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May 27, 2016

Charity Navigator Unveils Changes in Rating System

Charity Navigator will switch next week to a new ratings system that tweaks how the watchdog assesses the financial health of thousands of nonprofits, The New York Times reports. The new calculation, set to take effect Wednesday after several months of analysis, retains the group’s signature zero- to four-star scale but changes evaluation methods in areas such as revenue and administrative costs.

Charity Navigator officials said the revisions will help it present a more accurate portrait of groups’ fiscal standing. Key shifts include moving to a three-year average for fundraising and expenses rather than using just the previous year; adding a calculation of nonprofits’ debt ratios; and changes in how the watchdog considers overhead, an aspect of its system that has drawn considerable criticism. It eliminated a requirement that charities report zero administrative spending in order to get a perfect 10-point score on overhead.

The changes were drawn up with the help of a task force of financial experts and a survey of the more than 8,000 group the watchdog evaluates. They will not affect measurements for “accountability and transparency,” the second major ratings category. Most charities will not see a change in their star ratings as  result of the new system, Charity Navigator officials said.