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Go For Gold The Charity Watchdogs and the “Overhead Myth”
Training Program Developed by: YOUR PART-TIME CONTROLLER, LLC Copyright © 2019 by Your Part-Time Controller, LLC All rights reserved
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Go For Gold The Charity Watchdogs and the “Overhead Myth”
PLATINUM! Go For Gold The Charity Watchdogs and the “Overhead Myth” Training Program Developed by: YOUR PART-TIME CONTROLLER, LLC Copyright © 2019 by Your Part-Time Controller, LLC All rights reserved
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Agenda What are Charity Watchdogs? Who are the Charity Watchdogs?
During today’s seminar, we will share: What are Charity Watchdogs? Who are the Charity Watchdogs? Who appointed the Charity Watchdogs? Why should you care? What do the Charity Watchdogs look at, and where do they get their information? GuideStar CharityNavigator BBB Wise Giving Alliance (Give.org) What is “The Overhead Myth” and what does it say about some common misconceptions about the way the world looks at nonprofits What can you do to present your organization in the best light. Go For Gold
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(1) WHAT ARE CHARITY WATCHDOGS?
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Charity watchdogs are organizations that collect and share information about nonprofit organizations
They use this information to evaluate, rate, and judge your organization base on criteria they consider important These ratings are available to the public Charity watchdogs are nonprofit organizations themselves! Some, like GuideStar, will allow nonprofit organizations to share information about themselves. Most of the charity watchdog organizations rely on donations from visitors. Go For Gold
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(2) WHO ARE THE CHARITY WATCHDOGS?
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Top charity watchdog organizations
GuideStar (by Candid.) ( Charity Navigator ( BBB (Better Business Bureau) Wise Giving Alliance ( CharityWatch ( There are others, but these are the main ones we’ll be discussing today. Go For Gold
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MISSIONS Go For Gold
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GuideStar's Mission: “Our mission is to revolutionize philanthropy by providing information that advances transparency, enables users to make better decisions, and encourages charitable giving.” Go For Gold
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Charity Navigator’s Mission:
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BBB Wise Giving’s Mission:
The BBB Wise Giving Alliance helps donors make informed giving decisions and promotes high standards of conduct among organizations that solicit contributions from the public. Go For Gold
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CharityWatch’s Mission:
The mission of CharityWatch, a nonprofit charity watchdog and information service, is to maximize the effectiveness of every dollar contributed to charity by providing donors with the information they need to make more informed giving decisions. Go For Gold
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SCOPE Go For Gold
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GuideStar Scope Go For Gold
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Overview: Charity Navigator
Founded to provide a source of unbiased and transparent info to donors Nation’s largest evaluator of charities using data from the IRS and charity websites Less than 20 full-time employees Registration is free Users can create a “Giving Basket” and donate to multiple nonprofits Founded in 2001, IRS Ruling Year 2002. Budget size less than $4M. Charity Navigator depends on support from individuals, corporations and foundations. Registered Users can compare charities and analyze the sector, all for free! Charity Navigator partners with Network for Good to process donations via its “Giving Basket.” (According to the CN website, the advantage is that Network for Good has relatively low credit card processing fees and also allows donor the option to cover the processing fee.) Users can even choose to donate anonymously. CN also partners with GuideStar, Classy, and GlobalGiving. Go For Gold
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Overview: BBB Wise Giving Alliance
43 Years 11K Charity Reports Founded in 1975, it’s the oldest of the ratings organizations Produces charity reports, evaluating data against a series of charity standards Information used is provided by the organizations being evaluated No charge for an evaluation but charities can choose to pay a license fee to use the BBB Accredited Charity Seal Charity searches are free Budget size about $2.3M. BBB Accredited Charity Seal program. Go For Gold
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Overview: CharityWatch
25 Years 600 Charity Reports Originally founded as the American Institute of Philanthropy Fewer ratings but more in-depth analysis Prides itself on exposing nonprofit abuses Access to charity ratings is free Founded in 1992, IRS Ruling Year 1994 (year granted tax exempt status). They like to focus on large charities they believe are of interest to donors nationally. Visitors do not have to travel far for stories: check out their website for the: latest stories of nonprofit abuse list of the top 25 compensation packages they found in list of their top-rated charities Go For Gold
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(3) WHO APPOINTED THE CHARITY WATCHDOGS?
