Webinar Slides: Perspectives from the CFO of Charity Navigator

CBIZ & MHM Executive Education Series™ Getting the Most Value in the Public Domain:

Perspectives from the CFO of Charity Navigator Presented by:

Sandra Miniutti, VP, Marketing & CFO Charity Navigator

Mike Burns, Managing Director CBIZ MHM, LLC

June 9, 2015

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Today’s Presenters

Sandra Miniutti Vice President, Marketing & CFO, Charity Navigator 201.818.1288 | [email protected] Sandra has been with Charity Navigator since the summer of 2002. Originally a program analyst, she is now responsible for all aspects of Charity Navigator's brand, all partnerships, media relations, communications, outreach, and data sales. She regularly appears on television, radio, and in print, commenting on the non-profit sector. And as CFO, she is also responsible for managing Charity Navigator's finances.

Mike Burns, CPA Managing Director, CBIZ MHM 617.761.0584 | [email protected] Mike, located in the Boston office, is the firm's National Not-For-Profit Practice leader and New England Not-For-Profit Practice leader. Prior to joining the Firm in 2004, he was a partner in the Boston office of a top ten firm, where he acted as the department head and the partner-in-charge of not-for-profit client services. Mike has more than 25 years of audit experience and exclusively serves not-for-profit organizations. He serves as the audit partner on colleges, universities, secondary schools, cultural and human services organizations.

mailto:[email protected]

mailto:[email protected]


Today’s Agenda

1

2

Today’s Philanthropic Sector & the Rating Landscape

Charity Navigator (CN) & Its Approach to Rating Charities

How Charities Can Manage, Improve & Promote Their CN Rating

3

4 How Unrated Charities Can Earn the Trust of Donors

5 Evolution of CN’s Rating System

6 Questions

TODAY’S PHILANTHROPIC SECTOR & THE RATING

LANDSCAPE


Philanthropic Marketplace is Increasingly Competitive

Donations are Not Keeping Pace with Growth

Distrust Is Pervasive In Society Donors are More Hands-On & Expect

Results Charities are Eager to Prove Worthiness

of Support

Today’s Philanthropic Sector


Charity Watch BBB Wise Giving Alliance GuideStar GiveWell Standards for Excellence

Institute Community Foundations/

United Way GreatNonprofits Media

Rating Landscape

CHARITY NAVIGATOR (CN) & ITS APPROACH TO RATING

CHARITIES


To help charitable givers make intelligent giving decisions by providing information on thousands of charities and by evaluating the financial health, accountability and transparency of each of these charities.

To educate donors and policymakers by providing information regarding good practices for intelligent giving.

To drive more funding to high performing nonprofits by highlighting them and providing them with objective information to leverage with their supporters and prospective donors.

CN’s Mission


Donor Behavior 5.5 million unique visitors (7.3 million hits) 92% say evaluations affected their decision to support individual public

charities CN ratings influence decisions on billions in donations annually

Charity Behavior Begging to be Rated Stories of Substantial Gifts Proliferation of 4-Star Logo Charities Address Their A&T Shortcomings

Media Considerable media attention Endorsements - “Best of the Web,” Forbes

CN’s Impact


Tax Status: 501(c)(3) charities Sources of Revenue: Depend on support from individual

givers Type of Programs: All types of programs and services Length of Operations: At least 7 years Location: All parts of the country Size: America's largest charities

Which Charities Do We Rate?


Specific Types of Charities: Hospitals, hospital foundations, land trusts

Smaller Charities: Less than $500,000 in public support Churches: Exempt from filing the Form 990 (Salvation Army) 501(c) (4) organizations: Spend a substantial portion of their

revenue on lobbying, not every donation to them is tax-deductible (NRA, NOW)

Private Foundations: Receive the majority of support from only one individual, family or corporation (Bill & Melinda Gates Foundation)

Affiliates: We prefer to offer donors a consolidated rating (Alzheimer’s Association, American Cancer Society)

Which Charities Do We Rate?


