The MoneySense charity standards grade is based on how each charity performs in four categories, as described below.

Overall Charity Efficiency
This grade measures the percentage of charity expenditures spent on program costs, rather than overhead and fund-raising costs. The higher the percentage going to program costs, the better the grade.

Fund-raising Efficiency
This grade looks at how much the charity spends to raise each $100. The less the charity has to spend to raise $100, the better the grade.

Governance and Transparency
Part of this grade is based on the charity’s response to a questionnaire we sent out based on the Better Business Bureau’s governance standards. The other part of this grade is based on transparency, as measured by whether the charity posts complete audited financial statements on its website, and other factors.

Reserve Fund Size
According to charity rating organizations in the U.S., most charities should have between three months’ and three years’ worth of reserves on hand. We gave lower scores to charities with less or more than the ideal amount on hand (unless that type of charity doesn’t hold reserves at all). Note that this category was weighted at 50%, versus 100% for the other three categories.

How to interpret the grades
As much as possible, we tried to grade the charities in relation to their peers. To do this, we grouped similar charities together and normalized the grades. As a result, two charities with similar raw data may receive quite different grades if they are in different categories.

For instance, a Health Services charity devoting 90% of expenditures to program costs gets an ‘A+’ for Charity Efficiency, while a Fund-raising Organization spending the same amount on programs only gets an ‘A-’. That’s because the charities are rated in relation to the other charities in the same category.

It’s important to note that the final grade we award to each charity is not meant to measure how successful that charity has been at achieving its program goals. Rather, our grade is a measure of how the charity compares to other charities in its sector when it comes to meeting specific financial and governance benchmarks. There may be extenuating circumstances we are not aware of that explain why a charity has a low percentage of expenditures going to programs, high fund-raising costs, or reserves that fall outside our target range. Thus, we recommend that you do not use our grades in isolation when deciding which charities to support. Instead, use our grades as a starting point
for your own research.

Sources
Canada Revenue Agency 2008 T3010 charity information filings (this data is collected by the CRA, and we are not responsible for any errors it may contain); MoneySense governance questionnaire; charity financial statements; charity websites.