Caveat donator. Charity ratings help you give wisely.

It has been said by poets, philosophers, and psychologists that the charitable impulse is the highest expression of the human capacity for compassion. When one considers that there are more than 1.9 million nonprofit organizations in the U.S. and that American individuals, foundations, and corporations gave more than $300 billion to nonprofits in 2008 (the last year for which statistics are available), one would have no choice but to conclude that those numbers represent the outpouring of an unrivalled impulse of that generous spirit. Upon examining the numbers more closely, you would discover that a whopping 81.9% of all contributions came straight out of the pockets, checking accounts, and credit cards of individuals like you, me, and our neighbors. 13.4% came from foundations, while 4.7% dribbled out from the coffers of corporations.

Unfortunately, the nonprofits themselves do not always live up to the charitable standards we, as givers, should expect of them. Just in the last decade, scandals involving some of the largest nonprofits have sullied the reputation of the nonprofit sector in general and damaged donor confidence. Two of the most serious of those revelations involved The United Way and The Nature Conservancy.

Before these scandals and others involving smaller nonprofits were uncovered by journalists or government investigators (or both), trusting, idealistic donors often were blithely unaware of the actual allocation of their donations.

As the largest pool of donors we, as individuals, should be insisting on financial integrity at the nonprofits and asking them the hard questions: What percentage of our contributions actually find their way directly to needy recipients? How honestly do the organizations embody their missions in their practices and day-to-day operations?

Fortunately, independent rating agencies have come to the rescue of donors to help access information about which charities deliver the biggest bang for the giver’s charitable buck and which actually deliver the greatest good to those for whom the donations and/or services are intended. In fact, the benchmark for the highest rating at one of those agencies, The American Institute of Philanthropy (“Charity Rating Guide”), requires that 80 cents or more out of every donated dollar should go directly for a charity’s stated mission, with the remainder used solely for fund raising, administrative expenses, and management salaries.

The Internet has been a boon for donors searching for independent, objective information on nonprofits. One of the largest and most respected is Charity Navigator. Founded in 2001, Charity Navigator currently rates 5,500 of the largest charities and boasts visits from over 4 million donors seeking information to help make more informed donations. A search for a particular nonprofit will provide an overall rating of one to four stars (with 4 stars being the highest rating), which reflects an average rating of an organization’s program, administrative, and fundraising expenses, their revenues, and organizational capacity. On Charity Navigator’s website, you will also find a quick-view chart for each charity, summarizing the ratio of the above expenses. This shows you at a glance how your chosen nonprofit is spending the contributions it takes in.

President Obama’s announcement, on March 11, 2010, of his decision to donate his $1.4 million Nobel Peace Prize money to ten charities presented an opportunity to do a search on Charity Navigator to assess not only the site’s ease of use (very easy) but also to discover how our president’s choices scored in the ratings.

President Obama’s picks and ratings:

Fisher House Foundation$250,0004 stars
Clinton-Bush Haiti Fund$250,000not rated
College Summit$125,0004 stars
Posse Foundation$125,0004 stars
United Negro College Fund$125,0003 stars
Hispanic Scholarship Fund$125,0003 stars
Appalachian Leadership & Education Foundation$125,000not rated
American Indian College Fund$125,0002 stars
Africare$100,0003 stars
Central Asia Institute$100,0004 stars

As you may note from the above, most of the president’s picks received stellar ratings.
Whatever the information about the efficiency and integrity you might glean about the organizations or causes you decide to donate to, informing those organizations that such ratings will influence your giving decisions could effect how those charities are run. Informed giving—whatever the size or amount of the donation–is an opportunity for all of us to become active advocates for those in need – one charity at a time.