Assessing Any Charity Using Forbes' Ranking of the Top 100 Charitable Organizations
Assessing Any Charity Using Forbes' Ranking of the Top 100 Charitable Organizations
There's now an astonishing two million tax-exempt nonprofits in the USA. That's twice as many as the newly released list of America's Top 100 Charities from our platform. Yet, our directory can aid in evaluating any charity you might consider donating to. The reasoning behind this? Analytical processes are largely the same; the main difference lies in the magnitude of figures. Allow us to elucidate.
First, a concise description of our Top 100 Charities list and its methodology is essential. Our list ranks the 100 largest charities based on the amount of private support received during the most recent fiscal period for which data is available. This is not a judgmental list, but rather a reflection of size. While larger charities aren't inherently superior, they do tend to be well-known brands and have a history of effectiveness.
The data we gather generally comes directly from the charities themselves. This can take the form of audited financial statements, IRS Form 990 tax returns, annual reports, or our own survey forms that many charities fill out. The data covers fiscal years that typically end in 2023. Some charities report their results rapidly, while others take their time. Consequently, we have data for fiscal periods ending in 2024 and 2022 as well.
America’s Top 100 Charities
The private support we track can be contributions from individuals, their estates, donor-advised funds, corporations, foundations, other nonprofits, and federated campaigns, as well as revenue from fundraising events. We exclude government grants, income from sales or services, and investment returns. Donations can be in many forms, such as cash, securities, goods, real estate, and even labor or services if the charity can quantify this in its reports.
In order to be included in our list, a contribution must stem from pure charitable intent. This means the donor receives nothing in return except for the satisfaction of supporting a chosen cause (and potentially a tax deduction, but not the full value of the gift). We separate private support and government support for each charity, with everything else falling under other revenue.
Since our focus is on charities that attract the general public, we do not evaluate certain categories of nonprofits. These include purely academic institutions, donor-advised funds managed by financial companies, and religious entities that do not disclose their financial information publicly. We also avoid nonprofits with few direct donors and charities that receive most of their donations indirectly.
For each of the 100 charities on our list, we calculate three financial efficiency ratios, with gains or losses from the previous year highlighted if available. This is where our website’s list shines, as it can aid in evaluating similar charities not included in the list.
A word of caution here: Do not compare efficiency ratios of different types of charities. Ratios for a museum or international aid provider cannot be meaningfully compared with those of, say, a hospital or a single-disease charity. However, within the same category, ratios can be highly beneficial for analysis. Our website covers a wide range of categories, such as health care, domestic and international needs, environmental issues, animal welfare, religion, and youth services.
Assume you’re considering donating to your local food bank (there are many). By searching for their financial statements (we'll explain how to find these below), you can compare its financial efficiency ratios to the six food banks on our list. If the ratios are significantly worse at the charity you’re interested in, contact it and ask for an explanation.
Another warning: Financial efficiency measurements are only the initial step in analysis for potential donors. Overhead, a component of these calculations, is not inherently problematic. Like any organization, charities have expenses such as rent, insurance, and utilities. The goal is to identify charities with out-of-balance ratios, often due to excessive fundraising costs, without a justifiable reason for this imbalance.
Information needed to calculate efficiencies for many nonprofits can be found on the IRS Form 990 tax return (parts VIII and IX), a formal financial statement, or an annual report. A growing number of charities now publish some or all of these documents on their own websites. (The IRS allows charities with annual gross receipts below $200,000 and end-of-year total assets less than $500,000 to file a less revealing Form 990-EZ or, if annual gross receipts are usually below $50,000, a 990-N, which is essentially an electronic postcard that provides no financial information.) On the website of your charity of interest, look for links to “financials,” “financial information,” “accountability,” “990,” “annual report,” or “about us.” If searching for these terms on a site doesn't work, perhaps reconsider donating. However, many filings can be downloaded for free from Candid, ProPublica, and, even if the charity is not based there, the New York State Attorney General’s Office. Or simply contact the charity itself and request a set of filings.
CHARITY SPENDING BREAKDOWN This illustrates how much of a charity's total expenditure is directly allocated towards its charitable mission (often referred to as program support or program expense), rather than management costs, specific overhead expenses, and fundraising activities. The calculation is straightforward: program support expense divided by total expense. This year, the average is 87%, consistent with last year's figure. Charities that primarily receive donations in kind, typically as larger individual gifts with minimal fundraising expenses, generally perform better in this aspect. For instance, No. 5 Direct Relief demonstrated a charity commitment ratio of 100%. Charity monitoring organizations such as the Better Business Bureau Wise Giving Alliance advocate for a charity commitment no lower than 65%. All charities on our list exceed this threshold.
