Campaign » Donor Resources from Charity Navigator » Evaluating Charities

Charity Navigator uses the Form 990, a public tax return that each organization files annually, to complete each of its financial evaluations (see our Methodology section). Here are some simple steps to help you to evaluate a charity that is not in our database (to find out why a charity is not in our database click here: Frequently Asked Questions)

Using the 990 Finder (powered by the Foundation Center) enter the name or EIN (Employer Identification Number) of the charity you'd like to learn more about. If you were unable to find an organization through the 990 Finder, then you should visit the IRS website to confirm that the group is an actual 501 (c ) (3) public charity.

There are three main things to look at when evaluating a charity:

1. Financial health of the organization
2. Accountability and transparency
3. Results 

1. Examine the charity's financial health

(Starting in 2008, the IRS introduced a new design for the Form 990. If you need to examine an older version of the Form 990, you can find the information at the bottom of each paragraph.)

• Program Expenses: The majority of charities listed on our site - seven out of ten non profits - spend at least 75%of their expenses directly on their programs. That means the organization should spend no more than 25% of their total expenses on administrative overhead and fundraising costs combined. To determine the percentage going to programs for the charity you are reviewing, scroll to page 10, find Line 25(total functional expenses). Divide column B (program services) by column A (total expenses) then multiply by 100. The resulting figure is the percentage that organization is spending directly on their programs and services. For a more detailed break out of the program expenses, review the "Statement of Program Service Accomplishments" located on Page 2, Part III.

(For an older version of the Form 990: To determine the percentage going to programs, take the amount on page 1, line 13 (Program Service Expenses) and divide that by the Total Expenses listed on line 17. Statement of Program and Service Accomplishments' is located on Page 3, Part III)

• Executive Pay: Our research - based on 5,500 of the largest charities in America - shows that the average CEO compensation is about $150,000 annually.  On page 7 of the Form 990 organizations are required to report the CEO's pay and any current officers making over $100,000 annually.  As you examine salaries, keep in mind that a variety of factors impact pay including geographic location, size of the organization, and type of work performed.

(For an older version of the Form 990, you can review the CEO's compensation on Page 5, Part V-A or Schedule A, Page 1.)

• Growth of Revenue and Program Expenses: Determine if the charity you are considering supporting  is expanding or shrinking over time. You can quickly do this by comparing page 1, line 12(Total Revenue) of the current year with the prior year (s), then do the same with the Total Expenses- page 1, line 18. While the growth doesn't need to be dramatic, charities that fail to grow at least at the rate of inflation are in fact shrinking and thus cutting the very programs that you want to support.

(For an older version of the Form 990, you can locate Total Revenue on  page 1, line 12 and Total Expenses on page 1, line 17.)

• Types of Support: Take a look at lines 1a through 1g to learn about a charity's funding sources. Some charities rely heavily on membership dues (line 1b), or government support (line 1e) while others survive almost solely on individual contributions and fundraisers (line 1f; 1c). Having multiple sources of revenue can be beneficial for a charity. For example, if an organization experiences a drop in donations from individuals, then it can draw from other revenue sources to sustain its programs. If a charity has no revenue listed on line 1f, then it may not even be prepared to accept private contributions.

(For an older version of the Form 990, take a look at lines 1a through 1d, line 2, and line 3. These represent different ways charities can earn revenue.)
 

2. Check for evidence of the charity's commitment to accountability and transparency

• Website
  The best charities are transparent and accountable to the public. You should be able to see evidence of this in the information they provide on their web site. Can you readily find information about the charity's staff and Board of Directors? Did the charity publish its financial information such as its most recently filed Form 990 or audit?
   
• Respecting Donors 
  Find out if a charity has a donor privacy policy. Selling and trading donor's personal information isn't just common practice among large, national charities. Oftentimes, local organizations will swap lists in an effort to expand their donor base and increase awareness of their group. Ask to see it in writing and make sure you "opt-out" if it is required.
   
• Read the news
  Check the charity's recent media coverage through Google news or another similar service to see if the charity has been involved in any questionable practices.
   
• Form 990
  Look at pages 3-6 to see if the charity is committed to best practices. For example, does it have a conflict of interest policy? Does it have a whistleblower policy? Does it have a CEO compensation committee?

 3. Investigate the charity's results 

Learn about a charity's accomplishments, goals and challenges by reviewing its website and/or talking with staff. They should be able to tell you about the quality and depth of their results as well as their capacity to continue to get these results, not just the number of activities or people served. This is critical step, after all, the charity's ability to bring about long lasting and meaningful change in the lives of people and communities should be the key reason for your financial investment. You can use the following 7 questions as a guide.

1. What is the charity’s commitment to reporting results?
   Look for a clear statement identifying a methodology for monitoring results. And when looking at the results, check to see if the charity reported the time period that covers the results, if the results are related to the charity's mission and if there are results from a prior time period. Finally, see if you can identify a means by which the charity validated the reported results.
2. How does the charity demonstrate the demand for its services?
   Here you want to see that the charity can show both a demand for and a utilization of its programs and services.
3. Does the charity report its activities (what it does)?
   Check to see if the charity offers information about its mission-related activities, if it provides the data in comparison to a prior time period and if it shows the costs affiliated with each of those activities.
4. Does the charity report it outputs (immediate results)?
   Apply the same concepts in #3 to outputs by checking to see if the charity offers information about its outputs (immediate results flowing from the activities it does), if it provides the data in comparison to a prior time period and if it shows the costs affiliated with each of those mission-related outputs.
5. Does the charity report its outcomes (medium- and longer-term results)?
   Here donors should check to see whether the information provided by the charity shows progress towards an outcome - a measurable change resulting from activities and outputs over the medium and longer-term.
6. What is the quality of evidence for reported results?
   Check to see if the charity has provided any evidence (such as case studies, beneficiary feedback, third-party evaluation) for its reported outputs and outcomes.
7. Does the charity adjust and improve in light of its results?
   However difficult or easy it is to collect and publish results data, the acid test for charities is how they use the data. At Charity Navigator we recognize that charities that consistently learn and improve will have good outcomes.

These questions were developed in partnership with New Philanthropy Capital and Keystone Accountability.

We hope this guide will help you make informed giving decisions about charities that aren't currently on our site. Remember a true Charity Navigator evaluation considers many additional factors when completing a rating, and if you'd like to see a complete evaluation of an organization, you can always sponsor a rating. In the meantime, by doing your homework and following this step-by-step guide you can make informed choices about your philanthropic endeavors.