Report Urges Charity-Watchdog Groups to Improve Rating Methods

Charity watchdogs and other groups that evaluate nonprofit organizations are confusing donors by using conflicting standards and relying on “overly simplistic” criteria, according to a new report.

The report — by the National Council of Nonprofit Associations and the National Human Services Assembly, both in Washington — noted differences in standards by five nonprofit evaluators. Such discrepancies in rating systems can “cause more harm than good,” the report stated.

The study examined three charity watchdog groups — the American Institute of Philanthropy, in Chicago; the Better Business Bureau’s Wise Giving Alliance, in Arlington, Va.; and Charity Navigator, in Mahwah, N.J. In addition, it looked at the Combined Federal Campaign, which is run by the federal Office of Personnel Management, in Washington; and the Standards for Excellence Institute, in Baltimore. The Combined Federal Campaign requires charities to meet standards to participate in its efforts to raise money from federal employees, while the Standards for Excellence Institute, established by the Maryland Association of Nonprofit Organizations, invites charities to voluntarily submit to a comprehensive review of their operations and apply for a “seal of excellence” accreditation.

Varying Approaches

The report said it was troubling that the same organization could do well under one set of ratings but be found lacking based on another evaluator’s criteria. “In the worst-case scenario, donors could withhold vital contributions from a worthy organization based on inaccurate, incomplete, or misunderstood information they received from an evaluator,” according to the report.

For example, Charity Navigator gives its highest ratings to nonprofit groups with large reserves, while the American Institute of Philanthropy gives its top rankings to groups that save a small share of their funds and spend more on programs.

In addition, while the Wise Giving Alliance and the standards institute closely examine governance practices, such as how involved a group’s board members are, Charity Navigator and the federal campaign ignore those issues.

The report says charity evaluators should state the limits of their assessments and develop methods to measure ethical fund-raising practices, a charity’s effectiveness, and other issues donors are concerned about — but that the groups do not rate.

Trent Stamp, executive director of Charity Navigator, said in an e-mail message that he appreciated the report’s findings, but questioned its value. “There are 684 breast-cancer-related charities in this country feverishly fighting over donor dollars for the exact same cause, with similar names and identical agendas,” he said. “But the groups’ real concern is that donors might get confused by having to decide which of the three main charity ratings groups best matches their interests?”

The report, “Rating the Raters,” is available free on the National Council of Nonprofit Associations’ Web site, at http://www.ncna.org (under Features), or may be obtained by contacting the council at NCNA Publications, 1030 15th Street, N.W., Suite 870, Washington, D.C. 20005; (202) 962-0322.