Maybe your neighbor, colleague, or family member has asked you to donate to his or her favorite charity. Or maybe you’ve been solicited by direct mail or a phone call for a contribution. It’s the end of the calendar year and often the fiscal year, and it’s holiday season. That means it’s the time of year when charities are encouraging all of us to give as generously as possible.
But how can you find out which organizations use their donated funds most effectively? Fortunately, it has never been easier to research a charity to learn about its mission, financial performance, program activities, and governance. Not only do organizations’ own websites now archive program, financial, leadership, and other information, but third-party sites are available and easy to use.
Here, then, are some resources for researching the charities you already support or are considering supporting.
Guidestar has created the most data-rich of all the not-for-profit information websites. Registration is free, as is access to Guidestar’s deep national database of 1.8 million charitable organizations. The site’s mission is no less than “to revolutionize philanthropy and nonprofit practice by providing information that advances transparency, enables users to make better decisions, and encourages charitable giving.”
While there is a wealth of additional information on Guidestar that’s customizable by each organization, its backbone is its repository of PDF files of annual federal tax returns—IRS Form 990—that must be filed by nearly all nonprofit organizations in the United States with revenues of more than $25,000. (Certain religious institutions aren’t required to file the 990.) As regulatory oversight of tax-exempt organizations has expanded in the past 20 years, so has the scope of information collected in the Form 990, which charities are required to make public. Guidestar makes review easy by aggregating all of these forms under one roof and by providing multiple years of data. When you search for and find a charity on Guidestar, you are directed to the organization’s home page. Remember that a charity’s “official” name may be different from its common name. Guidestar helps you narrow the search geography, so knowing the organization’s headquarters by city and state will be helpful. On the home page, you will find links to the Form 990 (generally for the most recent three-year reporting period), as well as summary information about programs, evaluation methodology, people served, and the organization’s leadership. There are also links to purchase premium reports for a fee.
When opening the 990, don’t be daunted by the number of pages; the form is actually easy to navigate. Some of the questions that your review of the 990 can answer are:
If you have the time and inclination, you can look at several years’ worth of 990s to see, for example, what major changes in programs have occurred, whether the organization’s unrestricted net assets (working capital available for new programs and other purposes) are increasing or decreasing, whether leadership has been stable, and how much wages and benefits have risen.
Charity Navigator is a charity ratings organization that has created a measurement methodology to identify the extent to which nonprofit organizations meet its standards and best practices tests. Nonreligious organizations with revenue of at least $500,000 from the private sector (including from individuals) and total revenue of at least $1 million are rated using four years of data from Form 990.
The main rating criteria cluster around financial health and focus on accountability and transparency. Measurements such as fundraising efficiency and program efficiency are derived from available data and are analyzed using Charity Navigator’s system (described in detail on the website) and compared with organizations with similar missions. The scores of individual components rated are tallied, resulting in an overall score of one to four stars. Minnesota currently has 41 charities with a four-star rating—and many prominent charities that haven’t attained four stars.
In addition, Charity Navigator’s checklist of rated items is a de facto “best practices list” for nonprofit management. Reviewing an organization’s Charity Navigator checklist is a useful tool for understanding an organization’s strength compared to peer nonprofits.
This Minnesota-based organization’s mission is to help donors make “informed and thoughtful giving choices.” It is unique to Minnesota, not part of a network of similar efforts in other states. The council reviews charities through its Accountability Wizard, and when an organization meets the 27 measured standards it receives a “Meets Standards” seal. Organizations that earn the seal are included in a searchable database on the council’s website. The standards themselves were developed and are frequently re-assessed by a panel of experts and approved by the council’s board of directors. Organizations that do not meet the standards test may apply for technical assistance, which includes workshops and webinars on management and accountability topics.
The Charities Review Council looks at four primary areas of organizational effectiveness: public disclosure standards, financial standards, fundraising standards, and governance standards. Elements reviewed include practices such as providing the public with a secure online donation environment with appropriate controls, allocating at least 65 percent of annual expenses averaged over three years on programming, and public reporting on goals and outcomes for each fiscal year. About 350 Minnesota organizations have met the council’s standards.
Whether you prefer to dig into the data yourself through a service like Guidestar or use the review processes in place from organizations like Charity Navigator or the Charities Review Council, there is no reason to wonder about the programming, governance, accountability, and financial health of Minnesota’s not-for-profit organizations. Armed with information, you can surely find a local charity whose work inspires you and will make the best use of your contributions.
Sarah Lutman is a St. Paul–based independent consultant and writer for clients in the cultural, media, and philanthropic sectors. She has served in executive and leadership positions at the Saint Paul Chamber Orchestra, Minnesota Public Radio, and the Bush Foundation.