There are now a whopping two million tax-exempt nonprofits in the United States. That’s two million more than the new Forbes list of America’s Top 100 Charities. But our roster can help you evaluate any charity you might consider donating to. Why? Because analytical techniques are similar. The only real difference is the number of zeros. Let us explain.
First, a description of the Forbes list and its methodology is in order. Our list of the 100 largest charities is measured by the amount of private support received in the latest fiscal period for which there is available data. It is not a judgmental list based on our opinion. Largest is not necessarily the best, although they are often the best-known brand names and, in many cases, have stood the test of time.
The data we gather usually comes directly from the charities themselves. This is in the form of audited financial statements, IRS Form 990 tax returns, annual reports or Forbes survey forms that many charities fill out and return at our request. The information covers fiscal years that generally ended in 2023. Some charities turn around their results rather quickly, others more slowly. So we have a few results for fiscal periods ending in 2024, and a few for periods ending in 2022.
America’s Top 100 Charities
VIEW FULL LIST
The private support we count can be gifts from individuals, their estates, donor-advised funds, corporations, foundations, other nonprofits and federated campaigns, as well as fundraising special events. What we don’t include are government grants (they are public, not private), revenue from sales or services (business transactions) and investment returns. Donations can be in the form of cash, securities, goods, real estate and even labor and services if the charity is able to quantify that in its reports (many don’t try).
To be counted by us, a contribution must be based on pure charitable intent. That means the donor receives nothing back besides the satisfaction of supporting a favored cause (and maybe a tax deduction covering part but not all of the gift). So we don’t count as a private donation membership dues, figuring that the donor/member is receiving back a thing of value, like reduced admission fees to a museum. For each charity we list separately private support and government support. Everything else coming in is included in other revenue, and the three categories summed as total revenue.
Since our list focuses on charities that appeal to the general public, we don’t evaluate certain categories of nonprofits. Among them: purely academic institutions (which tend to concentrate on their own alumni), donor-advised funds often run by some of the big financial companies (these are not operating charities but a holding vehicle for money donated by individuals that will eventually go to a nonprofit), and the many religious entities that aren’t required to make public their financial information (an obvious exclusion). We also avoid nonprofits with very few direct donors (such as virtually every private foundation) and charities that receive most of their donations indirectly from federated campaigns, community chests and such vehicles.
For each of the 100 charities on our list, we calculate three financial efficiency ratios, also indicating the direction of change from the prior year if available. Therein lies the value of the Forbes list in helping to evaluate similar charities not on the list.
A quick caution here: Do not compare efficiency ratios for different kinds of charities. The ratios for a museum or foreign aid provider can’t be meaningfully compared with those of, say, a hospital or a single-illness charity. But within the same category, the ratios can be very helpful in analysis. The Forbes list covers a wide range of categories, including health care, domestic and international needs, environmental, animal welfare, religious and youth.
Suppose you’re looking at donating to your local food bank (there are hundreds). After finding their financial statements (we’ll explain how below), you can compare its financial efficiency ratios to the six food banks on our list. If ratios are a lot worse at the charity you’re interested in, contact it and ask for an explanation.
Another caution: Financial efficiency measures are just a starting place for analysis by a would-be donor. Overhead, a direct or indirect component of these calculations, is not in and of itself bad. Like any enterprise, charities have to pay for things like rent, insurance and utilities. The goal is to identify those charities with out-of-whack ratios—often due to wildly high fundraising costs—and no acceptable reason for them.
Information needed to calculate efficiencies of many nonprofits can be found on the IRS Form 990 tax return (parts VIII and IX), a formal financial statement or an annual report. In a welcome trend, many charities now include some or all of these documents on their own websites. (The IRS lets charities with annual gross receipts below $200,000 and end-of-year total assets of less than $500,000 file a far-less-revealing form called the 990-EZ, or, if the annual gross receipts are normally below $50,000, a 990-N, which literally is an electronic postcard that provides no financial information.) On the website of your charity of interest, poke around for a link to “financials,” “financial information,” “accountability,” “990,” “annual report” or “about us.” Try punching in those terms into a search box. No luck? Perhaps a reason to think twice about donating. But many filings can be downloaded for free from Candid, ProPublica and, even if the charity isn’t based there, the New York State Attorney General’s Office. Or just contact the charity itself and ask for a set of filings.
