Tuesday, September 27, 2016
Wednesday, September 21, 2016
America has more than 1.57 million tax-exempt organizations. That makes us home to the largest nonprofit sector in the history of mankind! But not all of these are technically charities. In fact, the nonprofit tax code encompasses more than 30 different types of organizations including: charities, private foundations, credit unions, fraternal associations, and teachers’ retirement fund associations. At a high level, the breakdown of these different nonprofits is as follows:
- 1,097,689 public charities
- 105,030 private foundations
- 368,337 are other types of nonprofits
- We only evaluate organizations granted tax-exempt status under section 501(c) (3) of the Internal Revenue Code and that file a full Form 990. 501(c) (3) organizations are considered public charities and all donations to them are tax-exempt.
- We do not evaluate 501(c) (4) organizations, like the ACLU. In general, 501(c) (4) organizations are allowed to spend a substantial portion of their revenue on lobbying our government and not every donation to them is tax-deductible. However, these groups sometimes establish an affiliated 501(c) (3), like the ACLU Foundation, which we may be able to rate.
- We do not evaluate private foundations. Private foundations, like the Bill & Melinda Gates Foundation, Donald J Trump Foundation and Ford Foundation, receive the majority of their money from only one individual, family or corporation. This differs from the public charities that Charity Navigator evaluates. Public charities have a broad-base of support from the general public as well as variety of other funding sources. The IRS requires that private foundations file a Form 990-PF which differs from the document public charities file. This makes it impossible for us to compare the financial performance of private foundations to public charities.
So, what does all of this mean to donors?
- There are literally a million choices for donations. Make sure you take the time to vet your options and support only those high-performing charities that exactly match your specific philanthropic interests.
- As part of due diligence before donating, be sure to look up the organization’s classification under the tax-exempt listings. And if you want to deduct your generosity from your next tax return, then make sure you are only giving to nonprofits that are classified as 501(c) (3) public charities (every rated organization on Charity Navigator’s website meets this criteria).
Tuesday, September 20, 2016
Now that summer is over, it is time to get used to the regularity of early mornings, long work days, and the consistent grind of what is always a lengthy and eventful school year. For teachers, this means they must solidify their classroom settings, how they will run their class, and what their necessary resources will be in regards to such.
Many teachers have shifted towards education campaigns via online crowdfunding sites, as well as charities like DonorsChoose, as a method of receiving funding for their classrooms. The funds received generally go towards school supplies ranging from laptops and classroom equipment, to cleaning supplies, all of which are sometimes tough to attain due to tight classroom budgets. DonorsChoose has had over 50,000 campaigns during the latest back to school season, all of which are funding campaigns for school projects.
Online fundraising has gained extreme popularity over recent years, and there is only expectations for additional growth. If you would like to donate to DonorsChoose or any other 3 or 4 star youth education program and service charities, it is as simple as clicking their page link below and donating through our Giving Basket.
2. Check for evidence of the charity's commitment to accountability and transparency
The best charities are transparent and accountable to the public. You should be able to see evidence of this in the information they provide on their web site. Can you readily find information about the charity's staff and Board of Directors? Did the charity publish its financial information such as its most recently filed Form 990 or audit?
Read the news
Check the charity's recent media coverage through Google news or another similar service to see if the charity has been involved in any questionable practices.
Look at pages 3-6 to see if the charity is committed to best practices. For example, does it have a conflict of interest policy? Does it have a whistleblower policy? Does it have a process for setting the CEO's pay?
See last week's blog post for Part 1 and visit our blog next Tuesday for part 3.
Tuesday, September 13, 2016
Although Charity Navigator rates more organizations than anyone else in America has ever attempted, we still receive requests to rate additional charities. The truth is that we've already evaluated the majority of the organizations that meet our criteria, but we do realize there are many worthy organizations that we do not currently evaluate. That’s why we’ve created this quick guide to help donors do their own due diligence on the charities seeking their support. While there are many more factors that go into a complete Charity Navigator evaluation (see our Methodology), we’ve pulled some simple, easy-to-find facts that will help you decide which charities deserve your contributions.
A note before you start:
Charities are required to submit an annual Form 990 with the IRS. This document provides information about a charity's finances and governance practices. This guide to evaluating charities not currently rated by us uses the Form 990 (just as we do in our complete evaluations) to review certain elements of a charity’s performance. So, the first thing you need to do is to locate the charity's profile page on our site and scroll to the bottom of the page. There you'll see links to the charity's Form 990 (you will need to complete a free registration process and log into the site for the links to function). Simply click on the charity's most recently filed Form 990 and keep it open while you follow the steps below.
There are three main things to look at when evaluating a charity:
- Financial health of the organization
- Accountability and transparency
1. Examine the charity's financial health(Starting in 2008, the IRS introduced a new design for the Form 990. If you need to examine an older version of the Form 990, you can find the information at the bottom of each paragraph.)
Program Expenses: The majority of charities listed on our site - seven out of ten non profits - spend at least 75%of their expenses directly on their programs. That means the organization should spend no more than 25% of their total expenses on administrative overhead and fundraising costs combined. To determine the percentage going to programs for the charity you are reviewing, scroll to page 10 (Statement of Functional Expenses), find Line 25 (total functional expenses). Divide column B (program services) by column A (total expenses) then multiply by 100. The resulting figure is the percentage that organization is spending directly on their programs and services. For a more detailed break out of the program expenses, review the "Statement of Program Service Accomplishments" located on Page 2, Part III.
