The Los Angeles Times has unveiled a controversial new database that rates charities registered to raise money in California on their fund-raising performance.

The database accompanied an article that highlights the poor returns some charities earn when they hire outside companies to conduct telephone and direct-mail fund-raising campaigns. Many of the organizations in the database are based outside California and raise money across the country.

The newspaper’s database compares the revenue earned by each charity against the amount of money they paid in fees to outside companies. It relies on data from the California Attorney General’s office on commercial fund-raising activities from 1997 to 2006.

The database also includes a feature in which charities are rated red, yellow, or green depending on the percentage of their income that is paid to commercial fund raisers.

Those that post a return of less than 33 percent are rated “red”. Those with a return of greater than 67 percent get a “green” rating.

The rating system is the latest high-profile attempt to analyze charities based on their fund-raising effectiveness — a trend that has been criticized by many in the nonprofit world.

Groups such as Charity Navigator have their own rating systems, which have been criticized for not providing an accurate picture of how groups operate.

In addition, the Internal Revenue Service scrapped plans to include a calculation of fund-raising expenses as a percentage of total contributions on the new Form 990 because fund raisers complained that the ratio was biased against some charities.

Others, however, say the public deserves to have access to more information about how much of their donations will actually be used to benefit the causes they support.

What do you think? Are measures such as the one used by the Los Angeles Times useful for prospective donors? Or do they paint some charities in an unfair light?

Click on the comment link below this post to share your thoughts.