October 21, 2020
By Richard J. Locastro, CPA, JD, Partner and Director, Nonprofit Tax
Charity Navigator has added another beacon as part of the roll out of its new Encompass Rating System – Impact & Results. This follows Charity Navigator’s acquisition of ImpactMatters and identifies high-impact nonprofits who demonstrate “cost-effectiveness”. The Impact & Results beacon currently includes service delivery nonprofits, but Charity Navigator is exploring alternative methodologies so that it can measure the impact of a larger variety of nonprofit organizations.
In the first phase of Impact & Results, eligible nonprofits must meet the following requirements.
- At least 2/3 of their activities are directly delivered to beneficiaries;
- They provide a service charitably (at low or no cost); and
- They receive private, charitable contributions from individuals, corporations or foundations.
Charity Navigator acknowledges more ratings are to come – they are still in the process of developing methodologies to analyze a variety of program types.
Charity Navigator reports the use of publicly available information to estimate the actual impact of the nonprofit on beneficiaries and then compares to those results to benchmarks to determine cost-effectiveness. Read more about ImpactMatters methodology.
The methodology for scoring nonprofits for the Impact & Results beacon follows:
- Zero out of 100 points – Charity Navigator did not have enough information to estimate the impact of the nonprofit’s programs.
- 50 out of 100 points – Charity Navigator had enough information to measure impact, but the nonprofit was not determined to be cost-effective.
- 75 out of 100 points – Determined to be cost-effective and received a passing score.
- 100 out of 100 points – Determined to be highly cost-effective by Charity Navigator’s estimates.
While Charity Navigator does not specifically mention IRS Form 990, it is a fair assumption that the information in Part III is a least a portion of the publicly available information they use to measure impact. With this in mind, now is a good time to review Part III of your organization’s Form 990 and determine if it accurately reflects the impact your nonprofit has on its beneficiaries. For tips and best practices, read our blog post, Your Secret Nonprofit Fundraising Weapon: IRS Form 990.
GRF continues to monitor the roll out of the Encompass Rating System. For questions about how to improve your organization’s current rating, contact GRF’s team of Nonprofit Tax experts.
Partner and Director, Nonprofit Tax