(For an older version of the Form 990: To determine the percentage going to programs, take the amount on page 1, line 13 (Program Service Expenses) and divide that by the Total Expenses listed on line 17. Statement of Program and Service Accomplishments' is located on Page 3, Part III)
Executive Pay: Our research - based on the analysis of thousands of mid to large charities in America - shows that the average CEO compensation is about $130,000 annually. On page 7 of the Form 990 (Compensation of Officers, Directors, etc.) organizations are required to report the CEO's pay and any current officers making over $100,000 annually. As you examine salaries, keep in mind that a variety of factors impact pay including geographic location, size of the organization, and type of work performed.
(For an older version of the Form 990, you can review the CEO's compensation on Page 5, Part V-A or Schedule A, Page 1.)
Growth of Program Expenses: Determine if the charity you are considering supporting is expanding or shrinking over time. You can quickly do this by comparing the Total Program Expenses- page 10, line 25B of the current year with the prior year(s). While the growth doesn't need to be dramatic, charities that are shrinking are very likely cutting the very programs that you want to support.
(For an older version of the Form 990, you can locate Total Program Expenses on page 2, line 44B.)
- Professional Fundraisers: If a nonprofit uses a professional fundraiser, then be aware that part of your donation (usually a considerable amount) will go to that for-profit fundraising firm and not to the charitable programs/services that you intend your donation to fund. You can determine if a charity uses professional fundraisers by examining the charity's Form 990 in Part I, line 16a, column b and in Schedule G (which offers a more detailed breakdown). If the charity is spending a lot on outside fundraising firms with little going towards its charitable mission, then you may want to look for another charity to support. For more information on this topic, see our tips for What To Do When A Charity Calls and our Top 10 list of Charities Overpaying their For-Profit Fundraisers.
- Fundraising Costs Allocated to Program Costs: Joint costs, reported in Part IX, line 26, refer to activities that combine educational campaigns with fundraising. Joint costs can disguise a charity’s true fundraising costs and inflate its programs. You can see the amount of joint costs in a nonprofit's program expenses by dividing line 26, column b by line 25, column b (total program expenses). You may want to consider supporting another charity if this ratio is high.
Types of Support: Take a look at lines 1a through 1g (on page 9, "Statement of Revenue") to learn about a charity's funding sources. Some charities rely heavily on membership dues (line 1b), or government support (line 1e) while others survive almost solely on individual contributions and fundraisers (line 1f; 1c) and still others depend on program service revenue (line 2g). Having multiple sources of revenue can be beneficial for a charity. For example, if an organization experiences a drop in donations from individuals, then it can draw from other revenue sources to sustain its programs. If a charity has no revenue listed on line 1f, then it may not even be prepared to accept private contributions.
(For an older version of the Form 990, take a look at lines 1a through 1d, line 2, and line 3. These represent different ways charities can earn revenue.)
Visit our blog next Tuesday for Part 2.
Monday, September 12, 2016
Welcome back to Metric Mondays! Check out our previous discussion on Independent Board of Directors. Today, we’ll tackle two metrics at once: Form 990 Posted Online and Audited Financial Statements Posted Online.
These metrics focus on transparency, i.e. the steps an organization has taken to allow donors, constituents, and other observers to better understand its operations and structure. For donors, it is vitally important to have easy access to a nonprofit’s financial data, as this data helps make informed giving decisions. Without the data available in these documents, it is difficult to know whether an organization spends donor dollars responsibly, or even if it spends them on their mission at all! In addition, charities are required to make their 990 data available upon request to anyone who asks for it, and posting this data online fulfills that obligation in an efficient way.
Organizations that do not receive credit for this metric may simply have lapsed in publishing the most recent documents, but it is still important that they do so, in order to be as transparent about their financial health as possible.
To learn more about our Accountability & Transparency metrics, take a look at our Accountability & Transparency Methodology.
Friday, September 9, 2016
The month of September routinely means a fresh start for many of us around the world. Whether it be salvaging the last of summer vacation, preparing you and your family for school, or anticipating the oncoming of a new season, the pace of life takes on a change in need of accommodation.
Unfortunately, every year there are millions of families that hang onto what “was” as a result of the loss of loved ones due to the taking of their own lives. Every September, we recognize and bring awareness to the trials and tribulations of the growing issue of suicide that plague our society, via National Suicide Prevention Awareness Month.
According to WHO, about one million people die per year due to suicide. It is the 3rd leading cause of death in the world for people between the ages 15 and 44, with an estimated one person being a victim of suicide, every 40 seconds. People suffering from the likes of mental disorders, depression, anxiety, addiction, and other conditions, put them at greater risk for suicide. The most telling statistic pertaining the victims of suicide, is that over 90 percent of them have a diagnosable mental disorder.
Empathy goes an extremely long way in the fight to improve the conditions of our society for those in need. National Suicide Prevention Awareness Month is designed to promote the use of resources and awareness regarding suicide prevention, in addition to opening up the importance of honest communication without triggering risk of harm. On September 10th, we observe National Suicide Prevention Day to reach out to those affected by suicide with the purpose of raising awareness and keeping at risk individuals connected to their resources and treatment service options.
If you or anyone that you know is at suicidal risk, in crisis, wants to talk about their suicidal thoughts, or is in an emergency, make sure to call the National Suicide Hotline and they will be connected to a counselor at a crisis center within the area, 24/7. For those who are interested in supporting a charity engaged in suicide prevention, then check out the 4-star rated American Foundation for Suicide Prevention.