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They appointed themselves
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(4) WHY SHOULD YOU CARE? Go For Gold
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Why Ratings Matter Donors evaluate nonprofits using information they find on charity watchdog websites Stakeholders (like volunteers, institutional funders, and partnering organizations) use ratings to benchmark organizations against their peers Board Members use ratings to assess whether to volunteer Future Nonprofit Leaders use ratings to assess whether to apply to key positions What type of information might be important to each of these groups? For example, board members might be interested in financial performance while donors might be more interested in program accomplishments. Whatever the information, today’s charity watchdog organizations can usually provide it. Go For Gold
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Why Ratings Matter There is a strong correlation between increased transparency and increased giving: 65% of donors would be influenced to give more if they had greater insight into the impact of their giving Source - DONORS FOR DOLLARS! Overcoming Barriers to Giving, Fidelity Charitable survey of 3,254 who gave to charity in 2015 Go For Gold
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Why Ratings Matter Would your organization like to increase donations by 50% or more? Transparent nonprofits saw an increase of 53% more in contributions than organizations that were less transparent Researchers compared nonprofits that earned a GuideStar Seal of Transparency with those that did not Source - boosts-giving/ Researchers looked at more than 14,000 nonprofits in the GuideStar database, selecting more than 6,300 to examine more closely. GuideStar was not involved in the analysis or creation of the paper. Determinants and Consequences of Nonprofit Transparency, Journal of Accounting, Auditing & Finance, by Erica E. Harris and Daniel Neely, First published 12/3/ Go For Gold
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What do these companies have in common?
They all use data from GuideStar! Go For Gold
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Why Ratings Matter Having an up-to-date charity profile is one way to increase transparency. The reward can be greater access to donors! For example: Listing on giving portals powered by GuideStar AmazonSmile Fidelity Charitable Network for Good Vanguard Charitable Listing on the “Giving Basket” powered by Charity Navigator and Network for Good This is HUGE! Free advertising for your nonprofit! Access to donors! The “Giving Basket” concept makes even more sense after recent tax law changes (doubling of standard deduction); donors are looking for opportunities to “bunch” donations or give to donor-advised funds. Go For Gold
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Steps to Improve Charity Profile Ratings
Go for Gold and Platinum! Earning a GuideStar Seal of Transparency ensures your organization is listed on GuideStar giving portals 78% of organizations who received donations through GuideStar's website held seals The average donation for Gold and Platinum seal holders was 11% higher than the combined average donation for non-Seal holders and those with only Bronze or Silver Be sure to update your information at least once a year Go For Gold
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(5) WHAT DO THE CHARITY WATCHDOGS LOOK AT
(5) WHAT DO THE CHARITY WATCHDOGS LOOK AT? And where do they get their information? Go For Gold
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What GUIDESTAR Looks At
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Overview: GuideStar Nonprofits can update their GuideStar profile for free GuideStar differs from other charity watchdogs because it does not rank organizations Organizations self-report to earn “Seals of Transparency” Levels: Bronze, Silver, Gold, and Platinum Seal levels include Bronze, Silver, Gold, and Platinum. More on the seals later in this presentation. Go For Gold
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Steps to Improve Charity Profile Ratings
Claim your Nonprofit Profile on GuideStar and update it to one of the top levels of transparency Bronze Silver Gold Platinum Provide basic info such as primary contact, leader, board chair, and program info Provide audited financial statements Provide answers to 5 impact questions Share quantitative metrics A copy of GuideStar’s Best Practice Guide is in your attendee packet. In Silver, the reported data must be from the latest available fiscal year. In Platinum, at least one metric must be from 2018. The levels are cumulative. TODAY, GO FOR GOLD! Then, with your board’s support, turn your sights to PLATINUM! Go For Gold
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Go For Gold
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GuideStar Seals of Transparency Flagstaff + 10 mile radius Size: expenses >$500k
155 organizations TOTAL NO LEVEL 126 BRONZE 5 SILVER 17 GOLD 3 PLATINUM 4 Go For Gold
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What CHARITY NAVIGATOR Looks At
