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CalNonprofits Asks Charity Navigator to Make Changes

The California Association of Nonprofits (known as CalNonprofits) has urged Charity Navigator to make two big changes in the way the organization evaluates nonprofits. The group sent Charity Navigator a letter after recent news of the watchdog’s CEO Ken Berger departing from the organization. This letter, directed to Charity Navigator’s co-founder (John Dugan), asks the organization to count the value of volunteer time when evaluating a charity’s finances and change the way it assesses the costs involved in joint fundraising and educational campaigns.

CalNonprofits also asks the group to find a new CEO with experience in a “wide range of nonprofit work.” The organization also stated that the new head should have “a commitment to nonprofits as central vehicles through which people take care of one another, develop and protect shared values, and serve as the ‘marketplace of ideas.’”

The letter comments on Charity Navigator’s involvement in the “overhead myth” which we have covered in several previous posts.  “A factory that underinvests in overhead,” the letter says, “will soon find its roof is leaking, its electrical systems failing, without adequate insurance, and without the investments in staff compensation and training that are key to success.” The group urges Charity Navigator to “talk about the twin problems of overspending and underinvesting in shared operational expenses.”

Dugan has stated, in a response to this letter, that “Through the years, we’ve consistently shared the message that overhead expenses are a necessary part of operating a charity. This is reflected in our methodology in that the financial health of a charity accounts for just 50 percent of its rating.” The organization also stated that “financial health will potentially play an even smaller role in the charity’s rating.”

CalNonprofits also asked Charity Navigator to change its policy of counting all “joint costs” as fundraising costs. Joint costs are those that apply when fundraising solicitations have an educational component. Charities can apply a portion of those costs to programs in some cases, but Charity Navigator disallows it. Charity Navigator, however, has stated that only 5 percent of the charities it rates report joint costs and less than 1 percent have received lower ratings because of the policy.

For more information on this, check out this article by the Chronicle of Philanthropy.

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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