Charity Navigator Changes Financial Health Evaluation Methodology

Charity Navigator, America’s most visible charity evaluation platform, announced the release of CN 2.1, an updated version of the organization’s charity rating system.  The CN 2.1 charity rating methodology went into effect on June 1, 2016, and AAFCPAs advises our nonprofit clients to evaluate the new criteria to determine the potential impact on your Charity Navigator rating and potentially, donor perception.
Charity Navigator has made the following changes to its metrics used to assess a charity’s Financial Health:

1. Program Expenses – Now calculated by averaging the data from the charity’s three most recent fiscal years.
2. Administrative Expenses – Now calculated by averaging the data from the charity’s three most recent fiscal years.
3. Fundraising Expenses – Now calculated by averaging the data from the charity’s three most recent fiscal years.
4. Fundraising Efficiency – Now calculated by averaging the data from the charity’s three most recent fiscal years.
5. Primary Revenue Growth – No longer part of the rating system.
6. Program Expense Growth – No change from Version 2.0
7. Working Capital Ratio – Calculated by using the data from the charity’s most recent fiscal year for working capital, but using data from the charity’s three most recent fiscal years for total expenses
8. Liabilities to Assets Ratio – New metric, calculated by using the data from the charity’s most recent fiscal year.

Charity Navigator made no changes to their Accountability & Transparency metrics.
For nonprofits competing for donations, understanding the criteria that define the ratings is very important.  If you have any question, please contact your AAFCPA partner, or Jeff Cicolini, CPA, CGMA at 774.512.4026, jcicolini@aafcpa.com.
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