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Criteria: Charity Navigator
To be rated, a charity must have: 501(c)(3) tax exempt status Revenues of at least $1M for 2 consecutive years 7 years of Form 990 filings Two evaluation categories: Financial Health Accountability & Transparency An organization will appear as an “unrated” charity until Charity Navigator determines that the organization has met their criteria (and they have enough data to rate it). Donors or members can make a request that a charity be rated, but an organization still must meet the criteria for inclusion. Go For Gold
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Criteria: Charity Navigator
Rating Profile A Charity Search will yield a profile that includes a rating (up to four stars) and other performance metrics This rating was for United Way Worldwide. Charity Navigator will also provide information on CEO pay, income statement information, and an organization’s mission. Go For Gold
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Criteria: Charity Navigator
Rating Profile, continued The profile will include a chart with a graph of the overall score Go For Gold
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What BBB Looks At Go For Gold
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Criteria: BBB Wise Giving Alliance
Evaluation basics: BBB Wise Giving Alliance evaluates national charities Local or regional charities can request evaluation by the BBB serving their area Evaluation covers 20 standards in 4 categories: Governance and Oversight (5 standards) Measuring Effectiveness (2 standards) Finances (7 standards) Fundraising and Informational Materials (6 standards) A national charity is one that solicits for donations nationwide. Go For Gold
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Criteria: BBB Wise Giving Alliance
The screenshot is from the Charity Report for United Way Worldwide, who meets all 20 standards for Charity Accountability. Go For Gold
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What Charity Watch Looks At
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Criteria: CharityWatch
General focus on evaluating: 501(c)(3) tax exempt organizations Large charities with $1M or more in public support Those in existence for 3 years or more Final score based on two calculations: Program % Cost to raise $100 Top Rated charities spend: 75% or more of budget on programs $25 or less to raise $100 CharityWatch does not accept requests from charities that ask to be rated, nor do they charge charities. They do not report on churches, synagogues, mosques, political action committees (PAC's), fraternal clubs, colleges, or local institutions such as hospitals and museums. CharityWatch does report on the separate human and social welfare organizations of religious groups. They are the only national charity watchdog to evaluate social welfare groups that are not eligible to receive tax-deductible contributions such as the ACLU, Human Rights Campaign, League of Women Voters, National Right to Life Committee, and Sierra Club. CharityWatch also rates many religious charities such as the Salvation Army that are exempt from filing a tax form with the IRS but that share their audited financial statements with CharityWatch. The letter grade ratings represent the opinion of CharityWatch and are based solely on financial efficiency measurements. Go For Gold
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Criteria: CharityWatch
CharityWatch Report includes sections on: Ratings & Metrics Governance & Transparency Analysts’ Notes Salaries Donor Alerts & Articles Go For Gold
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Overview: Other Watchdogs
GlobalGiving is the largest crowdfunding organization that connects nonprofits, donors, and companies; it is a nonprofit that makes it easy and safe to give to projects anywhere in the world, while providing local organizations the tools, training, and support they need to become more effective. GiveWell is a charity watchdog that focuses on the cost-effectiveness (think policy-oriented) of the organizations it evaluates. GreatNonprofits is a platform for community-sourced impact stories about nonprofits. Nonprofits can receive a “Top-Rated” rating as a result of stories submitted by the public: clients, volunteers, and donors. Giving What We Can evaluates charities and believes that donations should go only to the most effective organizations. Go For Gold
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Charity Watchdogs: Summary
Charity Watchdogs differ slightly in their approach Publish ratings based on their assessments: CharityWatch Charity Navigator BBB Wise Giving Alliance Drive giving to nonprofits rated as effective: GlobalGiving GiveWell GreatNonprofits Giving What We Can While they have retained their philanthropic approach, today’s charity watchdogs focus on effectiveness and crowd-sourcing. You may be asking, with which of these charity watchdogs should I start? Start first with GuideStar. Many charity watchdogs get their data from GuideStar. In a little bit, we will talk more about GuideStar in depth. Go For Gold
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(6) WHAT IS “THE OVERHEAD MYTH”?
