Which Is the Best Charity Rating Organization?
Nov 22, 2024
CharityWatch is often asked why we are unable to rate thousands of charities. A fair question given that there are online databases that do provide ratings for a significant number of charities.
The short answer is that CharityWatch respects donors and prioritizes providing high quality information over publishing the largest volume of information possible. Our goal is to provide donors with the information you need to make truly informed giving decisions so that the donations you make are not wasted and are spent on the programs you are intending to support.
Nonprofit trade associations that publish large, online databases of charity ratings or transparency seals rely on two primary methods for rating charities:
Automation: To compute charity program percentages, some raters use automation to pull numbers from fields of a charity’s tax filing and divide its self-reported program spending by its total reported expenses. The problem?
The reliability of automated ratings is only as good as the quality of the underlying data used to compute them. In other words, garbage in, garbage out. Charity ratings based on automated methods that mine ata from charities’ unaudited tax filings may be unreliable for four primary reasons:
(1) Accuracy: They don’t account for reporting errors, which are common. Charity tax filings are self-reported documents. The reporting is not subjected to Generally Accepted Auditing Standards (GAAS) and is not required to be presented according to Generally Accepted Accounting Principles (GAAP). As a result, unflattering information may be omitted from a tax filing altogether, or information may be reported in the wrong lines or columns, distorting how efficiently a nonprofit is operating.
(2) Consistency: Charities may report the same financial activities in wildly different ways from one reporting year to the next without violating any IRS or audit reporting rules, or without any violations that do exist being caught. Some change their reporting methods just to look better to donors. Even if a charity has not improved its operating efficiency, it can make itself look more efficient in automated charity rating databases by simply changing how it reports certain activities, such as fundraising.
(3) Comparability: Similarly, because IRS and audit reporting rules allow charities a lot of freedom to report similar activities, such as fundraising, in wildly different ways, one charity can appear to be operating vastly more efficiently than another. This is not because it is actually more efficient, but rather because it is intentionally reporting its financial activities in more flattering ways than other charities. Charities that are more honest or conservative in their financial reporting may be punished in the form of lower ratings simply for being more forthcoming than other charities about how efficiently they are operating.
(4) Completeness: Charities, especially larger ones, may operate more than one related legal entity, often with financial transactions flowing among them. Any single charity tax filing generally contains the financial activities of one legal entity. Meaning, charity raters that pull numbers from the individual tax filings of charities may be disregarding significant fundraising and overhead costs absorbed by a charity’s related legal entities or may be counting the contributions a charity receives from itself (transferred from one legal entity to another) when computing its fundraising efficiency.
Crowdsourcing:
Crowdsourcing websites don’t use financial metrics such as program spending ratios to determine if a charity deserves a high rating or transparency seal. They are typically based on self-assessments; a charity logs in to an online profile and is rewarded for adding information to it. In other cases crowdsourced ratings are based on online reviews posted by people who may work at the charity or have some other personal involvement with it that incentivizes them to rate the organization favorably.
Even independent, honest reviews are based on anecdotal examples of a person having a good experience, not on how much a charity will spend on overhead or fundraising salaries. CharityWatch has identified many charities with excellent reviews on crowdsourcing sites that spend 35% or less of their expenses on legitimate programs.
F-Rated Charities Receive Top Ratings & Seals
CharityWatch has identified many F-rated charities that receive top ratings and seals from other raters; Charity Navigator and Candid, respectively.
| Charity Name | CW Rating | Fiscal Year | CN Rating | “Data Up Until” Fiscal Year | Candid Seal | Candid Seal Calendar Year |
| AdoptaPlatoon Soldier Support Effort | F | 2022 | 3-Star | 2022 | None | N/A |
| AMVETS National Service Foundation | F | 2023 | 4-Star | 2023 | None | N/A |
| Gaia-Movement Living Earth Green World Action USA | F | 2022 | 4-Star | 2022 | None | N/A |
| Homes for Veterans | F | 2023 | 4-Star | 2023 | Platinum | 2024 |
| Judicial Watch | F | 2022 | 3-Star | 2022 | None | N/A |
| Law Enforcement Legal Defense Fund | F | 2023 | 4-Star | 2023 | Platinum | 2023 |
| Mutts With A Mission | F | 2022 | 3-Star | 2022 | Silver | 2022 |
| National Children’s Cancer Society | F | 2023 | 4-Star | 2023 | Platinum | 2023 |
| Paralyzed Veterans of America | F | 2023 | 3-Star | 2023 | Platinum | 2024 |
| Pilots To The Rescue | F | 2022 | 3-Star | 2022 | Platinum | 2024 |
| Planet Aid | F | 2022 | 3-Star | 2022 | None | N/A |
| SPCA International (SPCAI) | F | 2023 | 3-Star | 2023 | Platinum | 2024 |
| United Breast Cancer Foundation | F | 2022 | 4-Star | 2022 | Platinum | 2024 |
The above chart contains select examples of charities to which CharityWatch has assigned “F” grades as of 10/7/2024. See Our Process for more information about how CharityWatch’s grades are calculated. Charity Navigator’s ratings and Candid’s seals were retrieved from those websites between 9/10/2024 and 9/23/2024 and reflect each charity’s current rating or transparency seal as of the date retrieved. Visit charitywatch.org, charitynavigator.org and guidestar.org to view the most current ratings and profiles published on each website.
