The Forbes list of the largest U.S. charities is a roster of the country’s biggest and is released annually. That’s all fine and good but theres a more pressing question, especially for donors making critical assessments, which is about which charities to get involved with. One looming and vital question to pay close attention to is what exactly charities do with the donations once they are received by the charity and Forbes takes this into account. A frequent but somewhat understandable mistake for those vetting selected charities is to assume that a credible source such as Forbes- one source compiling an annual list of the biggest charities- is enough to qualify a charity as deserving of your donations. Big however does not always mean best within the realm of charitable organizations. The key is to understand that these lists are quantitative and in fact in years past certain “big” charities have been found to participate in less than ethical accounting practices. The point is that although the size of a charity can be a somewhat credible indication of accomplishment and worthiness it is in fact only one element amongst myriad criteria to be considered in evaluating the charity as a whole.
Forbes provides a quantitative list based on hard numbers, but over the years they have been know to shun a few charities for dodgy accounting. Numbers aren’t everything, but they can be a way of starting your evaluation of a specific charity,
According to Forbes and their stated methodologies, the primary metric for inclusion are the total dollars in private donations received in the latest available fiscal year. The sources may vary. They can range from contributions from individuals, corporations and other nonprofits. One point to note is that the assessment does not take into account donations from governments. There are varied forms or types of donations as well. They can be in the form of cash, securities and goods (known as a gift-in-kind). Donations can also be bequests from estates. The criteria goes on to require that charities being vetted for inclusion to the list must have a no strings attached element in that they receive nothing in return except for the pure pleasure of doing something charitable that the donors peg as worthy. To be a bit more clear there are certain contributions not counted such as membership dues (what one might pay at the Metropolitan Museum of Art) based on the premise that in those instances the donor/ member is receiving something or being reciprocated in return for the contribution. An example would be a member receiving a reduced admission price to a charitable event.
Additionally there are other exclusions from the definition of private donations. They include government grants, fees for services and goods (ex. - revenue the Girl Scouts of the USA get from sale of their famous cookies) and investment returns.
The “biggest charites” list is geared to would-be donors therefore a range of nonprofits are not counted. They exclude contributions from purely academic institutions that primarily obtain donations from alumni rather than from the general public, donor-advised funds- those that manage gifts for many different donors- and religious groups that historically refrain from sharing such information. Other exclusions include nonprofits with limited direct donors comprising almost all private foundations and charities that procure a bulk of their donations more indirectly through community fundraising drives operated by third parties.
The assemblers of the Forbes list claim to reserve the right to independently question and reject candidates, but they generally have faith in the charity’s own accounting results. The pertinent information retained may be culled from official filings and reports, the charities website, or information extracted from completed surveys Forbes sends out.
For every charity that is being assessed they use several measurement methodologies to ascertain financial efficiency. This is a key measure because it shows percentage of donations that go directly to the cause versus what percentage goes to fundraising and certain overhead such as salaries and other operational functions. Beyond that they measure the change in such relevant number year over year.
Forbes claims to rate financial efficiency as one important factor for potential donors donor’s to consider. They also claim that the efficiency measurement is certainly not the only criteria to consider when selecting charities worth donor time and gifting. They are careful to make it clear that overhead can easily be misconstrued and is not a defining factor as there are unavoidable costs. For-profit charities need to pay for occupancy, utilities and professional services such as accountants. Websites like charitynavigator.org and charitywatch.org are excellent sources to find much of this sort of information.