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© 2013 Your Part-Time Controller, LLC
Introduction “The time has passed when donors invest or make contributions because it’s the right thing to do…They want to see their investment yield results.” [Emphasis added] Rebecca Rimel, President and CEO The Pew Charitable Trusts As quoted by the Philadelphia Inquirer September 29, 2013 © 2013 Your Part-Time Controller, LLC
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© 2013 Your Part-Time Controller, LLC
Results We all want RESULTS! Who is not in favor of having higher performing, more effective nonprofits? But how do we measure the effectiveness of our nonprofits? How do we measure results? See Eric Fraint’s blog: In Search of the Holy Grail of the Nonprofit World at: © 2013 Your Part-Time Controller, LLC
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© 2013 Your Part-Time Controller, LLC
HOW DID WE GET HERE? How did this situation develop? A brief history lesson. © 2013 Your Part-Time Controller, LLC
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How did this situation develop? A Brief History
The growth of outcomes and the need to measure results IRS 990 and the infamous 3 columns FASB 117 and the accountants Guidestar makes the data available The charity watchdogs emerge © 2013 Your Part-Time Controller, LLC
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© 2013 Your Part-Time Controller, LLC
More Outcomes Foundations, governments, and donors begin to seek more and better information about the outcomes nonprofit organizations are achieving with their donations The need to better measure results grows Is there a single measure, or a group of measures, that exists for all organizations? © 2013 Your Part-Time Controller, LLC
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© 2013 Your Part-Time Controller, LLC
IRS Form 990 Statement of Functional Expenses and the infamous 3 columns (plus a Total Expense column): © 2013 Your Part-Time Controller, LLC
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Functional Expenses on the 990
Let’s focus on these columns: It is these columns that are at the center of the controversy and provide much of the financial data used by the watchdogs: © 2013 Your Part-Time Controller, LLC
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FASB 117, the accountants, and the auditors
Accounting rules FASB 117 issued in 1993, along with FASB 116 Requires functional expense breakdown Program services versus supporting activities Supporting Activities: Fundraising Management & General Membership Strives to measure and assess an organization’s “Service efforts” © 2013 Your Part-Time Controller, LLC
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GuideStar makes the data available
History: Founded September 6, 1994 July 1996 publishes full or partial reports on 42,000 charities on CD October 1996 launches website For the first time, 990’s are readily available for public scrutiny © 2013 Your Part-Time Controller, LLC
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© 2013 Your Part-Time Controller, LLC
The Evidence Mounts In 2008 and 2009 a series of articles and reports come out criticizing the misuse of overhead ratios Notably, “The Nonprofit Starvation Cycle”, Stanford Social Innovation Review, Fall 2009 © 2013 Your Part-Time Controller, LLC
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© 2013 Your Part-Time Controller, LLC
The Letter Recently, on Monday June 17, 2013, three nonprofit organizations released a letter they titled “The Overhead Myth” The three organizations, sometimes individually or collectively referred to as “charity watchdogs” are: Charity Navigator BBB Wise Giving Alliance GuideStar © 2013 Your Part-Time Controller, LLC
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Reading the Letter Let’s start at the beginning with the letter itself
© 2013 Your Part-Time Controller, LLC
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“It’s Time to Move Beyond Overhead”
“The experts have spoken: the percent of charity expenses that goes to administrative costs—commonly referred to as “overhead”—is a poor measure of a charity’s performance.” “In a historic move, the leaders of the country’s three leading sources of information on nonprofits-GuideStar, Charity Navigator, and BBB Wise Giving Alliance – penned an open letter to the donors of America denouncing the ‘overhead ratio’ as a valid indicator of nonprofit performance.” “The nonprofit sector…has too often erroneously focused on overhead over the past few decades…” Source: Overheadmyth.com (run by GuideStar) © 2013 Your Part-Time Controller, LLC
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The Letter (continued)
“In most cases, however, focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance does more damage than good.” [emphasis added] © 2013 Your Part-Time Controller, LLC
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Charity Watchdogs Feeling the Heat
None of the issues I’ve recounted are new. What is new is the release of the letter, The Overhead Myth, by three leading organizations: two of which are actively rating nonprofits (Charity Navigator and BBB Wise Giving Alliance), and GuideStar (which is the enabler for these watchdogs by making 990’s readily available) What is truly remarkable is that the letter contradicts much of what the rating organizations have done for years, and continue to do today. By their own admission, they have been leading the charge to promote “a poor measure of a charity’s performance.” © 2013 Your Part-Time Controller, LLC
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Closing Quote When it comes to measuring the results, effectiveness, and impact of your organization, remember the following: Not everything that can be counted counts, and not everything that counts can be counted. (Attributed to various people) © 2013 Your Part-Time Controller, LLC
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(7) WHAT CAN YOU DO TO PRESENT YOUR ORGANIZATION IN THE BEST LIGHT?
