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Monday, October 25, 2021

How Charity Navigator is accounting for the financial effects of COVID-19 in the Star ratings

In our commitment to make impactful philanthropy easier for all, Charity Navigator provides our objective, user-friendly rating service free of charge. Our ratings traditionally covered a nonprofit’s financial health as well as their accountability and transparency practices.  Over the years, we have seen many changes and have worked to adjust our system to appropriately account for them.  We constantly monitor charity performance across the industry and make adjustments to our ratings tables when needed.  We use real data from the IRS Form 990 to inform where we set benchmarks for charity performance when it comes to financial ratios.

It probably goes without saying that in all our 20 years of evaluating charities, we have never seen anything so disruptive on such a large scale as the COVID-19 pandemic.  Some nonprofits could not staff their operations or even open their doors, some had to cease core programs completely, and others saw the need for their services increase exponentially like never before. In our work to be fair and accountable, we realized early in the pandemic that we were going to need to adjust how we evaluate nonprofits based on its effects.  To that end, we created an internal working group to compile a plan for dealing with this unprecedented event.  After a few months of review, analysis, and discussion, we came up with a way to continue providing donors with key data about the nonprofits they look to support, while ensuring that we do not unfairly penalize charities within our rating system for something that they had no control over.  Our project for this was dubbed “CPR” or “COVID-19 Pandemic Response.” 

Rating updates are primarily triggered by the filing of a new IRS Form 990.  Because Forms 990 for the time frame during COVID will be trickling into us over time, we would not be able to complete a full analysis and alter our methodology and rating tables accordingly.  We will eventually be able to do this, but we needed to do something until that was possible. We determined that in lieu of posting a new rating when a Form 990 came into us that covered the time of the pandemic (FYE 3/31/2020 or after), we would request that charities respond to a questionnaire focused on how they adapted and delivered on their mission during COVID. These responses would, ultimately, be shared publicly and without edit on their Charity Navigator profile pages, providing donors with stories of resiliency and determination.  Ultimately, we believe that this inclusion benefits both the nonprofit and their donors as it provides their supporters with an opportunity to leverage this and other data to make more informed decisions about their giving.

Once we process a COVID-affected 990 and realize that the overall score would decrease in any way, we will be notifying the charity and giving them 30 days to answer the CPR questionnaire.  If the nonprofit responds, we will post their submission, and allow the organization’s rating to remain unchanged from its current rating. This will be made clear on our site with a message stating that a new rating was postponed due to COVID-19, along with a link to the organization’s response. In the future, we will be collecting data to consider more permanent changes to our methodology, which will then allow us to post updated ratings as we would normally have done.  This process also allows us to leverage our new Encompass Rating System and Nonprofit Portal to collect and display data, which may be used as part of the Leadership & Adaptability beacon. It should also be noted that in regards to the Encompass Rating System, a similar COVID-19 policy will be implemented in relation to the Finance & Accountability beacon. 

Written by Matthew Viola, Vice President, Program Analyst Operations at Charity Navigator.

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