April 13, 2025

Not-For-Profits Watch Dogs

There are over 2 million nonprofit organizations operating in the United States. Of those, approximately 1.5 million were 501©3 tax exempt organizations in 2022.There are two categories of 501©3 nonprofits, charitable organizations and churches & religious organizations. Private Foundations are also considered a 501©3 organization.

Charitable organizations must file an annual tax form, 990, with the IRS while churches and religious organizations are not required to.

Other restrains on 501©3 organizations include: they can’t pass any of their income to private shareholders or individuals, nor can they be involved in any political activity.

Private Foundations must file a 990-PF instead of a 990. They also must pay an excise tax on their net investment activity income. They also have restrictions on their activities: including that they must distribute annually, their income to charitable organizations, and there are limits on holdings in private business.

There are four organizations that are considered “watch dogs” on these 501©3 organizations: Charity Navigator, Charity Watch, Guidestar & GreatNonprofits.

They evaluate the operation of other nonprofits, and report the results to help donors decide whether to donate or not. They are also 501© 3 nonprofits.

Charity Navigator is considered one of the oldest evaluation firms, and one of the largest. They issue ratings based upon 4 stars. Their evaluations are said to be based on financial results, accountability & transparency, and results reporting.

Charity watch issues a letter grade, from A to F. It was initially founded as the American Institute of Philanthropy. They attempt to evaluate how efficient an organization is run and how their revenue is spent.

Guidestar summarizes both the mission of an organization and their financial results. They are a “fact” disbursing organization.

GreatNonprofits is a relatively new organization. Their objective is to prepare reviews on an organization much like an organization does for restaurants.

I decided to look into Charity Navigator and Charity Watch and was surprised by what I found.

Charity Navigator is based in Saddle Brook, NJ. Their revenue for the year ended June 30, 2023 amounted to $4.2 million. Expenses amounted to $8.4 million, resulting in a loss of $4.2 million. For the prior year, revenue amounted to $14.3 million and net income over expenses amounted to $7.3 million.

For the year ended June 30, 2023, salaries & benefits totaled $4.2 million and other expenses $4.2 million.

The stated mission of Charity Navigator is “to make impactful giving easier for all by providing accessible information, ratings & tools for all donors….” In looking at their financial information, there appears to be no way that they could make meaningful information or ratings on other charities. In my opinion, they don’t possess the manpower or technology to do that. They indicate that they have over 200,000 rated charities with assessments on accountability & finance. I would not want to rely on their ratings.

Charity Watch is based in Chicago, IL. For the calendar year 2023, they show $640,605 in revenue and $618,297 in total expenses for an excess of revenue over expense of $22,308. Salaries and benefits amounted to $412,029.There were no significant differences in 2022.

Their mission statement states, “works to uncover and report on wrongdoing in the nonprofit sector by conducting in-depth analysis of the audited financial reports, tax forms…” Again, I don’t see how they can do this with any degree of certainty. They don’t have the manpower to achieve this or the financial resources.

In summary, I don’t think that you can rely on any of these organizations, with any degree of certainty, in determining where to donate.

Only you can decide if the mission of the organization is one that you embrace, and if it appears to be run fairly efficiently. No one but you can decide where you should put your contributions.

Jess Sweely

Madison, Va.