator prepares to announce changes to the criteria it uses to evaluate charities’ financial health, the watchdog group is seeking feedback from the groups it evaluates — as well as validation.

On Wednesday, the group sent more than 8,000 charities a questionnaire to help it determine whether revenue growth should be used in evaluating a charity’s financial health, how it should treat overhead costs, and how much importance should be placed on these and other measures.

The six-question survey arrived as Charity Navigator nears the end of a long-term review of its financial ratings system. The process has involved gathering suggestions from a committee of accountants, academics, and charity financial officers.

The goal of the survey is to validate the changes it is considering, says Michael Thatcher, Charity Navigator’s president. He expects the changes, which will go into effect in June, to be well received by charities.

The review process also involved gathering feedback from nonprofits at conferences and through ongoing conversations between the group’s analysts and employees of the nonprofits it rates.

“Our goal is to be representative and to get their voices in,” Mr. Thatcher said. “The more we hear back, the better we can do our job.”

The changes may include:

• Ending the practice of awarding higher marks for revenue growth.
• Altering a rule on overhead so that it’s possible for a group with reasonable administrative expenses to get a perfect score. “We’re trying to show that actually overhead is required” for a charity to operate, says Mr. Thatcher.
• Averaging a charity’s financial information over three years, as opposed to gathering data from only the most recent Form 990 informational tax return, as is currently the case.

Charity Navigator plans to host a webinar to inform charities about how the changes will affect their ratings.