Here’s a primer on the financial efficiency ratios we calculate, and what they mean:
CHARITABLE COMMITMENT This reveals how much of a charity’s total expense went directly to its charitable purpose (also known as program support or program expense), as opposed to management, certain overhead expenses and fundraising. The math is simple: program support expense divided by total expense. The average this year is 87%, unchanged from last year. Charities receiving most of their donations as gift-in-kind fare a lot better here, mainly because individual gifts are larger and involve little or no fundraising expense. For example, No. 5 Direct Relief showed a charitable commitment ratio of 100%. Charity watchdogs such as the Better Business Bureau Wise Giving Alliance say charitable commitment should be no lower than 65%. All the charities on our list are above that.
FUNDRAISING EFFICIENCY This closely watched measure calculates the percent of private donations remaining after deducting the costs of getting them. Here is the formula: private donations minus fundraising expense, with this result divided by private donations. The average for all 100 charities is 91%, the same as last year. In other words, it costs 9 cents to raise $1. But this average embraces many different kinds of charities using many different fundraising procedures. With fewer but larger donations and possible puffed-up asset valuations, some gift-in-kind charities look very efficient, with fundraising efficiencies of 100% (rounded) or very close. At the other end are charities employing expensive direct-mail and telephone solicitation. While the BBB considers 65% to be the bottom of acceptability, at Forbes we have long considered the line to be at 70%. Only one charity on the list is below that: No. 100 Father Flanagan’s Boys’ Home, at 69%.
DONOR DEPENDENCY This interesting ratio calculates how badly a nonprofit needed contributions to break even. The formula: private donations minus surplus, with this result divided by private donations. A ratio of 100% means revenues were the same as expenses. A ratio above 100% means the charity had more expenses than revenue. A negative ratio (below 0%) means the charity had an annual surplus greater than all private donations! (This is often a hospital, such as No. 72 New York-Presbyterian Hospital, which in the fiscal year ending December 31, 2023, received $249 million in donations but posted a surplus of $1.25 billion, generating a donor dependency ratio of -402%). The average for this year’s list is 84%, meaning the typical charity was able to put away 16% of donations for the future. Last year’s average ratio was lower, 81%, meaning 19% of donations were banked. Annual differences are often largely due to varying investment returns. What makes this ratio interesting is the interpretation. For the other two ratios, the higher the ratio, the better, especially in reviewing year-to-year change. But the meaning of this ratio depends on the donor. Should the donor be seeking a charity that badly needs contributions it is likely to put to work immediately, a ratio above 100 might be considered good. On the other hand, if the patron is looking for a charity that can better stand on its own long term, a ratio below 100—but not too far below—might be seen as better. This ratio tends to reveal charities pleading for money that actually have substantial financial reserves or other kinds of revenue. Direct Relief, the focus of a Forbes Daily Cover, had a donor dependency ratio of 99%, meaning that what came in pretty much went right out in aid.
The Internet is a terrific place to find more information.
Use Google to run the name of your charity of interest (but beware names of similarly sounding charities, which especially can be a problem with little-known nonprofits containing the word “cancer” in their name). Run the same search on Bing, which frequently will put different material at the top of the search results. Then repeat the same searches again but add the word “scam” or “fraud.” This can be a quick way of getting to any derogatory information. But be sure the source is legitimate.
The Better Business Bureau Wise Giving Alliance (www.give.org) is one of several charity watchdogs that can provide an evaluation of a specific charity if it is of any size, but the review centers mainly on good-governance issues. Consider avoiding a charity that declines to provide information to the BBB. Another helpful source is Charity Navigator. Charity Watch is useful, although it is largely a paid service. Also, every state has a governmental office, usually located in the state capital, that regulates charities and can be contacted to see if there are complaints. The online IRS Exempt Organization Search database will let you check if a donation to your charity of interest qualifies for a tax deduction.
Finally, here’s our annual update on a rare big-charity financial-efficiency-related legal matter that now has lasted much longer than the American Civil War. A California appellate court in October heard oral arguments on an appeal by the state Attorney General’s Office of court rulings in favor of two international-aid charities long on the list, No. 43 Food for the Poor, of Coconut Creek, Fla., and No. 56 Catholic Medical Mission Board, of New York. In a civil administrative proceeding started in 2018, the AG, seeking penalties, had accused the charities of exaggerating both the value of donated goods and financial efficiencies in solicitations to California donors. The charities denied wrongdoing. An administrative law judge tossed much of the case and then a trial judge threw out the rest, partly on First Amendment grounds. A third charity on our list that the AG went after on the same grounds, No. 14 MAP International, of Brunswick, Ga., settled in 2020, admitting no liability but agreeing to pay the AG $80,600.
Read the full article here