CharityWatch Explains Its Rating Process
Jul 27, 2026
What CharityWatch Measures
Ben Kemper: The two main factors that we consider when it comes to issuing a letter grade rating to a charity is, number one, how efficiently are they fundraising? And number two, how much of their money each year is spent on the programs that the organization exists to support.
Charity Financial Reporting Is Not Reliable
Laurie Styron: Competition for donations is fierce and charities are motivated to present their financial information to you in their marketing materials and even in their tax filings in ways that are the most flattering to them.
Charities have wide latitude to use different accounting methodologies to report the same financial activities in wildly different ways. So if you just take the charity’s marketing at face value, or you take its unaudited tax form reporting at face value, in a lot of cases, you’re going to get a lot of misleading information.
We Investigate Until We Uncover The Truth
Ben Kemper: We don’t just stop at the charity’s self-reported annual tax forms.
We make sure to actually reconcile that to their audited financial statements.
If we don’t get the answers that we’re looking for by analyzing those two statements, we actually reach out to the charity listing our concerns and requesting clarification.
Charity Tax Filings Are Not Audited
Laurie Styron: Charity tax filings are not audited and that’s one reason that we look at the audited financial statements which are conducted according to generally accepted auditing standards in the United States, and they’re presented according to generally accepted accounting principles.
Whereas, if you’re just looking at one tax filing, you’re just getting a tiny sliver of the picture. At CharityWatch, we look at how an organization is operating overall.
“Joint Costs” Disguise Fundraising Expenses
One of the biggest adjustments we make is for something called joint costs. Did you know that a charity can spend millions and millions of dollars paying a for-profit professional fundraising company to solicit you? Pay them to fundraise from you? Make telemarketing calls, your phone’s ringing off the hook, send you five or six fundraising letters a month, and all the money they spend on that, a charity is allowed to claim that is program spending instead of fundraising spending because they’re claiming that those letters and telemarketing calls are “educating” you?
And if they’re educating you, well, that’s a program expense according to their logic. But according to our logic and common sense, you as a donor understand you’re not just donating money to a charity so it can spend your donation on more and more fundraising. You’re donating because you want to support the programs the charity is soliciting you for.
Non-Cash Donations
Laurie Styron: One of the other most common adjustments that our analysts make when we’re rating a charity and analyzing its audits and tax filings is for gifts in kind. Most of us when we’re donating to charity, we give cash. But sometimes pharmaceutical companies, for example, that might give a charity $10 million worth of pharmaceuticals.
At CharityWatch, we separate the cash from the non-cash in the financial reporting. A charity can inflate its program spending by overvaluing the donated goods it receives. Our ratings reflect how charities are spending your cash donations.
High Ratings Versus Low Ratings
Ben Kemper: A few differences that we see on a daily basis between highly rated charities and lowly rated charities is easy to follow documentation and financial reporting, fundraising efficiency, and prioritizing their program spending while still balancing how much they have to allocate to all of their other expenses.
Transparency & Accountability Matter
Laurie Styron: They’re also transparent. They want to be accountable to you. They have good governance. They have at least five independent voting members on their governing body.
So, the charities that get failing grades from CharityWatch, they have a few things in common. A lot of the time they don’t have an independent board of directors. You might find a lot of family members on the board.
Charities with failing grades also tend to spend just an inordinate amount on fundraising. And a lot of these charities with failing grades are not very transparent with CharityWatch or with the public in general.
There Is No Cheat Code To Game CharityWatch’s Ratings
Ben Kemper: There’s no cheat code to receiving a great score from us here at CharityWatch. Simply put, a charity needs to have easy to follow documentation and financial reporting. They need to fundraise efficiently. And they need to prioritize program spending while still balancing all of their other expenses.
Laurie Styron: Sometimes there’s a charity that will get a failing grade from CharityWatch and they will take it to heart and they’ll say, “Okay, how do we improve our rating?” And we’re always thrilled when a charity wants to do that.
Fortunately for you, the donor, there’s no way for a charity to game our rating system. If a charity wants to improve its rating, the only way to do that is to actually start operating more efficiently.
Ben Kemper: Ultimately, we don’t simply rely on what a charity self-reports when it comes to determining our score. We make sure that we can reconcile it back to audited financial statements and that it follows our rating methodology.
It’s Not Ultimately About Numbers. It’s About Making A Difference
Laurie Styron: When you come to charitywatch.org and you use our information, you’re really much better positioning yourself to be able to make an informed giving decision.
This isn’t just about numbers.
This is about making a difference in the world together.
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