Your desire to verify a charity's credibility is commendable. By understanding how to read Form 990, the annual tax return for nonprofits, you can ensure that your donations are making a difference. This page guides you through the key sections of the form and what they reveal about a charity’s financial health and operational transparency.
We'll walk you through retrieving Form 990 from reliable sources, dissecting its essential components, and interpreting the information to facilitate informed giving. As a donor, your diligence is crucial in supporting reputable organizations like Revive Wheels.
Step-by-step walkthrough
Retrieve Form 990
Access Form 990 from Candid GuideStar, ProPublica Nonprofit Explorer, or the charity's website. Use the charity's name or EIN to search for its records. These forms are publicly available and provide a comprehensive overview of the charity's finances.
Review Part I Summary
Start with Part I, which summarizes key information about the organization’s mission, revenue, and expenses. This section gives you a snapshot of the charity's financial status, allowing you to gauge its size and operational scope.
Analyze Part IX - Functional Expenses
Look at Part IX for a breakdown of functional expenses. This section shows how much of the charity’s budget is allocated towards programs, administration, and fundraising. A well-run charity typically aims for over 75% of its expenses to fund programs directly.
Check Schedule J for Executive Compensation
Review Schedule J to see the compensation for key executives. Compare their salaries against the charity's revenue and size to ensure they are reasonable and aligned with the mission’s accomplishment.
Inspect Schedule L for Related-Party Transactions
Examine Schedule L for any related-party transactions. These can indicate potential conflicts of interest, especially if a charity is doing business with individuals associated with it. Be cautious of any red flags here.
Positive signals (green flags)
✓ Strong Program-Expense Ratio
A program-expense ratio above 75% indicates that the charity is likely focused on its mission, directing most of its financial resources towards its programs.
✓ Reasonable Executive Salaries
Executive compensation that aligns with the size and scope of the organization reassures donors that funds are being managed responsibly.
✓ Transparent Reporting
A charity that openly reports its financials and provides clear explanations for its expenses is likely committed to transparency and accountability.
✓ Consistent Year-over-Year Growth
Continuous revenue growth over multiple years can indicate a healthy organization that is effectively engaging with its donors and community.
Warning signals (red flags)
⚠ Low Program-Expense Ratio
If the program-expense ratio is below 75%, this may suggest that the charity is spending too much on administration or fundraising, which could impact its effectiveness.
⚠ Excessive Executive Compensation
High salaries for executives can be a red flag, especially if they appear disproportionate to the charity's revenue and mission impact. Verify these figures against industry standards.
⚠ Frequent Related-Party Transactions
Many related-party transactions can indicate self-dealing or conflicts of interest. Be cautious if the charity is financially tied to board members or executives.
⚠ Stagnant or Declining Revenue
If you see a trend of declining revenue or stagnant growth, it may indicate potential issues with donor retention or program effectiveness.
Tools + resources
- https://projects.propublica.org/nonprofits
- https://www.guidestar.org
- https://www.charitynavigator.org
- https://apps.irs.gov/app/eos
- https://www.bbb.org/charity-reviews
- https://www.afpglobal.org
Cincinnati state-level oversight
Cincinnati and Ohio have a robust framework for ensuring charity accountability. The Ohio Attorney General’s office maintains a charitable registry where you can verify registered nonprofits. Additionally, the Better Business Bureau (BBB) provides charity reviews, while the Ohio Association of Nonprofits advocates for transparency and ethical practices among its members. Local data can provide further insights into regional charities like Revive Wheels.