Navigating Charity Evaluators

How nonprofits can positively impact their rating

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Communication and transparency are paramount for companies looking to win over advocates in the information age, and the nonprofit sector is no exception. Just as Yelp transformed business reviews and TripAdvisor changed the way the world chooses vacation destinations, evaluation tools are impacting donor perception of charities.
The space is led by Charity Navigator, but competing tools such as Charity Watch and GiveWell also offer guidance to donors. For nonprofits competing for contributions in a crowded space, understanding the criteria that define the ratings may mean the difference between receiving funding and being lost among other, more highly-rated organizations.
As the most visible evaluation platform, Charity Navigator plays a significant role in these decisions. In fact, the platform made headlines in April 2015 by placing the Clinton Global Initiative on its “watch list.” The move invited open criticism of the charity, and led some to liken the Initiative’s business model to a slush fund; it also underscored the weight that Charity Navigator has in the sector.
Despite its power, its ratings are still a work in progress. Charity Navigator currently focuses only on financial health and governance – categories which by their very nature can be limiting for mission driven organizations. For example, nuances such as volunteer time and joint fundraising campaigns are not considered, and debunking the “overhead myth” continues to be a challenge.
Furthermore, Charity Navigator currently only evaluates nonprofits with more than $1M in revenue for the prior fiscal year. Now, Charity Navigator is evolving its system to better capture a blend of finance, governance, and impact ratings, while also evaluating charities below the $1M revenue mark. The movement towards impact ratings will reflect the acknowledgement that charitable work often shows traction well beyond the initial output. For example, the impact of graduating 140 adults from a GED program is better captured by what happens next: that of the 140 adults who graduated from the GED program, 45 percent went on to pursue a secondary education and 40 percent began full time employment within three months.
Until these changes are made, the current focus remains on finance and governance.  Three criteria positively impact an organization’s rating in this context: the Form 990, audited financial results, and marketing materials serve as the primary channels through which evaluators gather information. With that in mind, here are three ways nonprofits can leverage these reporting and branding tools to increase their chances for a four-star ranking: 

Messaging of the Form 990

Properly messaging a Form 990 is a critical step in improving a ranking. Nonprofits can take an extra step by reviewing 990s and financial statements of competitive organizations. This provides strategic insight and could provide more direction in how to differentiate the mission and approach. They can share the information with their own auditors and ask for guidance on distinguishing the organization from the field.

This legwork will also pay dividends in everyday operations. Learning how to stand apart from others in key aspects – from overhead to mission – will also lay the groundwork for a better showing on grant applications and annual appeal letters. 

Align marketing materials, financials, and Form 990

Inconsistencies can prove detrimental to a Charity Navigator ranking, and many nonprofits are organized in a way that makes it difficult to stay on the same page. Form 990s and audited financial results are typically prepared by the fiscal staff and business office, while program and marketing staff populate the website. That often translates into different information in all three places.

Without consistency and collaboration, problems will arise when Charity Navigator evaluates all three channels of communication with the expectation of complete alignment. Nonprofits can avoid this by creating a culture of cross-departmental collaboration. To stay better aligned, teams should operate in an open environment and routinely share any significant changes that are being made.

This becomes especially important when the Form 990 is filed: evaluators look for easy access to information and cross-referenced materials. Nonprofits should include a hyperlink to the website in the Form 990 (and vice versa) as well as a full list of programs and key employees.

 Make your mission a differentiator

A nonprofit’s mission is the core of its programs, its direction, and its fundraising latitude.  There is an opportunity to differentiate from similar organizations by being strategic about the wording of the mission statement and throughout the Form 990, especially in the program service accomplishments section. The mission should capture not just an overall goal, but should be clear, concise, and demonstrate a different approach.

For example, a mission focused on “providing childcare” can easily be overlooked amid a range of organizations that deliver family-oriented programs. Focusing instead on the impact and value of childcare – for example, “providing childcare in order to enable parents in under-served communities to seek and hold employment” – puts the mission in a larger, more impactful context.

Nonprofits operate in a resource-constrained, high pressure environment that makes it difficult to add another layer of complexity by pursuing strong ratings. The development arm of a nonprofit should drive these changes within the organization, realizing Form 990’s are a development tool and their organizations gain a significant edge by gathering the right information, positioning themselves in a stronger light than competitors, and aligning their messages across all channels.

About the Author

Jeff Cicolini, CPA
Jeff provides accounting, tax and consulting services to nonprofit organizations. He has extensive experience providing solutions to evolving nonprofit organizations with complex program offerings, diverse financing sources, and budgets ranging from $20 million to over $200 million. He specializes in advising human and social service agencies, including multi-service agencies, residential and day treatment behavioral healthcare providers, early education and care (EEC) agencies, community development corporations’ affordable housing projects, and membership organizations.

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