Canada’s top-rated charities 2019: Methodology

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The MoneySense Charity 100 assesses Canadian charities based on two major criteria: finances and transparency. The financial component accounts for 60 per cent of the final score and the transparency component comprises 40 per cent of the final score. To be included for consideration, charities must have been assessed by the research organization Charity Intelligence, which has created standardized financial reports on Canada’s major charities and is the source of most of our data (learn more about why here). The charities must also pull in at least $2 million in annual revenue. We excluded some organizations that have charitable registration numbers but are not generally considered charities by the general public, such as universities. In most cases, the data is from the 2016 fiscal year, the most recent year with a full set of charity tax returns available from the Canada Revenue Agency. Here’s how the final score breaks down:

Charity finances: 60 points. We awarded those points based on the following subcategories:

  • Financial efficiency: 30 points. We have two ways of calculating this, depending on how charities report their results.
    • Method 1:
      • Charity efficiency: 15 points. This measure looks at how much of a charity’s total revenue is eaten up by administrative costs. Donors want their money to go towards the charity’s core mission, but it’s also important to compensate staff fairly and spend a prudent amount of money on overhead in order to operate effectively. We award zero points to charities spending less than 2 per cent or more than 22.5 per cent of their annual revenue on administrative costs. Charities spending 2 to 12.5 per cent on administrative overhead get full marks and charities spending 12.6 to 22.4 per cent get partial marks.
      • Fundraising efficiency: 15 points. We look at how much it costs a charity to raise a dollar, calculating the percentage of donations and special events revenue eaten up by fundraising costs. If fundraising costs are less than 15 per cent of donations, the charity gets full marks, with points deducted on a sliding scale up to 35 per cent. Charities with fundraising costs of more than 35 per cent get no points.
    • Method 2:
      • Combined charity and fundraising efficiency: 30 points Some charities don’t report administrative and fundraising costs separately, making it impossible to calculate separate charity efficiency and fundraising efficiency scores. In these cases, we look at the percentage of the charity’s total revenue eaten up by administrative and fundraising costs combined. We award full points for 3 to 20 per cent, zero points for more than 50 per cent or less than three per cent, and partial points between 20 and 50 per cent.
  • Need for funding: 15 points. It’s always a good idea to save for a rainy day, but some charities build up huge war chests when those funds could be better spent helping the needy now. We award full points to charities with reserves that would cover less than three years of program costs and give zero points to charities sitting on savings that could fund five years of programs or more.
  • Executive director salary: 15 points. Charities that pay their top-paid employee far more or far less than their peers of a similar size tend to be less transparent and efficient, a MoneySense analysis found. We dock points for charities that pay their executive directors less than $80,000 a year, regardless of size. Charities that pay their highest-paid worker $100,00 to $150,000 more than the average top-paid employee for organizations with similar operating costs lose points as well. For charities with operating costs under $4 million, we consider executive directors making $200,000 or more to be overpaid. For charities with operating costs between $4 and $12 million, we dock points for top-paid employees bringing home $300,000 a year or more. For charities with operating costs between $12 and $20 million, executive directors must make less than $350,000 to receive full marks. There is no salary ceiling for charities with operating costs of more than $20 million.

Charity transparency: 40 points. We awarded those points based on the following subcategories:

  • Availability of financial statements: 10 points. Audited financial statements are the only way to get a full picture of how a charity makes and spends its money. We award top marks to charities that post audited financial statements for the two most recent years or more online.
  • Social results transparency: 30 points. This measure is based on Charity Intelligence’s assessment of the information charities provide to donors via their websites, annual reports and other communications materials. The social results reporting score does not assess the charity’s impact and achievements — it assesses whether the charity has provided sufficient information to allow donors to make informed decisions.

The post Canada’s top-rated charities 2019: Methodology appeared first on MoneySense.

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