Navigating Nonprofit Ratings: Understanding and Enhancing Your Organization's Public Profile

By Sarah C. Zelhart, CPA

As giving grows more digital and donor-driven, nonprofit ratings play a bigger role in shaping trust and attracting support. Understanding how these ratings work – and how to improve them, is now essential for every nonprofit.

The world of charitable giving has changed significantly. Giving can be completed from our phones or computers and is often in response to current events or news articles that resonate with donors. Donors want to give their funds to organizations that are trustworthy, transparent, effective and efficient. They are increasingly turning to the internet to determine the quality of an organization and whether or not they will donate.

There has been a consistent debate about the validity of nonprofit ratings and if those ratings are accurate and matter, or if we should even rate or rank organizations at all. No matter which side you are on in those debates, the simple fact is nonprofits are rated and ranked.

If you work for or with a nonprofit in any way, it is imperative to understand the rationale behind the ratings, the influence they have on the public profile of the organization and how finance plays a part in them.

Understanding the ratings

Rating agencies differ in the form, substance and type of ratings they provide. It is important to understand the purpose and methodology of each agency. Here are the four most common agencies.

Many of us are familiar with Candid, formerly known as GuideStar, as it is the most comprehensive database of Form 990 information. After merging with Foundation Center in 2019 and renaming the organization, the ratings or “Seals of Transparency” were introduced.

Seals are at four levels – bronze, silver, gold and platinum. With each increase in level, Candid asks for additional information directly from the organization. The first levels are very simple, including contact and leadership information. To achieve their highest level, at least one piece of information from the most recent year must be submitted including the organization’s goals, strategies and metrics.

Similar to Candid is the rating agency, Charity Navigator. It has recently changed to a two-part system of stars (zero to four) and beacons. The assessment is based on the information from Form 990 and information provided directly by organizations.

Charity Navigator is consistently updating their methodology, having been through at least three significant methodology changes in the past decade. Their results are both complicated and widely followed by donors, as it is the most popular ratings website, making it important to learn and pay attention to managing the information.

Great Nonprofits is another agency, but unlike Candid and Charity Navigator, ratings are based on reviews provided by donors rather than financial measurements. Any nonprofit that receives 10 or more four- or five-star ratings and maintains an average of 3.5 stars will receive a Top-Rated award. Great Nonprofits believe these ratings will help attract volunteers, donations and supporters.

The last common rating agency is the Better Business Bureau (BBB). BBB conducts a thorough evaluation based on 20 “Standards for Charity Accountability.” These standards are divided into areas of governance and oversight, measuring effectiveness, finances, and solicitations and informational materials. For a full list of standards visit, https://give.org/charity-landing-page/bbb-standards-for-charity-accountability

There is no charge to participate in their accountability assessment. However, if an organization is found to meet all 20 standards, there is a charge to license the BBB seal to be displayed on the organization website and promotional materials. The assessment must be updated every 24 months.

There are ways to increase transparency and influence how donors see your information online.

1. Set up and claim your profile: Rating agencies allow organizations to claim their profile, which means establishing a point of contact for the organization and filling out details regarding the nonprofit. This person should be in a position to obtain and interpret data.
2. Submit information and explanations to raise ratings: The point of contact will be responsible for uploading data so it is available to donors or to provide information to raise the organization’s score. It is important that this responsibility is kept as an active task and you are mindful of turnover when selecting the point of contact. This person will not only upload data but may receive requests for information and must keep management informed.
3. Compare yourself to your peers: Who are your donors comparing you to? Is there an area where they are ranked higher than you? If they have a higher score than yours in any given area, take a deeper look. You may determine that by adding a policy or changing the location of information on your website, you could increase your score.

What can you do to increase ratings and transparency?

Ratings are primarily derived from Form 990 data. As CPAs know, there are significant differences between tax reporting and audited financial statements. These differences may create inconsistencies in the ratings and how an organization portrays itself.

For example, if an organization receives donations of services, those services may not appear as revenue and expenses on Form 990. If those services are significant and mission-related, the program service ratio of the audited financial statements will differ greatly from the Form 990.

It is best to equip your development staff, executives and board members with explanations of any key areas of difference. Creating a cross-collaborative team of finance, development, communications and leadership may allow you to elicit the questions heard most often from donors and develop an ongoing FAQ.

Proactive messaging on the website, including key metrics that are judged by the rating agencies, may also provide a quick response to those questions. Keeping financial information current on the organization website including Form 990, audited financial statements and an annual report can increase transparency and a sense of reliability. Proactive messaging may also include using the Form 990 itself to point out the differences between financial and tax reporting measurements within the Schedule O – the schedule where you have an opportunity to provide narrative information about your organization.

In closing, nonprofit organizations should take steps to understand and increase their ratings with agencies. Ratings influence the public’s opinion of the organization with potential volunteers, donors and other stakeholders. To learn more about this topic, we invite you to join the ASCPA’s Not-for-Profit Conference on June 26 at Venue8600 in Scottsdale, AZ. To register, visit www.ascpa.com/npc