Why I don't like Charity Navigator and Similar Charity Raters. The Washington Jewish Week recently ran a short piece on Charity Navigator, a charity rating organization. The article identified certain Jewish charities that received high ratings and some that received low ratings.

I am always distressed when the press in general and the Jewish press in particular gives credence to raters like Charity Navigator and others that base their ratings exclusively on financial criteria. Good charities that get, but don't deserve, low ratings often suffer.

Even Wall Street analysts don't rate corporations only on the basis of current financial statitsics. Smart investors look at such factors as the quality of management, size of potential market, efficiency of operation, transparency, etc.

So I was prompted to write the following letter to the editor which the paper was good enough to print.

Disappointed

Charity Navigator rates charitable organizations solely on the basis of financial information provided to the IRS by the organizations themselves. This does a disservice to many worthwhile charities and their stakeholders, including the community at large, charities' beneficiaries and donors. That's especially true for the charities that the article reports as having received low ratings.

Here are some problems with the Charity Navigator rating system:

(1) Studies show that financial data submitted by charities to the IRS are often wrong. An extensive study of charities' financial statements by the Urban Institute and the Indiana University concludes: "Virtually all the errors our study uncovered ... had the effect of understating the organization's administrative and fundraising cost." By giving higher ratings to charities that report "better numbers," Charity Navigator tends to penalize those organizations that more honestly account for their spending.

(2) Charity Navigator's rating scheme has a certain perverse quality. It lowers ratings for organizations whose revenue is declining and must therefore cut back on programming. But if a worthwhile charity is struggling to raise money, that may be exactly where I want my tzedakah to go.

(3) Even if financial data were correct, that's only part of the story. Evaluations of charities should also include consideration of such nonfinancial factors as the quality of programs and the efficiency in delivering them, and the effectiveness of the stewardship of resources. Our organization has prepared the booklet Smart Tzedakah: How to Evaluate Charities Before You Give. It is available free of charge online at www.just-tzedakah.org/resourcesSmartTzedakah.asp.

Special for our newsletter readers:

I did not have enough space to include the following points in my letter:

(1) Charity raters, like Charity Navigator, often give high marks to organizations that spend the least on overhead. However, research shows that too little spent on overhead can lead to poor management and even fraud and embezzelment. So, low spending on overhrad may not be a good thing.

(2) Charity Navigator gives higher scores to organizations that have higher amounts of working capital realtive to operating expenses. Generally, organizations whose working capital equals one year's expenses or more get better ratings. However, a donor may legitimately want to avoid charities that have large amounts of cash and liquid assets, which may imply that the charity doesn't know what to do with its money. We note that Jewish tradition discourages the accumulation of large amounts designated for the poor because the poor always have urgent needs.

(3) Of course, with regard to American fundraising arms of Israeli charities, Charity Navigator says nothing about the underlying Israeli operations.

(4) If you'd like a more in-depth evaluation of various charity raters, have a look at Rating the Raters: An Assessment of Organizations and Publications That Rate/Rank Charitable Nonprofit Organizations

(5) Charity raters that take a broader view are: The Standards for Excellence Institute and Better Business Bureau. Tzedakah, Inc. does not rate or endorse nonprofit organizations although we do provide detailed profiles of some Jewish charities. Click here to see profiles

Tizku L'mitzvos