OPINION:
Reality check: Not all nonprofits are commendable. Many ignore donor intent.
For the tens of millions of charitable Americans, figuring out which groups are the best to support can be a mission of its own. Most Americans have never heard of an IRS Form 990 (the tax return for charities), nor could they decipher the financial data.
Example: Donors to the Humane Society of the United States recently discovered that the $260 million organization doesn’t share much money with local pet shelters. The Humane Society’s 2021 tax return shows 32 states with no shelters receiving financial support, while only about 1% of the charity’s total budget is given as cash grants to local pet shelters overall. This has been their operating style for many years.
Cue the third-party charity evaluator. Given the hundreds of thousands of U.S. nonprofits, several charity rating organizations have made a business out of aggregating information on nonprofits for givers to consider before committing support. Charity Navigator, Charity Watch, the RAM Veterans Foundation, the Better Business Bureau and GuideStar (now known as Candid) all rate charities while issuing recommendations to donors based on various factors of transparency and financial integrity.
But things are not always as they seem. In many cases, the evaluation process contains stark differences of opinion, including what should be graded or what weight should be given to factors involved in the management of tens of billions of dollars.
The Black Lives Matter Global Network Foundation has been named one of America’s worst nonprofits in the mainstream media, but at the same time, it received an 85% (good, not great) rating from Charity Navigator while going unrated by Charity Watch due to nondisclosure of financial information.
How can one evaluator give Black Lives Matter “full credit” for its financial metrics while another reports them missing and raises concerns about accountability?
One charity evaluator gives a four-star, 94% rating to the Law Enforcement Legal Defense Fund, which receives an F from another evaluator.
Paralyzed Veterans of America receives an F from one yet scores a four-star rating from another.
Veterans organizations are major players in the nonprofit world. The RAM Veterans Foundation’s CharitiesForVets.org website reveals $3 billion donated annually to just 105 organizations!
Both Charity Navigator and Charity Watch recently rated five veterans groups. Navigator gave its top grade (four stars) to all five vet charities. Charity Watch gave the same five an F for financial integrity. These different grades are not outliers.
On the CharitiesForVets website, many well-known groups operate with less than 10% devoted to overhead expenses. Others are running above 50% in expenses before they spend a single dollar as donors had intended. Yet not all rating groups see overhead as an important financial factor.
Then, there is the issue of asset reserves. How much should charities have invested while they keep asking for more?
The collective asset reserves of the Cystic Fibrosis Foundation, St. Jude’s Children Research Hospital, and Shriners Hospitals for Children hold a combined $23 billion in reserves. Given expenses, you might find one or more of these three justified in massive investment accounts. But how would you know how much is justified when some rating agencies don’t consider that metric important in their evaluation?
How about rating agencies that average good and poor management practices before rendering a final grade? If an organization is failing donors in an important area, should the evaluator “average” in that score with other, better performances? Only RAM has a strict pass-fail test, where any failure of a standard results in a “not recommended” status.
What donors are left with is a complex and confusing nonprofit landscape. Before giving money to a charity, you can’t just rate the nonprofit and give accordingly. You must also rate the rating agency — or at least get a second opinion.
• Rick Berman is president of RBB Strategies and is on the board of the RAM Veterans Foundation.
Please read our comment policy before commenting.