Sunday, June 2, 2002
Site rates charities on finances Lets donors compare evaluate stability By Bruce Mohl, Globe Staff, 5/28/2002 New Web site is shaking up the world of charities by giving would-be donors a set of tools to evaluate and compare the finances of the nonprofit groups that bombard them with solicitations every year. Using information gleaned from federal tax forms, Charity Navigator (charitynavigator.org) lays out how a charity spends its money, how stable it is financially, and how it compares with similar groups. Nearly two-thirds of the 1,100 charities it has surveyed so far received overall ratings of excellent or good, scores that presumably would give donors some comfort about how their money is being spent. But for the remaining one-third of organizations, the ratings were not so good. In some cases, a rating seemed to raise a red flag. The Firefighters Charitable Foundation of Westerly, R.I., for example, raised nearly $5 million last year. But Charity Navigator's analysis indicates very little of that money went for the charity's stated purpose of aiding victims of fires and disasters. According to the Web site, nearly 87 percent of the $5 million went for fund-raising expenses. Only $555,000, or 11 percent, went for the foundation's actual programs. The foundation received zero stars, a rating of ''exceptionally poor,'' from Charity Navigator. ''That's criminal in my opinion,'' said Trent Stamp, executive director of Charity Navigator. The Firefighters Charitable Foundation did not return a call seeking comment. Of the 33 charities surveyed so far in Massachusetts, 14 received four stars and 13 received three stars, ratings of ''exceptional'' and ''good,'' respectively. Of the remaining six charities, five (Amherst College, Combined Jewish Philanthropies of Greater Boston, the Massachusetts Audubon Society, the Museum of Fine Arts, and the United Way of Massachusetts Bay) received two stars, which means ''needs improvement.'' One charity, Thompson Island Outward Bound, received one star, meaning ''poor'' and ''fails to meet industry standards.'' Charity Navigator is the brainchild of John P. Dugan, a New Jersey businessman who became wealthy running a pharmaceutical sales company and realized there were all sorts of tools to help consumers select a refrigerator, a restaurant, or a college, but few providing guidance on giving money. So Dugan established Charity Navigator, which launched April 15. Its two major rivals are Give.org, an alliance of the Better Business Bureau and the National Charities Information Bureau, and Charitywatch.org, the Web site of the American Institute of Philanthropy. Guidestar.org provides the tax filings of all charities, but no analysis. Charity Navigator analyzes two to three times as many charities as Give.org and Charity Watch and covers more local ones. It differs from its rivals in that it relies exclusively on charity tax filings to generate its ratings, whereas the others also review audited financial statements as well as a charity's policies and procedures. Not everyone agrees with Charity Navigator's approach. Daniel Borochoff, president of the American Institute of Philanthropy, said its reliance on tax filings misses a lot of the nuances of charity finances. He said audited financial statements should be a must-read for any charity evaluator. Borochoff was also critical of Charity Navigator for placing so much emphasis on a charity's revenue growth and reserves. ''They're trying to change the way people give to charities,'' he said. ''They're treating charitable giving like the stock market.'' Stamp of Charity Navigator said his organization decided to rely on tax filings because they are the only documents the government requires all charities to file. He said the filings give charities a lot less latitude in reporting information than audited financial statements. Stamp also defended Charity Navigator's emphasis on a charity's long-term sustainability. He said growth and reserves are important to donors who want to make sure the organizations they are backing will be around in the future. He said the long-term emphasis was warranted in the wake of the downturn in giving to charities with no connection to the Sept. 11 tragedy. The differences in philosophies often yield different grades. For example, the National Children's Cancer Society received an ''F'' from Charity Watch and two stars from Charity Navigator. Give, which doesn't issue grades, said the charity met its standards. Similarly, the World Wildlife Fund met Give's standards while receiving a B-plus from Charitable Watch and two stars from Charity Navigator. Locally, reviews for Charity Navigator varied. Richard C. Allen, who previously ran the Massachusetts attorney general's charities division for 12 years and is now a lawyer at Casner & Edwards, said Charity Navigator appeared to be a helpful tool for consumers. ''With Internet sites like this, donors have more resources than ever before to make informed choices in their giving,'' Allen said. The one-star rating awarded Thompson Island Outward Bound surprised Hilary Lucier, vice president for development. The rating reflected the charity's high administrative expenses, which were 21.6 percent of total expenditures, and that it had only enough working capital to maintain current spending levels for three months. Lucier said the administrative costs were higher because everything used by the organization is ferried out to Thompson Island, an integral part of the Outward Bound experience. She also said the charity's auditors gave it strong financial marks. ''We're very strong. We're very stable. The one-star rating doesn't reflect that,'' Lucier said. The Museum of Fine Arts in Boston, which is embarking on a major fund-raising campaign to revamp its facilities, declined to comment on its two-star rating, which was based primarily on the fact it spends 21 cents to raise each dollar in contributions. A spokeswoman for the United Way of Massachusetts Bay, which received two stars because of relatively weak indicators of financial stability, said she found Charity Navigator's Web site confusing and too reliant on federal tax forms. ''It provides so little detail of what we really do,'' said Carmen Fields. ''That evaluation is cursory compared to the evaluation we do of the organizations we serve.'' An intriguing aspect of Charity Navigator's approach is its ability to compare charities using the same yardstick. Overall, Charity Navigator found the average charity in its database reported $70 million in expenses during the most recent fiscal year, with 81 percent going to the charity's programs, 12 percent for administrative costs, and 7 percent for fundraising. That same average charity reported an 11 percent increase in revenue and a 14 percent increase in program expenditures and had enough working capital to last 2.5 years at current spending levels. The average charity spent 10.3 cents to raise $1 in contributions. The average pay for a charity chief executive was $191,681. The highest-paid executive was the head of the Houston Museum of Fine Arts, who received $2.2 million. Not all charity executives earn big salaries, however. Habitat for Humanity, which took in $156 million in its most recent fiscal year, paid its chief executive just $79,231. Kyle Waide, deputy director of Charity Navigator, emphasized that the ratings provide only a financial assessment of a charity and don't address the importance of its objectives. He urged consumers to use Charity Navigator's reports as part of an overall assessment of a charity. ''Even a poor rating doesn't mean you shouldn't give to a charity,'' he said. ''It just means you should know this before giving to them, so you have all the facts.'' Bruce Mohl can be reached at email@example.com. This story ran on page C1 of the Boston Globe on 5/28/2002. © Copyright 2002 Globe Newspaper Company.