The CharityWatch Difference

Say no to robo-ratings. All charity ratings are not alike. Other charity information services use simplistic or automated systems to generate ratings. CharityWatch analysts dig deep, carefully scrutinizing the individual finances of charities to give donors a clearer understanding of how their cash donations are being spent.

CharityWatch ratings are considered the most stringent in the sector. When a charity makes a claim that it spends "90% on programs," donors often wrongly assume this means $90 out of every $100 dollars they donate will be spent on the charity's programs, and only $10 will go to overhead. This is often not the case. Charities have wide latitude to include activities in their program expenses that most donors would not consider to be the bona-fide programs they are intending to support.

Other charity raters simply repeat or repackage at face value whatever a charity reports without adequate analysis of its finances or how it is operating. The CharityWatch rating system is unique in that we carefully analyze a charity's finances and make adjustments to better reflect the goals of most donors who want their cash donations to be used efficiently. We do not allow charities to count the funds they spend on direct mail or telemarketing in their program spending, or to include large amounts of undisclosed and often overvalued donated goods in their expenses, even if their accountants allow them to do so.

CharityWatch is fiercely independent. We do not charge the charities we review to be listed in our Guide or for the right to publicize their rating, nor do we accept any advertising whatsoever on our web site or in our publication. Our board of directors does not include any heads of nonprofit associations who receive their pay from the groups they are watching. Because over 95% of our support comes from small, individual donations, we have the freedom to speak openly and to be critical of the unethical practices of charities, without concern for special interests cutting our funding.

CharityWatch uses reliable information and treats charities consistently and fairly. The self-reported information charities provide in their tax forms or solicitation materials may not be the most useful source of information for donors. Unlike some raters that rely on the tax form alone, CharityWatch reviews a charity's tax form in conjunction with its more reliable audited financial statements, which are produced by independent, Certified Public Accountants outside of the charity. Audits often include information that a charity chooses to not report about itself in its tax form.

The rules governing charity financial reporting leave a lot of room for variation, which results in a great deal of information that is inconsistent, unclear, or even incorrect. Sometimes a charity may be doing an outstanding job with its funds but receive poor ratings from others due to computer-automated or overly simplistic evaluations that do not take into account the complexity of charity financial reporting and accounting rules.

CharityWatch rates charities that other raters won't. CharityWatch is the only national charity watchdog to evaluate social welfare groups that are not eligible to receive tax-deductible contributions such as the ACLU, Human Rights Campaign, League of Women Voters, NARAL Pro Choice America, National Right to Life Committee, and Sierra Club. CharityWatch also rates many religious charities such as the Salvation Army that are exempt from filing a tax form with the IRS but that share their audited financial statements with CharityWatch.

Bottom Line: With no SEC or federal government watchdog, no investors who will sue if given false information, and loose reporting rules, the nonprofit sector has little oversight and much room for financial manipulation. CharityWatch digs deep into the complex and often confusing financial reporting of charities and issues easy to understand A+ to F letter grade ratings for donors who want to know how efficiently their donations are being spent.

 

Barron's:

Spotting Nonprofit Accounting Tricks

Chronicle of Philanthropy:

What Nonprofits Say About Spending and How Donors Respond

USA Today:

BBB Charity Ratings, Seal of Approval Under Fire

Financial Sense Podcast:

Daniel Borochoff of CharityWatch on the Importance of Wise Giving

ABC News (Videos):

Daniel Borochoff on ABC NewsDaniel Borochoff of CharityWatch Offers Giving Tips

 

 

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