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Steps to Improve Charity Profile Ratings
It’s all about TRANSPARENCY! Don’t underestimate the potential of filing a Form 990 Utilize your website Earn a GuideStar Seal of Transparency Go For Gold
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Steps to Improve Charity Profile Ratings
The Form 990 is the most-used source of data to analyze nonprofits. Don’t underestimate its potential. Consider filing even if not required Pay attention to key areas used by charity watchdogs: Program Service Accomplishments Governance, Management, and Disclosure Compensation Statement of Functional Expenses The next slides provide examples of these key parts and the related metrics that can impact your profile rating. Go For Gold
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Steps to Improve Charity Profile Ratings
Form 990 – Program Service Accomplishments When possible, provide quantitative data that illustrates your organization’s impact such as # served or % increase in services For example: the number of families served, meals provided, or grants awarded. Go For Gold
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Steps to Improve Charity Profile Ratings
Form 990 – Governance Having policies for conflict of interest, whistleblower, document retention, and compensation will raise your organization’s charity profile rating Being able to say “Yes” to these questions will positively impact a donor’s perception about your organization! Go For Gold
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Steps to Improve Charity Profile Ratings
Form 990 – Statement of Functional Expenses The infamous “3 columns.” Does your charity solicit for donations? If so, charity watchdogs expect to see amounts in the “Fundraising” column. These 3 columns provide much of the data used by charity watchdog organizations. Go For Gold
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Steps to Improve Charity Profile Ratings
GuideStar By claiming (and updating) its profile, an organization has control over the information that’s being provided to potential funders! Go For Gold
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Steps to Improve Charity Profile Ratings
What to do now: File your Form 990, paying attention to the key areas discussed in this presentation Claim and update your Nonprofit Profile on GuideStar This year, Go for the Gold Seal of Transparency! Next year, Go for the Platinum Seal of Transparency! Share news of your Gold and Platinum level status on your website Add a reminder to your organization’s finance calendar when it’s time to update your Nonprofit Profile (i.e. after the audit) We know you’re thinking: this is a lot of information, where do I start? Go For Gold
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Summary Charity watchdogs are collecting and sharing information about your organization Common criteria used by charity watchdog organizations to evaluate nonprofits include financial performance, accountability and transparency, and governance Donors form opinions about your organization based on evaluations performed by charity watchdogs By focusing on transparency, your organization can take simple steps to improve its charity profile ratings Go For Gold
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Helpful Resources Your attendee packet contains copies of the following: GuideStar Best Practice Guide 2019 GuideStar Profile Standard Standard.pdf Charting Impact Guide from GuideStar/BBB Wise Giving Alliance/Independent Sector content/uploads/2017/03/charting-impact-guide.pdf Criteria for CharityWatch, Charity Navigator, and BBB Wise Giving Alliance The Charting Impact Guide was developed with input from nearly 200 organizations and is intended to help nonprofit organizations share information about plans and progress with their key stakeholders and the public. The Criteria were compiled by YPTC. Go For Gold
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Your Part-Time Controller, LLC Contact Information For more information on how we can help you build a better nonprofit accounting department: Visit our website at Call us at us at Go For Gold
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Questions or Comments? Go For Gold
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