The Forbes list of America’s Top 100 Charities provides a valuable framework for evaluating charitable organizations, even those beyond the list itself. It relies on objective data, primarily gathered directly from the charities in the form of audited financial statements, IRS Form 990 tax returns, and annual reports. Focusing on private support received, excluding government grants, revenue from sales, and investment returns, the list ranks charities based on the sheer volume of donations received. This emphasis on private contributions underscores the charities’ reliance on public generosity and provides insight into their fundraising effectiveness and public image. While “largest” doesn’t equate to “best,” the list often highlights well-established organizations with proven track records, lending credence to their operational efficiency and public trust. Furthermore, the list deliberately excludes certain categories like academic institutions, donor-advised funds, religious entities that don’t disclose financials, foundations with few direct donors, and charities primarily funded through federated campaigns. This focus ensures the list represents organizations actively soliciting and relying on broader public support.
The Forbes list’s true value lies in its calculation of three key financial efficiency ratios for each listed charity: charitable commitment, fundraising efficiency, and donor dependency. These ratios, which also track year-over-year changes, offer a powerful comparative tool for potential donors. Comparing these ratios across similar charities, even those not on the Forbes list, empowers individuals to assess financial health and operational effectiveness. For instance, a potential donor considering a local food bank can compare its ratios to those of food banks on the Forbes list. Significant discrepancies can prompt further investigation and engagement with the local charity, facilitating informed giving decisions. It’s crucial to remember these ratios are most meaningful when compared within the same category of charity. Comparing a museum’s ratios to a hospital’s would be misleading due to inherent differences in their operational structures and expense profiles.
While financial efficiency ratios are valuable, they should be considered alongside other factors. Overhead costs, which contribute to these ratios, are not inherently negative. Charities, like any organization, require resources for operational expenses. The aim is to identify organizations with unusually high ratios, often stemming from excessive fundraising costs, without justifiable reasons. Beyond financial metrics, factors such as a charity’s transparency, governance practices, and alignment with the donor’s values are also essential for informed giving. The Forbes list serves as a starting point, empowering donors to delve deeper into a charity’s operational model and impact before making a contribution.
Locating the necessary financial information for evaluating charities, including those not on the Forbes list, is becoming increasingly accessible. Many charities proactively publish their financial statements, annual reports, and IRS Form 990s on their websites. Keywords like “financials,” “accountability,” “990,” and “annual report” can guide website navigation. If this information isn’t readily available on the charity’s website, resources like Candid, ProPublica, and even the New York State Attorney General’s Office offer free access to many 990 filings. Directly contacting the charity is another viable option. The increasing availability of financial information empowers donors to make well-informed decisions and promotes transparency within the nonprofit sector. Conversely, difficulty in accessing this information should raise concerns about a charity’s transparency and accountability.
Understanding the three key financial efficiency ratios used by Forbes is crucial for effective evaluation. Charitable commitment, calculated as program support expense divided by total expense, reflects the proportion of a charity’s spending directly benefiting its mission. A higher percentage signifies a greater dedication to fulfilling its charitable purpose. Fundraising efficiency measures the percentage of donations remaining after deducting fundraising costs. This ratio, calculated as (private donations minus fundraising expense) / private donations, reveals the cost-effectiveness of a charity’s fundraising efforts. Higher percentages are desirable, indicating lower fundraising overhead. Finally, donor dependency assesses a charity’s reliance on contributions to break even. The formula (private donations minus surplus) / private donations reveals whether a charity sustains operations through donations or other revenue streams. Interpreting this ratio depends on the donor’s perspective. A higher percentage suggests a greater need for donations, while a lower percentage indicates greater financial self-sufficiency.
Beyond the Forbes list and financial ratios, the internet offers a wealth of resources for due diligence. Search engines like Google and Bing, combined with keywords like “scam” or “fraud,” can uncover potentially negative information. However, it’s critical to verify the legitimacy of these sources. Charity watchdog organizations like the Better Business Bureau Wise Giving Alliance and Charity Navigator provide independent evaluations, focusing on governance practices and financial health. CharityWatch, while primarily a subscription service, also offers valuable insights. Additionally, state attorney general offices often regulate charities and can provide information about complaints. The IRS Exempt Organization Search database confirms a charity’s tax-deductible status. Leveraging these diverse resources allows for a comprehensive assessment of a charity’s credibility and effectiveness. This multifaceted approach empowers donors to make informed decisions aligned with their values and philanthropic goals.