CharityWatch’s analysts are degreed accountants who perform in-depth evaluations of complex charity financial reporting, including consolidated or single audited financial statements, the tax forms of the legal entities included in those statements, annual reports, state fundraising filings, and other documents that may be needed in order to perform a meaningful evaluation. Once our analysis of a charity is complete and any required adjustments are made, we perform two end calculations, then assign the charity a letter grade efficiency rating on an A+ to F scale. The results of these end calculations include:
Program % reflects the percent of total expenses a charity spent on its programs in the year analyzed. For example, a Program % of 80% means that the charity spent 80% of its expenses on charitable programs. The remaining 20% was spent on overhead, which includes fundraising, and management & general.
Cost to Raise $100 reflects how much it cost the charity to bring in each $100 of cash donations from the public in the year analyzed. For example, a Cost to Raise $100 of $20 means that the charity spent $20 on fundraising for each $100 of cash donations it raised.
CharityWatch considers a charity to be highly efficient when our end calculations produce a Program % of 75% or greater and a Cost to Raise $100 of $25 or less. See our Top-Rated charities page for our list of highly efficient charities that have also met our benchmarks for governance and transparency. Donors may view each charity’s individual profile pages to view a specific charity’s financial efficiency ratios and letter grade rating.
Financial Efficiency Matters
A charity’s ability to keep its fundraising and other overhead expenses reasonable is what determines how much of your contribution will be available to fund the charitable programs you are intending to support with your donations.
Scale
The below scale does not reflect program or fundraising ratios calculated using a charity’s self-reported numbers from its tax form, audit, or other documents. Rather, the ratios reflect the results of the two end calculations CharityWatch analysts make for Program % and Cost to Raise $100 after our in-depth financial analysis is complete and any necessary adjustments are made to a charity’s reported figures.
Program % | Cost to Raise $100 | Efficiency Rating |
90-100% | $0 – 4 | A+ |
80 – 89% | $5 – 11 | A |
75 – 79% | $12 – 15 | A- |
72 – 74% | $16 – 19 | B+ |
68 – 71% | $20 – 26 | B |
65 – 67% | $27 – 30 | B- |
61 – 64% | $31 – 33 | C+ |
56 – 60% | $34 – 37 | C |
50 – 55% | $38 – 40 | C- |
36 – 49% | $41 – 59 | D |
0 – 35% | $60 – 100 | F |
A range = Excellent |
B range = Good |
C range = Satisfactory / Average |
D = Unsatisfactory / Poor |
F = Failing |
? = Nondisclosure or Specific Concerns |
NR = Not Ratable* |
[*Not Ratable does not imply a positive or negative rating. CharityWatch may be unable to rate a particular nonprofit due to how it is structured and/or funded, or because it is going through significant operational changes or restructuring. In other cases, CharityWatch designates an organization as “NR” because it is composed of hundreds of local chapters or affiliates, each of which is governed by local volunteers who primarily raise and spend money in their own, respective communities, and for which no consolidated financial audit is published by the organization (e.g., United Way, Volunteers of America, and Jewish Federations of North America).]
Treatment of In-Kind (Non-Cash) Donations of Goods and Services
Some non-profit organizations receive large donations of non-cash goods and services, which they are responsible for valuing themselves. The dollar value a charity assigns to its non-cash donations is then mixed together with its cash revenue and expenses in its financial reporting. This often has the effect of making the nonprofit appear to be larger and operating more efficiently than it actually is. Accounting rules offer only very general guidance about how charities are required to value non-cash donations, and different charities often assign very different values to the same items. Such inconsistencies in the reporting make it difficult to compare the financial efficiency of different non-profit organizations.
