F Rated Charities Awarded

Best in America Seal

- published in the December 2008 issue of the Charity Rating Guide & Watchdog Report

Ubiquitous on charity web sites is a ribbon-style seal that in large type reads "BEST IN AMERICA," features five stars across the top edge, and indicates that the charity awarded the seal is "certified by Independent Charities of America" (ICA). Many donors may view such a seal as a reflection of how efficiently a particular charity will use their donations, and assume that it represents an independent endorsement of a charity from an outside organization. While ICA may refer to its member charities as "Best in America," some donors may be disappointed to learn that ICA is funded by the very charities that use its seal, and that ICA generally does not screen charities for financial efficiency.

ICA is a fundraising federation that oversees and provides support to fifteen sub-federations organized by cause, such as Animals, Cancer, Children, Environment, and Military/Patriotic, among others. Combining fundraising efforts with other charities through a federation may result in lower overall fundraising costs for a charity than it could achieve on its own. A charity may also benefit from membership in the ICA or similar federation by being able to participate in workplace giving campaigns to which it may not otherwise have access. Each of ICA's sub-federations conducts workplace fundraising campaigns on behalf of its member charities and takes a portion of the donations raised to fund ICA. According to its fiscal 2007 audit, ICA estimated that it will pay out "ninety-two percent of the cash received from pledges….for the Fall 2005 campaign." This results in an average eight percent fee taken from donations received, though fees can vary greatly from campaign to campaign.

In describing its membership eligibility standards ICA states on its web site, "The Independent Charities Seal of Excellence is awarded to the members of Independent Charities of America….that have, upon rigorous independent review, been able to certify, document, and demonstrate on an annual basis that they meet the highest standards of public accountability, program effectiveness, and cost effectiveness." Many of ICA's standards are similar to those of the U.S. government's Combined Federal Campaign (CFC), the largest employer-sponsored charity drive in the U.S. One ICA eligibility standard, appearing on its web site at the time AIP contacted ICA, is that charities must have "operating overhead (administrative costs + fundraising costs) not to exceed 25% of total public support and revenue." This is the same standard formerly required by the CFC before it dropped the requirement in late 2006.

AIP contacted ICA to find out if it still maintained this requirement and were told, "The 25% rule is no longer in effect [for the CFC]. The same is true for us." In reference to the outdated information on its web site, which also included a 2006 CFC "Universal Application Form," ICA said, "Clearly we have some updating to do." And update they did - ICA removed the "25%" eligibility requirement from its web site within hours of AIP's inquiry. ICA later told AIP that though its documentation requirements for charity membership applications mirror those of the CFC, their reviewers have discretion to ask charities additional questions with respect to governance, sources of revenue, or "anything they choose." Charity applicants may be asked to justify high fundraising and administrative costs, though "the old 25% rule is no longer an eligibility determinant per se," according to ICA. The group did not respond to our question as to whether or not any of the other eligibility standards posted on its web site are out-of-date.

A charity is required to annually meet general criteria to qualify for inclusion in the CFC drive such as certifying it is a public health and welfare charity with tax-deductibility status, providing a tax Form 990 along with an audit that adheres to generally accepted accounting principles, and providing a detailed accounting of its program activities. National charities must demonstrate that they provided services in a least fifteen different states or one foreign country over the preceding three year period, while local groups must demonstrate a substantial program presence within the campaign's geographical boundaries. While these and other CFC criteria may be helpful for verifying that a charity is legitimate, many of these are legal or qualitative requirements broad enough to not exclude many large, national charities that can easily fall within such guidelines.

ICA portrays the member charities using its seal as being in an exclusive class, saying "These standards include those required by the US Government for inclusion in the Combined Federal Campaign, probably the most exclusive fund drive in the world. Of the 1,000,000 charities operating in the United States today, it is estimated that fewer than 50,000, or 5 percent, meet or exceed [CFC] standards, and, of those, fewer than 2,000 have been awarded this Seal." While the ICA may have awarded less than 2,000 of its seals, this is more a reflection of the number of charities that applied for and were awarded ICA membership than an indication that these charities are the "Best in America," since only ICA members are allowed to use the seal. When AIP asked what percentage of charity applicants are turned down for membership ICA did not tell us how many, but responded, "that number is in constant flux, as new applicants apply each year and some returning applicants are turned down." It estimated that "90% of the time an applicant to ICA would be approved if it met the CFC requirements on their face."

While ICA may claim that the CFC is "probably the most exclusive fund drive in the world," this claim is not based on how efficiently a charity participating in the campaign will use its donations. The CFC even cautions donors on its web site to not read too much into its standards, saying "The CFC review does not evaluate whether an organization uses its donations efficiently. Each individual donor is responsible for evaluating this type of information." It later refers donors to other organizations, including AIP, for more information about charities participating in the drive. Since CFC and ICA eligibility standards do not measure the efficiency with which participating charities use donations, the fact that a charity participates in the CFC or uses ICA's "Best in America" seal may not be the most useful information for donors on which to base giving decisions. Many groups that prominently display ICA's "Best in America" seal are F rated by AIP, including AMVETS National Service Foundation, Cancer Recovery Foundation of America, and Miracle Flights for Kids/Angel Planes, among others.

Too often, donors take the outside endorsement of a charity at face value without understanding the meaning behind it or verifying that it is from an independent source. Some seals of approval or other accreditations are granted by trade or fundraising associations that receive money from their member charities in the form of membership dues, fees for services provided, percentages of donations received, and in some cases, simply for the right to use the organization's seal. An organization receiving money from its charity members may have financial incentive to not heavily scrutinize charities' activities since its own survival may depend on this funding. Though some organizations do provide information that certain donors may find helpful, few screen charities based on the efficiency with which they use donors' cash donations. A charity seal, accreditation, or other symbol is only as good as the quality of the analysis behind it, the ability of the association or rating organization to verify and enforce its standards, and perhaps most importantly, a donor's ability to understand its meaning.