FUNDraising EFFICIENCY This closely scrutinized indicator determines the percentage of private donations remaining after subtracting fundraising costs. The calculation formula: private donations minus fundraising expense, divided by private donations. The average for all 100 charities is 91%, the same as last year. This implies that it costs approximately 9 cents to raise a $1. The average encompasses various charity types and fundraising approaches. Some gift-in-kind charities, characterized by fewer but larger donations and possibly inflated asset valuations, display extraordinary efficiency, with fundraising efficiencies of 100% (rounded) or near-perfect. At the opposite end are charities employing costly direct-mail and telemarketing solicitation strategies. While the BBB considers 65% to be the minimum acceptable figure, at Our Website we traditionally consider the threshold to be 70%. Only one charity on the list falls below this threshold: No. 100 Father Flanagan’s Boys’ Home, at 69%.
DONOR DEPENDENCE This engaging ratio calculates how much a nonprofit organization relies on donations to cover its expenses. The formula: private donations minus surplus, divided by private donations. A ratio of 100% implies revenues equaled expenses. A ratio above 100% indicates the charity had more expenses than revenue. A negative ratio (below 0%) signifies the charity had an annual surplus surpassing all private donations (usually observed in hospitals, such as No. 72 New York-Presbyterian Hospital, which in the fiscal year ending December 31, 2023, received $249 million in donations yet posted a surplus of $1.25 billion, resulting in a donor dependence ratio of -402%). The average for this year's list is 84%, implying the typical charity managed to save 16% of donations for future use. Last year's average ratio was lower, 81%, meaning 19% of donations were saved. Yearly disparities often stem from investment returns. This ratio's interpretation can be intriguing. For the other two ratios, a higher ratio is better, particularly in assessing year-to-year variation. However, the interpretation of this ratio relies on the donor's objectives. If the donor is attracted to a charity that urgently needs contributions to promptly allocate them, a ratio higher than 100% might be viewed favorably. On the other hand, if the benefactor is seeking a charity that can more self-sufficiently endure over the long term, a ratio below 100%—but not excessively so—might be regarded as preferable. This ratio tends to expose charities that persistently solicit money despite having substantial financial reserves or alternative revenue sources. Direct Relief, highlighted in a Our Website Daily Cover, possesses a donor dependence ratio of 99%, indicating that nearly all incoming funds were speedily directed towards aid.
The Internet offers a wealth of information.
Utilize Google to search for your charity of interest (be cautious of charities with names similar in sound, especially smaller nonprofit organizations containing the word “cancer” in their titles). Run the same search on Bing, usually displaying distinct results at the top. Perform the same searches again by incorporating the words "scam" or "fraud." This can expedite your access to any detrimental information. However, ensure the source is credible.
The Better Business Bureau Wise Giving Alliance (https://www.give.org) serves as one of numerous charity watchdogs that can evaluate a specific charity, regardless of its size, focusing mainly on good governance issues. Consider avoiding a charity that declines to share information with the BBB. Another valuable resource is Charity Navigator. Charity Watch is useful, although it primarily functions as a subscription service. Every state has a governmental office, usually located in the state capital, that oversees charities and can be contacted to inquire about potential complaints. The online IRS Exempt Organization Search database allows you to verify whether a donation to your charity of interest is eligible for a tax deduction.
Each year, we provide an update on an unusual financial efficiency-related legal issue in the charity sector that has endured longer than the American Civil War. Recently, the California appellate court listened to oral arguments in an appeal filed by the state Attorney General's Office, challenging court decisions in favor of two prominent international aid organizations: No. 43 Food for the Poor of Coconut Creek, Florida, and No. 56 Catholic Medical Mission Board of New York. The Attorney General leveled allegations against these charities in 2018, accusing them of exaggerating the value of donated resources and financial efficiencies in their fundraising pitches to California donors. The charities flatly denied any wrongdoing. Initially, an administrative law judge dismissed most of the case, and subsequently, a trial judge threw out the remaining charges, partly on First Amendment grounds. Another charity on our list, No. 14 MAP International of Brunswick, Georgia, settled the identical case in 2020 without acknowledging liability but agreeing to pay the Attorney General $80,600.
After reviewing the detailed information about America's Top 100 Charities, it's essential to understand that while largeness does not necessarily equate to superiority, these well-known charities often have a history of effectiveness due to their established names. When considering donations, it's crucial to evaluate the charitable intent of the contributions and calculate financial efficiency ratios, such as program support expense, fundraising efficiency, and donor dependence, to ensure your contribution is being used effectively. You can find this information on the IRS Form 990 tax return, financial statements, or annual reports, which are frequently available on a charity's website or from online sources like Candid, ProPublica, or the New York State Attorney General's Office.