CharityWatch analysts “follow the cash” by separating a charity’s cash revenue and expenses from the non-cash goods and services it receives so that we can tell donors how efficiently their cash donations to a charity will be used.
Treatment of Direct Mail, Telemarketing, and Other “Joint Cost” Solicitation Expenses
Under current accounting rules (FASB ASC 958-720; formerly AICPA SOP 98-2), a charity that includes an “action step” in its phone or mail solicitations, such as “don’t drink and drive” or “buckle your seatbelt,” can claim that it is “educating” the public, and can therefore report much of the cost of these appeals as a program expense, rather than a fundraising expense, in its financial reporting.
Such “action steps” are typically relayed to potential donors through for-profit professional fundraising companies hired by charities to broadly solicit the public for donations. The “educational” component is often information that is common knowledge, or that could otherwise be distributed to the public using a method far more efficient and targeted than fundraising solicitations.
Professional telemarketers, on average, keep two-thirds of the money they raise before the charity receives anything. What this means is that someone donating $50 to charity through a professional fundraiser may have just paid over $30 to be solicited and “learn” that they should buckle their seatbelt.
When a charity claims that it spends “85% on programs,” many donors do not realize that this 85% may include money the charity spends on activities such as telemarketing, direct mail solicitations, and consulting or other fees paid to professional fundraising companies. While accounting rules allow charities to report certain portions of their solicitation costs as program expenses, CharityWatch believes that most donors do not consider a charity’s joint solicitation/educational activities to be equivalent to the purely programmatic activities they are intending to support with their donations; e.g., sheltering and feeding the homeless, assisting injured veterans, conducting literacy programs, funding cancer research, etc.
For this reason, during our financial analysis CharityWatch adjusts such solicitation expenses out of reported program expenses and adds them to fundraising prior to calculating a charity’s efficiency ratios and letter grade rating. Activities that are purely educational and do not contain a fundraising component are not “joint costs” and are included in a charity’s reported program spending. CharityWatch treats expenses spent on purely educational activities as legitimate programs and does not reallocate them to fundraising when making our efficiency calculations.
Donors who agree with CharityWatch’s treatment of “joint costs” should refer to the program and fundraising efficiency ratios displayed in the pie charts on the Rating & Metrics section of its profile page on charitywatch.org. Donors who consider direct mail, telemarketing, and other joint cost solicitations to be true charitable programs should instead refer to the unadjusted efficiency ratios provided under the “Joint Costs” header of the Rating & Metrics section.
Giving is a fixed pie, remaining steady at about 2% of gross domestic product (GDP) since the mid-twentieth century. Because charitable dollars are limited and society’s needs are not, it is vital that charities do not hoard the funds they raise. When a charity sets aside excessive funds for possible, future needs that may or may not ever occur, this necessarily makes these funds unavailable for other charities to use to address more urgent needs. Charities that hoard donations are in some cases ignoring the intentions of donors who contributed in response to a solicitation for a charity’s current programs, not programs that might be conducted five, eight, or even ten years or more in the future.
CharityWatch believes it is reasonable for a charity to set aside less than three years’ worth its annual budget for financial stability and possible future needs. When a charity’s available assets in reserve exceeds three years’ worth its annual budget, CharityWatch downgrades its final letter grade rating. However, we continue to show what a charity’s efficiency rating was prior to being downgraded for those donors who do not wish to factor a charity’s high assets into their giving decisions.
CharityWatch’s computation of available assets is not as simple as dividing a charity’s net fund balance by its total operating budget. Rather, we conduct a review of a charity’s tax Form 990 and Audit balance sheets and prior to performing our end calculation of available assets, subtract out items such as the equity in Land, Buildings, and Equipment used in operations; Construction in Progress; Permanently Restricted Funds; Accounts Receivable due in greater than five years, and assets that a charity is prohibited by an outside party from using. We do not subtract out Cash, Investments, Board-Restricted, and other funds that the charity could use if it chose to do so. We also review audit notes for information related to assets, such as imminent and specific plans for large, capital outlays for which the charity is holding funds in reserve, or to see if the charity received an unusually large donation during the fiscal year that it would not reasonably be able to spend by the end of the fiscal period.
A charity’s Years of Available Assets reflects how many years a charity could continue to operate at current spending levels without raising any additional contributions or other revenues. Read our article Don’t Judge a Not-For-Profit by its Profits for factors to consider when assessing a charity’s financial stability.
See our High Asset Chart to view charities whose grades have been reduced due to High Assets.
