Overview of Charity Navigator’s Encompass Rating System

By Amy Rybar Menefee, CPA, CFE, Partner

Overview of Charity Navigator’s Encompass Rating System

ERS Provides Donors with More Access to Nonprofit Information

Charity Navigator, the world’s largest independent and most-used evaluator of nonprofit organizations, has rolled out its new Encompass Rating System (“ERS”). This new system gives donors access to more information and evaluations of nonprofit organizations. The Encompass Rating System has a new ratings tool and also gives organizations different ways to raise awareness and promote themselves to donors. The new system was originally rolled out in July 2020 but has added additional phases and will continue to do this over time.

Encompass Rating System Expands Evaluations to Smaller Nonprofits

ERS expands evaluations to smaller nonprofits which are less established than those that meet the eligibility requirements for Charity Navigator’s Star Rating System, criteria for which include a minimum number of years in operation and minimum revenue thresholds.  Addition of the ERS has increased the number of charities rated by Charity Navigator significantly, from 9,000 to 170,000.

ERS uses a combination of automated methods and technology-supported manual research and analysis to analyze 501(c)(3) tax forms for three consecutive years, which from a practical standpoint, underscores the need for nonprofit organizations to verify their 990 for completeness and accuracy. Each organization is given a score on a scale from zero to 100, with a score of 75 or higher indicating effectiveness of operations, which in turn gets the organization a “Give with Confidence” designation by Charity Navigator. The organization is able to use this designation and related Charity Navigator badge on its own website. These ratings are updated three times per year.

ERS analyzes each organization’s total operations using four “beacons” which are considered to be the four main indicators of the nonprofit’s success and indicators of longevity of the organization. These four beacons are Finance and Accountability, Impact and Results, Leadership and Adaptability and Culture and Community. Donors can choose to focus on the organization’s overall score considering all beacons, or focus on only those important to their individual needs.

Finance and Accountability measures financial health, stability and efficiency, through the lens of accountability and transparency practices to ensure integrity, using nine metrics. The three highest point value criteria are, board makeup and governance, percentage spent on programs expenses to total expenses, and whether the organization has an independent audit, review or compilation performed annually.

Impact and Results covers cost effectiveness of an organization’s programs and delivery on the organization’s mission including the impact on the lives of the organization’s clients and the use of donor resources. Measurement criteria include that the entity delivers at least two thirds of its activities (program service expenses) directly to its clients as beneficiaries, that the organization provides its services to its clients at low or no cost and that the organization receives support from private donors.

Leadership and Adaptability is an assessment of leadership capacity and how leadership is developed, goal setting and strategic planning, and innovation in achieving the organization’s mission.

Culture and Community measures the organization’s engagement in feedback from its constituents. This beacon requires organizations to complete a profile section and answer specific questions to receive a rating on feedback practices and community benefit.

Charity Navigator is continuing to explore the use of technology, including artificial intelligence and machine learning in order to perform its analyses. ERS plans to have three releases each year. The August 2021 release added the Leadership and Adaptability beacon. The next release is expected any day.

Reach out to your Keiter Opportunity Advisor for tips on improving the completeness or accuracy of your nonprofit’s 990.

 

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About the Author


Amy Rybar Menefee

Amy Rybar Menefee, CPA, CFE, Partner

Amy is a member of Keiter’s Not-for Profit, Manufacturing, Distribution & Retail, and Mergers & Acquisitions teams. She serves clients in a variety of industries including: not-for-profit, manufacturing, distribution and retail, insurance, and waste management. Amy has extensive knowledge in areas of finance including financial review and analysis, the audit process, financial reporting, and Sarbanes-Oxley set-up and testing.  Read more of Amy’s insights on our blog.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

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