Accountability & Finance Beacon | OnBoard Board Management Software | Board Portal

Charity Navigator Visitors Fit Distinct Categories

While no two visitors are alike, visitors to Charity Navigator’s website who seek nonprofits to select typically range from individual donors to foundations to donor-advised funds. They make decisions on where to donate based on how nonprofits rank, among other factors.

IRS Form 990 is a Big Factor in a Rating

Any 501(c)(3) with three or more filed IRS Form 990s is the basis for the Accountability & Finance beacon. Charity Navigator then uses the form to help formulate a nonprofit’s Accountability & Finance score. Boards are responsible for their nonprofits’ timely Form 990 filing.

Boards Can Use This Beacon to Improve

Boards can — and should — use the Accountability & Finance Beacon as a checklist of sorts, to improve their governance. From enacting sound policies and procedures to annual audits to minute-keeping and more, boards can use this beacon as a “check-the-box” roadmap.

Webinar Recap: Laura Andes, chief program officer, and Kevin Doyle, director of accountability & finance ratings, provide an in-depth look at one of the four beacons of Charity Navigator’s rating system: Accountability & Finance.

In today’s world, nonprofit organizations face a challenging trifecta. Trust in organizations is low. Individual giving is on the decline. The number of nonprofits is at an all-time high.

To overcome these challenges, nonprofit organizations must work to earn the trust of donors. To do so, these organizations must be able to clearly demonstrate impact.

Charity Navigator is an important tool that organizations use to demonstrate trust and grow impact. Each eligible charity has a star rating, which is calculated based on a combination of four factors – or what Charity Navigator refers to as “beacons.”

Recently, Jeremy Ladyga, nonprofit board consultant at OnBoard, joined Charity Navigator Chief Program Officer Laura Andes and Director of Accountability and Finance Ratings Kevin Doyle for a masterclass focused on one of these beacons: Accountability and Finance.

Their discussion covered topics including:

The importance of the IRS Form 990 and its role in nonprofit board governance
The Accountability & Finance Beacon’s methodology and scoring criteria
Tips and best practices for nonprofits that hope to engage with their Accountability & Finance rating more effectively

Here, we share some of the highlights of the session.

Charity Navigator’s Visitors Fall into Three Categories

Charity Navigator has more than 10 million unique visitors each year. In general, these visitors fall into one of 3 buckets.

Small Individual Donors: These are people looking for a high-performing nonprofit to support. “They want to make sure they’re giving to an impactful, trustworthy organization,” said Andes.
Foundations and grant makers: Foundations and grant makers use Charity Navigator as an initial screening tool when making funding decisions.
Institutional Donor-Advised Funds (DAFs): DAF staff use Charity Navigator for making recommendations to high-net-worth individuals.

“Your rating can be very important in terms of putting your best foot forward,” Andes said.

Charity Navigator’s Ratings are Comprised of Four Beacons

Eligible charities receive a star rating on Charity Navigator that falls between zero and four. These star ratings are determined by the weighted sum of the organization’s individual Beacon scores.

Those 4 beacons are:

Impact & results
Accountability & finance
Leadership & adaptability
Culture & community

“It’s a really holistic way to tell your story to donors,” Andes said.

This masterclass focused on the Accountability & Finance beacon. Other sessions will focus on the other beacons.

IRS Form 990 is Foundational

Any 501(c)(3) organization with three or more e-filed IRS form 990s is eligible for the Accountability & Finance beacon. In fact, this form is the basis of this beacon.

“The 990 is the foundation for the Charity Navigator rating,” said Doyle.

For those unfamiliar, Doyle shared some basics about the IRS Form 990. The 990 is a filed tax form for tax-exempt entities such as charities and other nonprofits. It includes information on:

Revenue
Expenses
Adherence to best practices
Key officers and board members of the organization

Next, Doyle provided a “tour” of the Form 990, which included the following parts:

Summary
Signature
Statement of Program Service Accomplishments
Governance, Management, and Disclosure
Compensation of Officers
Statement of Revenue
Statement of Functional Expenses
Balance Sheet
Financial Statements and Reporting

“Everyone has a really great nonprofit story to tell. The Form 990 is a tool to help tell that story,” Doyle said.

The Board Plays an Important Role in the IRS Form 990

A nonprofit’s board is responsible for the timely filing of its Form 990. The board should review the form prior to filing. It’s an important opportunity to check for accuracy – and gain a better understanding of the organization’s financial position.

In addition, the board is generally responsible for the tax form itself, as well as the selection and oversight of the accountant responsible for compiling, reviewing, and/or auditing the organization’s financial statements and producing the Form 990.

“Ultimately, it’s up to the board to ensure this form is filed accurately and on-time,” Doyle said.

Charity Navigator Uses the IRS Form 990 to Create the Accountability & Finance Score

Doyle explained that all organizations are automatically rated on the Accountability & Finance beacon when they file three 990 forms. He then explored each element – accountability and finance – in closer detail.

Accountability refers to an organization’s adherence to broadly agreed-upon best practices in the nonprofit sector. This is measured using 10-14 disclosures on the Form 990. For larger, donor-funded nonprofits, Charity Navigator also reviews the nonprofit’s website for relevant disclosures.

Accountability metrics include:

Audited financial statements
Material diversion of assets
Independent board of directors
Whistleblower policy
Records retention policy
Board meeting minutes
990 listed on website
Other best practices

Finance is based on financial efficiency and financial capacity metrics, including program expense ratio and liabilities-to-assets ratio. The exact metrics vary depending on organization size.

“Your rating is a tool to highlight areas for improvement and to convey trust and accountability to your donors,” said Doyle.

The Board Can Tap into the Accountability & Finance Beacon to Improve Governance

According to Doyle, board directors can consider the Accountability & Finance Beacon a “checklist of best practices for nonprofit governance.”

Directors can use this checklist to ensure:

There are policies and procedures in place that are considered best practices in the sector.
The organization is conducting an annual audit.
The board is majority independent, is keeping minutes, and has a documented retention policy.
The organization is disclosing its 990 on its website.

“You can see things as a ‘check the box’ exercise or you can see them as a roadmap,” said Andes. “I hope this helps you understand how your organization is doing and how you can either rest on your laurels or find areas where you can be more effective and serve your mission.”

Ready to explore the other beacons that make up your organization’s Charity Navigator rating – and how you can optimize your scores? Save your spot for the future sessions of our Charity Navigator masterclass – each focused on a different beacon.

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