Charities are rated on the percentage of overall budget spent on direct services compared with the percentage spent on operational costs and on the cost of raising funds as a percentage of total funds raised. Rating criteria also include program effectiveness, governance, and accountability to members, donors and the public.
Planning, evaluation and reporting of both financial and programmatic indicators are key to ratings of a charity's accountability and transparency and are tied to the effectiveness of its governance structure.
Charities are asked to establish well-defined, measurable outcomes for their programs and to collect and present data regarding performance toward these outcomes on a regular basis. Performance reports include program effectiveness, and they identify areas for improvement and outline how programming may change to be more effective in the future. Factors rated in regard to overall management include extent of financial reserves, management of capital assets, relationship of outcome measures to the charity's mission, frequency, accuracy and completeness of reports, existence of and compliance with current organizational bylaws, and board members' level of engagement.
Charity Watch, a program of the American Institute of Philanthropy, the Better Business Bureau through Give.org, BBB Wise Giving Alliance, and Forbes conduct and publish charity ratings.