1. Financial Health

2. Accountability & Transparency

Existing Star Rating System


CN 1.0 Launched in 2002 with 1,100 charities, 0 to 4-

star rating Financial Health : Efficiency & Capacity Difficult to obtain 990s from the charities

which were surprised at what they had reported to IRS and others on their 990s

CN 2.0 Launched in 2011 with 5,500 charities; Same

star system Includes 17 Accountability & Transparency

metrics Charities were surprised at how their

accountants/ auditors answered governance questions

From 1 to 2 Dimensions


Methodology


7 Financial Metrics 1. Program Expenses: Percent of total

functional expenses spent on programs and services (higher is better) =Program Expenses/ Total Functional Expenses

2. Administration Expenses: Percent of total functional expenses spent on administration (lower is better) =Management & General Expenses/ Total Functional Expenses

3. Fundraising Expenses: Percent of total functional expenses spent on fundraising (lower is better) =Fundraising Expenses/ Total Functional Expenses

4. Fundraising Efficiency: Amount a charity spends to raise $1(lower is better) =Fundraising Expenses/Total Contributions

5. Average Annual Growth of Operating Revenue: Measures growth of grants and contributions, revenue generated from programs and services, and membership fees and dues over 4 years. =[(Yn/Y0) (1/n) ]-1 Y0 is the value measured in the first year Yn is the value measured in the last year n is the length of the interval in years (3-5)

6. Average Annual Growth of Programs and Services: Measures growth of program expenses over 4 years.

7. Working Capital Ratio: Determines how long a charity could sustain its level of spending using only its net liquid assets, as reported on its most recently filed Form 990. =Net Available Assets/ Total Expenses (including payments to affiliates)


12 Metrics from 990 Deduct as much as 15 for the first three Deduct 7 if material diversion of

assets within the last two years, with a satisfactory explanation

Deduct 7 if audited financial statements are prepared or reviewed by an independent accountant, but that accountant is not selected and overseen by an internal committee

Deduct 4 for the rest

17 Accountability & Transparency Metrics


5 Metrics from Website Deduct 4 points for Board, Audited Financials, No privacy policy

Deduct 3 points for staff, 990, opt-out privacy policy

17 Accountability & Transparency Metrics

HOW CHARITIES CAN MANAGE, IMPROVE & PROMOTE THEIR CN

RATING


1. Establish a Registered Representative Suggest Basic Info Updates (contact, mission, tag line)

and Notify Us About A&T Improvements Post a Comment Access Charity FAQs Add your charity to “My

Charities” to be alerted when we change your rating

4-Star Charities Can Access Promotional Tools

How Can Charities Improve their Ratings?

See our blog for more details & instructions on how to sign up http://goo.gl/2fI7RZ

http://goo.gl/2fI7RZ


2. Address A&T Shortcomings Website Metrics (staff, audit …)

Send us links, we review and update accordingly 990 Metrics

Updated without a new/amended 990: Independent Board members, minutes, Conflict of Interest, Whistleblower, Records Retention, Process for setting CEO pay, Compensation of Board member

Requires new/amended 990: Material diversion of assets, Loan(s) to or from related parties, Audited financials prepared by independent accountant with an audit oversight committee, Copy of Form 990 provided to organization's governing body in advance of filing, CEO listed with salary.

A&T Updates Published Monthly



3. Clearly Articulate Programs on Form 990



4. Read up on our Methodology


www.charitynavigator.org/methodology


Promoting 4-Stars

Press Releases Social Media Boilerplate Newsletters Websites Grant Proposals Annual Reports Appeal Letters

and Envelopes Banners Job Postings


Take time to understand the areas in which your charity is underperforming & share that information with the board and upper management

Develop a strategy to improve your evaluation As you improve, be sure to file your 990s in a

timely manner/communicate with CN staff on A&T changes

Don’t deny the accuracy or relevancy of the rating Build trust and confidence with your donors by being open and

honest about your shortcomings Communicate your plan for improving your rating

Highlight your programmatic successes and any improvements you’ve made in your fiscal operations

How to Deal with a Poor Rating

HOW UNRATED CHARITIES CAN EARN THE TRUST OF DONORS


Be Transparent Be upfront with the public about your finances Explain how you spend your money, how efficient you are,

how you're growing Be honest about how much your CEO makes

Follow Best Practices Use CN’s A&T metrics as a guide to implement policies and

procedures to help ensure ethical behavior

If Your Charity Isn’t Rated…


Promote, Don't Harass Adopt a donor privacy policy, put it in writing, and share it with

your donors Don’t solicit on the telephone, at least not with non-employees Use a professional, informative, and up-to-date website to

promote your charity

Show Results Let donors know your track record of success Evaluate your success against quantifiable program goals Acknowledge mistakes and discuss course corrections

If Your Charity Isn’t Rated…

EVOLUTION OF CN’S RATING SYSTEM


Results Reporting

Changes to Financial Metrics

Evolution of CN’s Rating System


Letter to the Donors of America


A Segment of Donors Want Impact Data


90%

87%

78%

76%

62%

59%

46%

41%

34%

31%

30%

28%

24%

0% 20% 40% 60% 80% 100%

Org's Effectiveness

How the Org will Use my Donation

Quality of Leadership

Percent of Costs to Overhead

Ease of Donation

Not Being Asked for Money Too Often

Ability to Direct Donation's Use

Regular Progress Reports

Endorsements by Person I Trust

Prompt and Sincere Thank You

Ability to Get Involved

Org Approach - Novel / Innovative

Contact with the End Beneficiaries

That Segment is Huge!

