A new charity watchdog rises

If you're like most Americans, the time to donate to charity is now. As much as 90 percent of all donations go out in the last quarter of the year.

Wouldn't it be nice to know that your money reaches its intended recipients? Not all of it does. Some pays for a nonprofit's fundraising and administrative costs, and that's understandable.

But frustration can set in when more money goes toward those costs than to the charity's mission.

Fortunately, donors can lean on three main national charity watchdog groups to learn if their favorite nonprofit is running efficiently.

Givers may be familiar with two of the groups: the American Institute of Philanthropy (www.charitywatch.org) and the Better Business Bureau's Wise Giving Alliance (www.give.org). Both have provided information on hundreds of charities for years.

Now joining the ratings game: Charity Navigator (www.charitynavigator.org), a free, Web-based service that went online April 15 and has rated more than 1,700 charities.

Inspiration for CN came four years ago, after New Jersey businessman John Dugan learned that the donations he and his wife made to a New York charity mostly enriched those who ran the organization. "We were giving to Hale House [a charity that helps sick children], and we thought they were doing really good things, and instead we were giving to people that were misusing the money," he says. (In a plea agreement, two former executives were sentenced last month to pay restitution for stealing $776,000 from the renowned organization.)

Not to be fooled again, Dugan started CN with $1.5 million - some of the wealth he reaped when PDI, a drug-marketing company he ran, went public in 1998.

CN's goal, says executive director Trent Stamp, is to "rate every nonprofit in America that reaches out to people it doesn't know."

Mr. Stamp says CN is focusing on charities that use direct mail, phone calls, Internet solicitations, and elaborate galas to raise funds. "We're trying to get all those organizations evaluated," he says, "and we think it's somewhere between 10,000 to 15,000 organizations."

When rating a nonprofit, CN examines the 990 IRS tax forms filed by nonprofits each year. It then compares those figures with charities involved in similar causes.

"The beauty of us being large is that we're able to compare the food banks to the food banks ... [and] the conservation societies with each other," Stamp says. "[We don't] have to try to make some gross generalizations across the board."

CN rates nonprofits on a scale of zero to four stars. Nearly 70 percent of the charities evaluated so far have ratings of three stars or better. Only 23 received zero stars. Several in this dubious category are what Stamp calls "sound-alike" charities, including the Multiple Sclerosis Association of America (MSAA). Some givers confuse that charity with the four-star National Multiple Sclerosis Society.

MSAA is spending somewhere around 30 cents on the dollar for actual research, and "the rest is just spent on direct-mail campaigns," Stamp says. "It's clear we didn't need the MS Association of America."

Another zero-star sound-alike: the Children's Wish Foundation, which could be confused with the Make-A-Wish Foundation.

While CN ratings are helpful, some in the nonprofit sector disagree with its approach. "They will give higher ratings if you can show revenue growth and asset accumulation. But that's just proving that the group may not need your money," says Daniel Borochoff, president of the American Institute of Philanthropy in Chicago. "It also encourages groups to raise money when they don't need it."

AIP rates some 400 charities, and takes issue with certain nonprofits that accumulate large amounts of assets. The Wise Giving Alliance uses 23 criteria.

"They're making [more of a] qualitative judgment I think ... whereas we're just trying to make sure that we get as many charities as possible," Stamp says.

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