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Consumer Watch: Charity ratings can be hit or miss, depending on reviewer

Dec. 20, 2010 - 04:20PM   |   Last Updated: Dec. 20, 2010 - 04:20PM  |  
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If you want to check out a charity to make sure your donations will be used wisely, prepare to be confused: Ratings can differ markedly, depending on who does them.

Donors "have to look at the rating system that makes sense to them," said Sandra Miniutti, spokeswoman for Charity Navigator, one of the major rating organizations.

Check the ratings for the Navy-Marine Corps Relief Society, for example, and it might seem as if the charity raters are evaluating different organizations.

Charity Navigator has dropped NMCRS from four stars to two. But CharityWatch.org, whose ratings generally are more stringent, has bumped the society from a "C" to an "A+."

CharityWatch.org had downgraded the relief society at first because it was deemed to be holding too much cash in reserve, but the society has had to use some of those reserves — which boosted its grade.

Air Force Aid Society and Army Emergency Relief are graded "F" by Charity Watch because of their large reserves, although they rate "A" or "A+" otherwise.

CharityWatch.org contends that charities should not keep more than three years' worth of funds in reserve because that money could be used by other charities to fund needed programs.

Air Force Aid Society gets three stars from Charity Navigator; Army Emergency Relief gets four, the highest rating.

None of the military relief societies is rated by the Better Business Bureau's Wise Giving Alliance, which uses 20 criteria, because the societies choose not to provide the information. Fisher House Foundation also is not rated by BBB, but gets top marks from Charity Navigator and CharityWatch.org.

"You have to be a member of the BBB to be rated" by the groups, said John Alexander, spokesman for Navy-Marine Corps Relief Society.

But membership costs money — upward of $1,000, depending on the size of the charity. NMCRS officials decided not to go that route and instead use the money to help Marines and sailors.

Here's how the evaluators rate charities:

• Charity Navigator evaluates only charities with revenues of $1 million or more, based on information that the charities provide to the Internal Revenue Service, Miniutti said.

http://www.charitywatch.org">CharityWatch.org, operated by the American Institute of Philanthropy, contends that self-reported information provided by charities on their tax forms or solicitation materials "may not be the most useful source of information for donors." AIP does its own in-depth analysis of a charity's audited financial statements, which contain data verified and reported by a third party.

• BBB Wise Giving Alliance uses 20 criteria ranging from whether a charity has a board of directors that meets at least three times a year, to whether it does an annual audit, to whether it spends no more than 35 percent of related contributions on fundraising.

Of the three, "Charity Navigator has the largest impact with donors," Alexander said.

NMCRS's Charity Navigator rating is based on its 2008 filing with the IRS. Charity Navigator reduced NMCRS' rating for support "capacity" because of a 4.8 percent decline in revenue and a 1.8 percent decline in program expenses.

Alexander said it's more complicated than that: NMCRS leaders decided to reduce education scholarships because of the unstable economy, allowing them to draw less from their reserves in a year when investments declined in value.

That reduction in grants "was interpreted by the Charity Navigator formula as a drop in capacity," Alexander said. Yet the same year, the society increased its use of interest-free loans as an alternative to payday loans.

"Even though we took deliberate steps to preserve the society's ability to serve future sailors, Marines and families, and actually provided assistance to a significantly greater number of clients in 2008, the [Charity Navigator] rating system translated this as less capacity," Alexander said.

If that's not confusing enough, many charities are not rated at all. USA Cares, which has been supporting the military community since 2003, has information posted through Guidestar, which provides IRS data on charities but does not evaluate them.

Bill Nelson, president of USA Cares, said his charity provides sufficient IRS data to be rated by Charity Navigator. "Beyond that, I don't know what to do," he said. "We're still waiting for Charity Navigator to come calling."

Nelson acknowledged that the current system can be confusing.

"Good luck resolving the different standards of the raters," he said. "That's more work than most donors will do."

———

Questions? Comments? E-mail kjowers@militarytimes.com?subject=Consumer%20Watch:%20Charity%20ratings%20can%20be%20hit%20or%20miss,%20depending%20on%20reviewer">Karen Jowers.

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