November 28, 2014

Moneysense has released its 2015 Charity 100, rating Canada’s largest 100 charities. We applaud the fact that Moneysense is providing information to help Canadian donors.  However, we would like to point out a couple of key differences in methodology between the Moneysense grading system and the Charity Intelligence star ratings.

A difference of opinion: Does a charity’s impact or governance matter more?

At Charity Intelligence we believe that the most important metric that charities should be assessed on is impact. The vast majority of the 550 charities we’ve analysed are not reporting their impact. As an interim proxy, we’re grading charities on how well they report preliminary impact measures. Charity Intelligence allocates 40% of a charity’s overall rating to the public reporting of these impact measures. These reporting grades show great diversity among charities with only 3% scoring A+, 15% scoring A- or better, and over 10% scoring between a D+ and F. Charity Intelligence does not assess a charity’s governance since we haven’t found clear tools that would indicate “good” or “bad” governance.

The Moneysense grading is skewed by its Governance Grade. Moneysense grades a charity’s governance based primarily on a survey of charity governance practices.  On this governance metric, 75 of the 100 charities score an A+. Only 16 score less than an A-. These stellar scores would show charity governance is strong in Canada’s largest 100 charities. These high marks raise the overall score of most charities.

Funding reserves. Both Moneysense and Charity Intelligence feel that the amount of money a charity already has is important information for donors. Some charities raise money because they can, not because they have an immediate need for donations to run programs. Increasingly in Canada, charities are raising donations for endowments and long-term campaigns. Donors are aware of the opportunity cost of donations sitting “idle” in a charity’s funding reserves compared with the social good a donation could do if spent. Furthermore, some donors, particularly those who give each year, want to ensure that their charitable giving goes where it will be spent.

The Moneysense Reserve calculation adds up a charity’s cash and investable assets and expresses it in years and months; however, it is not clear what the reserves are divided by to obtain the number of months.  Moneysense has given a grade of A+ to charities that have a funding reserve to cover between 3 months to 3 years. The reported grades are wildly different from Charity Intelligence’s calculations. Moneysense gives an A+ grade to some charities that our data shows have more than 3 years of funding reserves.

This significant discrepancy may be due to the data source. Moneysense data comes from the charities’ 2010, 2011 and 2012 Canada Revenue Agency T3010 filings. Charity Intelligence’s financial analysis uses the most recent audited financial statements.

No rating is perfect. Not ours. Not Moneysense’s. Interestingly, in most cases, the Charity Intelligence and Moneysense ratings show similar things about the charities.  However, in some cases there are discrepancies.  For instance, Moneysense has rated both the Ontario and B.C. divisions of the Canadian Cancer Society in the bottom half of the charities rated (B-) whereas Charity Intelligence has them both in the top third of all charities rated (3-star).  The key difference is the significant weighting of administrative and fundraising cost ratios used by Moneysense.  As well, there are a few charities that score very well on the Moneysense ratings but do not score as well using Ci’s ratings.  For instance, both War Amps of Canada and Chalice Canada received A+ by Moneysense but due to their lower-than-average reporting of their social results, they both are rated as 2-star charities by Ci. These areas of difference add to the need for donors to get the facts on charities from different sources rather than giving solely based on a rating score.

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