Charity Navigator Initiates New Era in Charitable Giving with Launch of Encompass Rating System
Charity Navigator, the world’s largest and most-utilized independent evaluator of nonprofit organizations, began rolling out the first phase of their new Encompass Rating System in July 2020. The rating system looks at an organization’s total impact in achieving outcomes and considers attributes that enable future and sustained success.
With more than 8.5 million users annually, many donors rely on Charity Navigator to help inform their giving decisions. Yet, at the time of the rollout, only a small fraction of nonprofits in the U.S. had received a star rating.
The new Encompass Rating System allows Charity Navigator to rate organizations at scale, automatically analyzing tax forms for three consecutive years. At the time of the rollout, Charity Navigator had increased the total number of rated nonprofits from 9,000 to 160,000. It also expands eligibility to smaller and less established nonprofits that didn’t meet the requirements previously.
Practical Consideration: These types of rating systems highlight the need for nonprofit organizations to ensure the information on their Form 990 is complete and accurate.
The system scores nonprofit organizations on a scale from zero to 100, with a score of 75 or higher indicating effectiveness in the assessed areas. Charity Navigator recommends an organization rated 75 or above and gives it a “Give with Confidence” designation.
The comprehensive evaluation tool analyzes nonprofit performance based on four indicators (or beacons):
Finance & Accountability
Measures financial health, stability, efficiency, and sustainability. The system utilizes nine metrics when assessing this beacon. Of these, the three highest point values are based on the percentage spent on program expenses out of total expenses (25 points); board composition and independence (25-35 points); and if the organization had an independent audit, review, or compilation (20 points).
Impact & Results
Assesses cost effectiveness of an organization’s programs and evaluates delivery of the nonprofit’s mission and outcomes. The system bases the scoring on estimated impact on the lives of those served and how the nonprofit uses donor resources.
To receive a score in this category, there are several eligibility criteria. The entity must deliver at least two thirds of its activities (measured by program service expenses) directly to beneficiaries and the impact must be reasonably measurable. Also, the nonprofit organization must provide a service at low or no cost to beneficiaries distinct from its donors. The organization must receive private charitable contributions.
Leadership & Adaptability
Assesses leadership capacity and development, strategic planning and goal setting, and the ability to be innovative and respond to changes in demand and other external changes to achieve the mission of the organization.
Culture & Community
Evaluates the organization’s engagement in feedback with beneficiaries of its programs and other constituents. This beacon includes rating feedback practices to achieve mission impact and community benefit. Organizations must fill out a profile section and answer specific questions to receive a rating for this beacon.
For more information about the Encompass Rating System visit charitynavigator.org.
Since 1974, our trusted advisors have partnered with nonprofit organizations to navigate every step of the financial journey. At Dugan & Lopatka, our CPAs and consultants are always on the cutting edge of changes in the nonprofit sector. We understand the challenges you face—the special accounting, auditing and reporting requirements of your organization—and we use our deep expertise to deliver exceptional service tailored to your needs.