Fast Company

Charitable Deductions

Charity Navigator dares to hold the nation's nonprofits accountable for their fund-raising.

Trent Stamp, an adept number cruncher and database sleuth, has spent the past two years poring over the finances of the nation's leading nonprofit organizations, and he is convinced of one thing: There are just too damn many charities in this country. To hear Stamp tell it, financial inefficiency and mismanagement are more prevalent among nonprofits than anyone knows, and he wants to let the whole world in on the secret.

Stamp is executive director of Charity Navigator, a Mahwah, New Jersey - based organization -- itself a nonprofit -- that tracks the financial performance of 2,500 charities across the nation. In Stamp's view, charities haven't been giving the public a clear understanding of their financial well-being, and without some independent evaluation, a public that is weary of accounting scandals and management cover-ups just might give up on their charitable giving. Says Stamp: "We're trying to answer the critical question: Which charities are the most responsible and efficient -- and which aren't?"

Using data gleaned from tax filings, Charity Navigator ranks nonprofits on the efficacy of their getting and spending, measuring them against seven benchmarks and assigning each one a rating on a scale of zero to four stars. Stamp believes that his rankings will become for philanthropists what Morningstar's mutual-fund ratings are for investors: a way to compare an organization's financial performance with that of its competitors.

It's precisely this view of donors as investors that motivates Stamp, who first saw the need for a CN-type model as a senior executive at educational organization Teach for America. "When potential donors asked why they should trust the organization, I had nothing better than my word to fall back on," he recalls. "I was embarrassed that we didn't have unbiased analysis of our performance."

While many have embraced Charity Navigator's rankings, not everyone is happy to have the group poking into their finances -- especially those organizations that performed disastrously in their initial evaluations. One such organization is the Multiple Sclerosis Association of America, which last year landed in the zero-star category. "They spend more on fund-raising than they do battling MS," chides Stamp. (A spokeswoman says that the nonprofit is working hard to "rein in costs.") Several well-known organizations, including PETA (People for the Ethical Treatment of Animals), fetched an unflattering two-star rating. Compared with other animal-rights groups, Stamp reports, a smaller percentage of PETA's dollars goes to protecting animals. PETA general counsel Jeff Kerr counters: "[Charity Navigator's] board is made up of marketing people from the pharmaceutical industry -- of course they hate us." Stamp doesn't shy away from the criticism. In the end, he wants donors to take a closer look at the finances of their favorite cause. And if that scrutiny breeds greater efficiency -- even if it drives some charities out of business -- well, that's fine with him.

Check CN's ratings on the Web at www.charitynavigator.org.

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