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Top five items charity “watchdog” sites focus on – and how your organization may increase its rating

May 6, 2015 / 5 min read

Donors across the nation are increasingly using charity “watchdog” sites to help them in choosing organizations to donate to. Many donors who are interested in aiding a specific cause can log on to Charity Watch, Charity Navigator, Give Well, or the Better Business Bureau’s Giving Alliance, among others, to help them research and analyze the organization they feel would spend their donation most appropriately.

Based on a review of the sites noted above, we have captured the top five items these sites focus on when rating an organization, as well as what your organization can do to potentially increase its rating.

1. Money management

What does this mean?

All sites focus first and foremost on how the organization spends its money. They look at various data and a number of ratios with the most important being the program cost percentage. This ratio reflects the percent of total expenses an organization spends on program-related items during the year (the remaining being spent on general and administration, as well as fundraising expenses). In general, the theory is the higher the program expense percentage, the more fiscally responsible the sites consider the organization to be. Per a few of the different sites, a program expense percentage of at least 75 – 80 percent appears to be considered positive. 

The sites also consider the “cost to raise” which analyzes the fundraising efficiency of the organization. This ratio measures how much was spent in fundraising costs to raise $1 in contributions.

The last major money management measure relates to an organization not “hoarding” funds. The benchmark used on the sites points to an organization setting aside reserves (i.e., net assets) of no more than three years’ worth of its annual budget. Any funds over and above this amount should be used for more urgent needs and the mission and programs of the organization.

Action items

Review and analyze administrative and fundraising functions to verify they are being carried out as effectively and efficiently as possible. This will allow more funds to be directed toward the organization’s programs.

Analyze your fundraising efficiency ratio and fundraising activities and consider changes/options to ensure your organization is getting the most out of your fundraising expenses.

Consider the level of reserves at year end, how this level compares to your organization’s annual operating budget, and adjusting spending levels, if necessary. 

2. Salaries

What does this mean?

Board member compensation, if applicable, and organization officer and staff salaries are important items to monitor. As discussed above, it is appealing from a donor’s perspective to have lower administrative expenses and higher program-related expenses. The donors feel additional comfort knowing more of their donations will be spent for programmatic purposes than on general and administrative expenses. Ensuring that the salaries of personnel and any board member compensation, if applicable, are based on appropriate market rates is important.

Action items

Analyze the percentage of salaries (and other administrative expenses) of your organization. Also consider the benchmark of not having more than one compensated person on the board of directors or not more than 10 percent of your board being compensated.

3. Governance and transparency

What does this mean?

Accountability to the donors and other stakeholders of the organization, as well as transparency of important data about the organization, is a third key feature of site ratings. The Internal Revenue Service (IRS) Form 990 is an important tool to showcase an independent board, as is an audit report from an independent accounting firm. The sites also may examine the organization’s website to review board size, frequency of board meetings, disclosures, etc. to ensure appropriate information is available to donors.

Action items

Use the IRS Form 990 to your organization’s advantage. Ensure that the organization can answer yes to the governance questions related to items such as a conflict of interest policy, whistle blower policy, etc.  In addition, verify that appropriate disclosure has been made related to executive salaries, board member lists, and the mission of the organization, among other items.  It is also advantageous to utilize your organization’s website to consider posting the most recent IRS Form 990, audited financial statements, and any other items a donor may find informative about the organization.

4. Results reporting

What does this mean?

As discussed above in Governance and Transparency, the organization’s audited financial statements and IRS Form 990 are important to consider disclosing on the website. In addition, an Annual Report is also a great way for the organization to report on results from the year. The reporting in this document is not prescribed and, as such, organizations have the opportunity to analyze and share their results with the outside world in any number of creative ways. An organization with a more robust annual report has a better chance of bringing in more donors than does an organization that does not report on results from previous years. 

Action items

Ensure your organization has a means to communicate its results to donors and other stakeholders, whether it be in an annual report, or via another method. Ensure these results are easily accessible on your organization’s website for donors and so sites are able to rate your organization on the consistency and value in your results reporting.

5. Privacy

What does this mean?

Donor privacy in this age of technology and identify theft is an important factor. Organization websites should have secure payment methods for donors who want to donate online. Website disclosures are also important to ensure donors that their information will be kept safe and secure. Allowing donors to make anonymous donations and keeping this information truly anonymous will build trust with donors and may garner future donations from first-time donors.
As no information technology (IT) system is perfect and breaches do sometimes occur, ensuring that the organization has people and a process in place to monitor information and respond promptly to and act on any and all complaints received is important to mitigate future repercussions.

Action Items

Work with an accounting firm or technology consulting group to ensure your organization’s website technology is up to date and has the proper security in place to protect client data; the same goes for your organization’s IT system. Also, put a plan in place for how to deal with any complaints and ensure they are dealt with quickly and professionally.
While implementation of these five items will not guarantee your organization receives a sites’ top rating, it certainly provides you an opportunity to maintain or improve the rating.  They should also provide current and prospective donors with additional information about your organization so they can make an informed donation decision.

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