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Charity Navigator Changes Financial Health Evaluation Methodology

Charity Navigator, America’s most visible charity evaluation platform, announced the release of CN 2.1, an updated version of the organization’s charity rating system.  The CN 2.1 charity rating methodology went into effect on June 1, 2016, and AAFCPAs advises our nonprofit clients to evaluate the new criteria to determine the potential impact on your Charity Navigator rating and potentially, donor perception.

Charity Navigator has made the following changes to its metrics used to assess a charity’s Financial Health:

  1. Program Expenses – Now calculated by averaging the data from the charity’s three most recent fiscal years.
  2. Administrative Expenses – Now calculated by averaging the data from the charity’s three most recent fiscal years.
  3. Fundraising Expenses – Now calculated by averaging the data from the charity’s three most recent fiscal years.
  4. Fundraising Efficiency – Now calculated by averaging the data from the charity’s three most recent fiscal years.
  5. Primary Revenue Growth – No longer part of the rating system.
  6. Program Expense Growth – No change from Version 2.0
  7. Working Capital Ratio – Calculated by using the data from the charity’s most recent fiscal year for working capital, but using data from the charity’s three most recent fiscal years for total expenses
  8. Liabilities to Assets Ratio – New metric, calculated by using the data from the charity’s most recent fiscal year.

Charity Navigator made no changes to their Accountability & Transparency metrics.

For nonprofits competing for donations, understanding the criteria that define the ratings is very important.  If you have any question, please contact your AAFCPA partner, or Jeff Cicolini, CPA, CGMA at 774.512.4026, jcicolini@nullaafcpa.com.

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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 $150 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 and their related affordable housing projects, and membership organizations. Jeff also specializes in audits in accordance with generally accepted auditing standards, Government Auditing Standards, Uniform Guidance and HUD Housing programs.

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