Making the Grade: Rating Catholic-Sponsored Charities

Article excerpt

The financial crisis has left charities scrambling to satisfy increased demand for services and to raise the dollars needed to fund programs. This has made charitable giving an even more treacherous endeavor as donors try to figure out which charities manage their resources in the most prudent and transparent manner.

With nearly 2 million not-for-profit charities in the United States, how can donors really know the inner workings of charitable organizations?

Increasingly, donors rely on independent rating agencies like the Better Business Bureau Wise Giving Alliance, the American Institute of Philanthropy, and Charity Navigator.

By law, however, there are minimal disclosure requirements for U.S. charities. The Internal Revenue Service requires most charities to file Form 990. This publicly available document offers a snapshot of the charity and its finances, board, officer compensation, major vendor relationships and so on. However, the IRS exempts churches and church-affiliated organizations, among others, from this annual filing requirement, so parishes and dioceses do not have to report.

The Better Business Bureau Wise Giving Alliance recommends audited financial statements for charities with $250,000 or more in revenue. "Regardless of an organization's tax status, independent, audited financial statements reflect good husbandry of an organization's revenues," said Marcus Owens, former director of the Exempt Organizations Division at the IRS and a member of the board of the Wise Giving Alliance.

Meanwhile, many Catholic-affiliated, non-church charities are required to file Form 990. Take, for example, the Kansas City, Kan.-based Christian Foundation for Children and Aging. This lay Catholic organization matches sponsors with children, youth, aging and their families of all religious and nonreligious backgrounds so they may live with dignity and achieve their desired potential.

"CFCA is a movement of people as much as it is an organization," said Paco Wertin, CEO of the foundation. "Our relationships are based on integrity and accountability, which permeates all of our behavior." As a result, "the accountability ratings are very important to us, to our sponsors and our sponsored," Wertin said.

The foundation offers donors comfort by being rated by the Better Business Bureau, Charity Navigator (four stars) and the American Institute of Philanthropy (A+")--top of the class in terms of governance, management, and financial accountability.

While rating agencies want to help donors make informed decisions, not all rating agencies are the same.

The Better Business Bureau has a rigorous "20 Standards of Charitable Accountability" that take into account much more information than just the IRS Form 990. "We don't use a star or grading system," said Bennett Weiner, chief operating officer of the Arlington, Va.-based bureau.

"Either a charity meets or does not meet our 20 accountability standards," he said. The 1,200 charities analyzed by the Better Business Bureau seek donors from all over the United States. Local Better Business Bureaus evaluate charities with regional solicitation campaigns.

The Better Business Bureau selects charities on its own or when requested by enough donors. The charities are invited to participate in the evaluation process, but are not required to do so. Charities are not charged a fee for the bureau's work.

According to Weiner, the top five reasons why charities fail to meet the standards are a low frequency of full, in-person board meetings, no annual report or ones with inadequate financial data, a lack of self-evaluation and formal board acceptance of the evaluation, and no disclosure of relevant financial information on a charity's Web site. …