Charity Intelligence is working to determine how to best incorporate Social Impact into these ratings. While these ratings include how well charities disclose their impact, no weighting is currently given to the charities’ actual social results – how they are changing the lives of those that they are working with or the impact that they are having for society. Our plan is that Social Impact will be incorporated into the ratings within the next year.
Social Results Reporting (40% of Star Rating)
Charities are rated based on the public reporting of their activities, outputs and outcomes. This score does not assess the strength of the charity’s strategy, the quality of its activities, the level of its outputs or the impressiveness of its outcomes; rather, it assess if enough information has been disclosed such that any reader would have the opportunity to make those assessments. The score is a letter grade based on the relative scoring of the charity compared to all other Canadian charities analyzed. Please click to read more information on Social Results Reporting.
Letter grades have been assigned according to the following distribution:
Financial Transparency (20% of Star Rating)
Charities are assessed a rating based on their transparency in providing complete audited financial statements, including the financial notes and accounting policies, to the public. If the most recent statements are not available within 9 months of the charity's year-end, the transparency score is reduced by 1.
|3||Audited financial statements for at least the last 2 years posted on the charity's website.|
|2||Audited financial statements for the most recent year posted on the charity's website.|
|1||Charity provided Charity Intelligence with its audited financial statements upon request by email or telephone.|
|0||Charity did not provide Charity Intelligence with its audited financial statements upon request. Financial statements were provided by Canada Revenue Agengy.|
Program Cost Coverage (20% of Star Rating)
Program cost coverage is a financial ratio tool for assessing a charity’s need for funding. It compares funding reserves (liquid assets of cash, cash equivalents and investment securities, less interest-bearing liabilities) relative to program costs. The program cost coverage ratio is calculated by dividing the year-end funding reserves (excluding donor-endowed funds) by the program costs for the most recent year, expressed as a percentage.
Charities receive full rating for their need for funding if their program cost coverage ratio is below 300%, meaning that they have less than 3 years’ worth of funds available to fund program costs. Charities with program cost coverage over 500% receive no points for this metric.
Fundraising Costs (15% of Star Rating)
Ci presents all fundraising costs gross of fundraising expenses. Lotteries and business expenses are not included in fundraising ratios. Total fundraising costs are presented as a percent of donations plus special events revenue.
Charities receive full rating for their fundraising costs if their fundraising ratio is below 15%. Charities with fundraising ratios above the initial CRA cut-off of 35% receive no points for this metric.
Administrative Costs (5% of Star Rating)
The administrative cost ratio is calculated by taking the charity’s total administration costs divided by its total revenues less investment income. Charities require a basic level of administrative costs to operate effectively. If these costs are not adequate, the charity risks being less effective. Given this, charities with administrative cost ratios less than 2% lose 1 out of 5 available points for this metric. Charities with administrative cost ratios between 2% and 12.5% (comprising roughly 2/3 of all charities examined by Ci) receive full points for this metric. Charities with administrative costs above 22.5% receive no points for this metric.
Calculation of Star Ratings
Each of the above metrics is weighted to determine the overall charity score. These final scores are assigned star ratings based on 15% of charities being 4-Star charities, 20% being 3-Star, 40% being 2-Star, 20% being 1-Star, and 5% being 0-Star charities. In order to qualify for 3- or 4-Star ratings, charities must also pass the following hurdles:
|Social Results Reporting||In top 50% of charities||In top 33% of charities|
|Financial Transparency||Rated 1 or above||Rated 1 or above|
|Program Cost Coverage||Below 500%||Below 300%|
|Fundraising Cost Ratio||Below 45%||Below 35%|
|Administrative Cost Ratio||Below 40%||Below 30%|
The current distribution of star ratings for all charities rated by Charity Intelligence is a bell curve with the majority at 2 stars.
Since launching charity ratings in October 2014, charities have improved financial disclosure (posting audited financial statements on their websites) and have added more information on results in reports to donors. Grades on donor reporting have increased 12%.
Charity Intelligence wants to see Canadian charities more financially transparent, more accountable and focused on results. We believe this will strengthen giving in Canada.
Charity Intelligence wants to ensure 4-Star ratings have meaning and go to the 15%-20% of charities with the highest overall score. Right now, with the strong improvements in reporting, 24% of charities have reached 4-Star ratings. Charity Intelligence will be re-balancing the ratings in September 2017 towards the target distribution below.