White Paper #3
Charity Navigator (CN) operates a system for evaluating U.S. public charities, with the purpose of helping donors make informed decisions. In this paper we summarize the organization’s rating process and dissect its evaluation methodology. We find that while CN offers a needed standard for nonprofit accountability and has potential to fulfill its mission in the future, its current system has substantial deficiencies that can misinform donors and harm nonprofits. Major problems include the composition of the Financial Health Rating, which is not a valid gauge of nonprofits’ financial health. We offer recommendations to donors on alternative research methods, to nonprofits and management consultants on presenting informative data to the public, and to CN on constructive improvements to its system.