Based on the Money for Good donor research of Hope Consulting


The Reality

The vast majority of charities are not measuring and

reporting on their results.

Instruction to Donors

Don’t use overhead as the primary metric for charitable giving

decisions. Instead focus on impact.

The Dilemma


THE OVERHEAD SOLUTION

Letter to the Nonprofits of America


Launched in 2013 with 5 Elements Alignment of Mission, Solicitations and Resources Results Logic and Measures Validators Constituent Voice Published Evaluation Reports

Results Reporting


Dispelling the Myth:

Results Reporting is NOT… An assessment of the quality of your results A comparison of your specific results or metrics against other

charities A complex and lengthy set of metrics An evaluation system that requires your organization to meet all

standards to get a high rating


An assessment of how charities come to know, use, and share their results with stakeholders, including donors

We are looking to see that you are reporting on demonstrably important measures, and showing how your organization learns and improves based on those measures (i.e. learning and improving over time is more important than a ‘snapshot’ of results)

Results Reporting (RR) is..


When Will RR Impact Your Rating?

Not anytime soon because…


Results Reporting – On Hold

Research into 3,000 charities with all types of missions reveals: Most Charities are not yet tracking their

results Those that do tend to not publish their

results Different types of charities are

progressing at different rates Even within a ‘cause’ there is much

inconsistency Our methodology was too advanced for

the state of RR


Results Reporting – On Hold

What we plan to do: Take our time to get it right Analyze the data that we have collected Continue to ask for feedback from:

Charities we evaluate Industry and cause specific experts Donors

Re-evaluate the types of questions we ask Possibility of cause specific metrics


Mission Related Ideas General Ideas

We Welcome Your Suggestions



Coming 2016 Years in the works Financial Advisory Task Force of Industry Experts, Charity

Representatives, Staff, Board, Academics Feedback from Rated Charities



Possible changes include: Three Year Averaging Elimination of Revenue Growth Assignment of different weights to the remaining six factors Adding a new metric to replace Revenue Growth Elimination of Deficit Adjustments Calculation of Program Expense Growth based on all available

data rather than just two points in time

FINAL THOUGHTS & RESOURCES


Send us your Suggestions Establish a Registered

Representative (See our blog for more details & instructions on how to sign up http://goo.gl/2fI7RZ)

Take Steps to Measure your Results

Advocate for Funding to Measure Results

Publically Share your Results (990 and elsewhere)

Final Thoughts

http://goo.gl/2fI7RZ


Additional Resources

Principles of Good Governance and Ethical Practices, by Panel on the Nonprofit Sector

Charting Impact, by the Independent Sector Money for Good project, by Hope Consulting The Nonprofit Outcome Toolbox, by

Dr. Robert Penna The Performance Imperative,

www.performanceimperative.org

http://www.performanceimperative.org/


Website Twitter Facebook CN Blog Get in Touch!

CharityNavigator.org twitter.com/CharityNav facebook.com/charitynavigator blog.charitynavigator.org/ help.charitynavigator.org/home

Thank You!

To Stay Connected & Learn More


Questions?


Save-the-date for these courses: 9/17 and 10/6: Controlling and Managing Healthcare Costs – Practical

Guidance to Maximize Value 12/8 and 12/11: Not-for-Profit Update – Lobbying, Political Activity and

Other Considerations

Read these related publications: Delay of New Revenue Recognition Standard: Effect on Nonprofits Not-for-Profits Brace for Enhanced Disclosures and Reporting

Requirements Safe Harbor expanded for 501(c)(3) Bond-Financed Buildings Seven Resources to Identify New Board Members

If You Enjoyed This Webinar…

http://www.mhmcpa.com/articles/vw/1/itemid/629.aspx



https://www.cbiz.com/insights-resources/details/articleid/2679/safe-harbor-expanded-for-501-c-3-bond-financed-buildings-article

https://www.cbiz.com/insights-resources/details/articleid/2610/seven-resources-to-identify-new-board-members-article


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Webinar Slides: Perspectives from the CFO of Charity Navigator