Robert Moreau
Research Analyst/Outreach
With a desire to donate contrasted by an unsteady economy and an abundance of non-profits and projects, philanthropists want to make sure their money is put to good use. In response to these concerns, sites such as Charity Navigator and GuideStar have surged to prominence and media exposure.
While the increased scrutiny of what organizations do with charitable donations is a positive trend, these evaluators’ exclusive reliance on quantitative financial data says little about how people are helped on the ground, or other important components that make a project worth supporting. Because of this, a merged assessment model emphasizing qualitative as well as quantitative measurements is a better way to evaluate effectiveness.
The Charity Navigator controversy (or “is a Form 990 really THE definitive measure of success?”)
Charity Navigator, online since 2001, describes itself as “America’s premier independent charity evaluator,” which “works to advance a more efficient and responsive philanthropic marketplace by evaluating the financial health of over 5,400 of America’s largest charities.” Its overview/about us section notes accolades received from magazines such as Time, Forbes, and BusinessWeek, as well as its use on cable programs ranging from “The Factor with Bill O’Reilly” to “The Daily Show.”
Charity Navigator ranks charities that are given a tax-exempt 501 c (3) status, through their IRS Form 990’s. Four years of 990 forms are required by Charity Navigator for evaluation purposes.
From Form 990 information, Charity Navigator ranks charities from 4 stars (“exceptional”) to 0 (“exceptionally poor”), evaluating their Organizational Capacity (revenue growth, expenses growth, working capital ratio) and Organizational Efficiency (fundraising efficiency and expenses, program and administrative expenses) to come up with their final score. More information can be found here.
Rated charities can be found in nine broad categories, with their own subcategories: Animals, Environment, International, Arts, Culture, Humanities, Health, Public Benefit, Education, Human Services, and Religion. It also maintains several “Top Ten” charity lists.
The dilemma of rating organizations through financial scales, however, is that they do not necessarily tell the picture of the services they are providing. As the Wall Street Journal explained in its December 19, 2008 article “Charity Rankings Giveth Less Than Meets the Eye”:
“Like stocks, charities are typically rated by their financial numbers or by qualitative characteristics such as corporate governance-or both. Unlike stocks, charities have no single measure akin to a business profit to determine successful performance. There is a widespread search for such a number, but the challenges may be too daunting. Meanwhile, some of the measures that are used may inspire bad actors to try to game the system.”
An April 2007 posting on netsquared.org is far less charitable in the wording of its assessment:
“The cornerstone of the rating is the program expenses divided by total expenses…this may be useful in weeding out the charities that are literally trying to scam you, but it is a backwards way to figuring out who actually helps people as effectively as possible…the quality of your plan is so much more important than the size of your budget.”
The rest of Charity Navigator’s criteria are even more nonsensical. Charities are rewarded for having growing revenues (i.e., good fundraisers) and growing expenses (so apparently finishing a project or reducing costs is a bad thing)…maybe the “fundraising efficiency” metric would have some meaning if ability to raise funds were at all connected to ability to help people…but that’s just the problem. It isn’t, as long as donors have no sources of real information.
The Gates Foundation…wouldn’t rely on this stuff in a million years.”
Indeed, Charity Navigator’s own ranking system is its self-admitted shortfall. Charity CEO Ken Berger was quoted in a January 2009 article in Washington Business Journal as saying “I think what happens is that some people go to the site, they type in the name, they look at the stars, they leave” despite a website blurb explaining that users shouldn’t just take its ratings as the only guide.
Charity Navigator and similar evaluators, in summary, make an honest effort to educate prospective donors about the organizations they may send funds to. But relying on a blank financial statement or statements such as a Form 990 alone does not tell the whole story of how a project is making an impact.
So, after all this, the question can be asked: Is there a better way? Yes, there is…
The GENESIS approach: Integrating Qualitative and Quantitative Assessment
As an innovative social networker for development organizations, the GENESIS Network’s goal is to “[provide] a highly interactive environment wherein organization members, philanthropists, project community members and volunteers communicate and collaborate effectively,” taking advantage of social media technology to promote a more transparent and efficient system of accountability. More specifically, with GENESIS:
- Users can create a customized profile enabling them to actively keep track of projects they support, with tools ranging from regular progress reports to quality assessment ratings from donors, project staff, and third-party monitors.
- Beneficiary pages enable donors to build a connection with the people they are helping.
- All projects are posted online, with all initial information ratings once approved. Regular updates on progress, including changes, successes, failures, etc. are a strong determining factor in assessing a high-quality rating to an initiative.
- Project data includes a clear explanation of finances and where money is allocated, enabling philanthropists to make smart choices about where their donations are going.
Through combining a mix of quantitative and qualitative data, as well as leveraging social media through enabling constant communication between donors, project leaders, and others, the GENESIS Network is actively creating a new standard of assessment and accountability.
For readers: What would you like to see from GENESIS in terms of promoting project accountability? What do you like about what the Network has to offer and where do you think it could improve? Any and all questions and comments are welcome.
Robert Moreau is Research Analyst/Outreach for the GENESIS Network. A 2008 Master’s graduate of the University of Massachusetts Lowell in Regional Economic and Social Development, Moreau has been working for GENESIS since July 2009. His work has included freelance newspaper pieces and a newsletter published for a Lowell-area social services agency in 2008.