Types of Non-Profits and Impact on Rating Calculations
There are nearly two dozen different types of nonprofit organizations under the IRS tax code, each with its own set of rules and reporting requirements based on how the organization is structured, its membership, the activities it conducts, population it serves, and other factors. CharityWatch primarily rates 501(c)3 public charities. We also rate some 501(c)4, 501(c)19, and other types of organizations, but generally only do so when such groups broadly solicit the public for donations.
CharityWatch provides general information describing some of the basic differences between 501(c)3, 501(c)4, and 501(c)19 nonprofit organizations in our section on Tax Status. For a comprehensive understanding of the different tax rules and reporting requirements of each different type of nonprofit organization, visit the IRS’s website, or seek specific advice from your accountant. To confirm a charity’s tax status and whether or not donations to a particular organization are tax-deductible, contact the charity directly and visit the IRS’s searchable database.
Because donations to 501(c)4 organizations are not tax-deductible, such organizations often must spend more on fundraising than 501(c)3 public charities to raise the same level of contributions. Due to this and other accounting differences, the letter grade ratings of these non-profits trend lower. See our article Sorting Out Nonprofit Pairs for information about related 501(c)3 and 501(c)4 organizations.
Exception for Social Welfare 501(c)4 organizations: The mailings and phone calls of social welfare organizations that are not eligible to receive tax-deductible contributions may serve a dual purpose: raising funds and recruiting/educating members to write their congressperson or to make other attempts to influence legislation. Many organizations report most or all of the expenses related to such activities as program expenses. Because such mailings and phone calls do contain a fundraising component, CharityWatch believes a portion should be counted as a fundraising expense. In our computation of a 501(c)4 organization’s program efficiency ratio, we count up to 30% of the cost of such mailings and phone calls as a program expense. Amounts allocated to program exceeding 30% are reallocated to fundraising. The results of this adjustment are included in the pie charts located on an organization’s Rating & Metrics section. To view data without these adjustments, refer to the ratios provided under the “Joint Costs” header of the organization’s Rating & Metrics section of its profie page. (See also Joint Costs)
Treatment of Related Organizations
Many of the groups rated by CharityWatch are single-entity organizations that publish one audit and one tax form. However, other organizations are more complex and publish combined or consolidated audited financial statements that may include a national office, local affiliates, and/or several related organizations. It is generally not enough to analyze and publish a rating based on only one entity of an organization that has multiple, related entities. This is because some charities use one entity primarily to raise funds and pay overhead costs, then grant funds to another, related entity whose activities include primarily programs. Calculating separate program and fundraising efficiency ratios for the two, related charities would make the fundraising entity appear to be highly inefficient, and the entity conducting the charity’s programs highly efficient. To understand whether or not the resources of a charity are being used efficiently on the whole, the finances of the two related entities must be analyzed together. This is accomplished by analyzing the charity’s consolidated or combined audit in conjunction with the tax Form 990 of each related entity.
In other instances, one entity of a charity may be holding excessive assets in reserve while another related charity “cries poor” in an effort to raise funds from donors more easily. Clearly, evaluating only one or the other entity of such an organization does not provide donors with a complete picture of the total resources a charity controls.
Under Generally Accepted Accounting Principles (GAAP), an organization is required to issue consolidated audited financial statements that include its multiple, related entities if the reporting entity has sufficient control over the others. In cases where a charity has related entities but is not required to issue a consolidated audit, it may or may not be possible to make certain adjustments depending on whether the related organizations share the same fiscal year-end date, and other factors.
Whenever practicable, CharityWatch obtains consolidated/combined audited financial statements that include all of the entities of a nonprofit. Such an audit eliminates related party transactions between/among related organizations and allows us to determine how efficiently an organization is operating on the whole. In cases where we rate only the larger entity of an organization with multiple, related groups, we make certain adjustments during our analysis so that a charity’s grade is not artificially inflated. For example, since a charity does not expend fundraising dollars to receive contributions from itself (or one of its related organizations), we generally subtract related party grants from our contributions figure before performing our calculation of its Cost to Raise $100.
CharityWatch issues separate ratings for 501(c)4 organizations, even when its financial activities are included in an organization’s consolidated/combined audit, due to the different tax treatment by the IRS of these types of organizations.
Conclusion
It is up to each individual donor to decide which charity rating organization is the best for helping them make informed giving decisions. Whichever rater you rely on, CharityWatch encourages you to understand the rater’s process, its independence, and the reliability of the underlying data it uses to compute its ratios. To view information about two other resources that publish high quality charity information, please see our Resources page.