As a donor, your desire for transparency in charitable giving is not just commendable; it's essential. Understanding a charity's financials is a critical step towards ensuring your contributions are making the intended impact. One of the primary documents you'll want to review is the IRS Form 990, which provides a wealth of information about a nonprofit's financial health, executive compensation, and program expenses.
This page will walk you through how to access Form 990 and what key sections to focus on. By familiarizing yourself with this document, you can assess whether a charity like Wheel Forward is legitimately fulfilling its mission in the San Diego community. Let’s get started on empowering you as a donor!
Step-by-step walkthrough
Access Form 990
Start by retrieving the charity's Form 990 from reliable sources like ProPublica Nonprofit Explorer or the charity's own website. These forms are publicly available and contain crucial financial information about nonprofit organizations.
Review Part I Summary
Begin with Part I of the Form 990, which gives a snapshot of the charity's mission, activities, and financial status. This section is essential for understanding how the organization describes its goals and operational priorities.
Check Functional Expenses in Part IX
Move to Part IX, where you can find the breakdown of functional expenses. A program-expense ratio of 75% or more typically indicates that most funds are directly spent on mission-related activities, which is a good sign of financial health.
Look at Executive Compensation (Schedule J)
Examine Schedule J to understand the compensation for top executives. Comparing these figures against the charity's revenue and size can help you gauge if the salaries align with the mission and operational scale.
Evaluate Related-Party Transactions (Schedule L)
Check Schedule L for any related-party transactions. These can indicate potential conflicts of interest or self-dealing, which are red flags when evaluating a charity’s financial practices.
Positive signals (green flags)
✓ High Program Expense Ratio
A program expense ratio of 75% or higher is a strong indicator that the charity prioritizes its mission and allocates funds efficiently towards programmatic efforts.
✓ Reasonable Executive Salaries
When executive compensation is in line with industry standards and relative to the charity’s size and revenue, it reflects responsible management practices.
✓ Transparent Financial Reporting
A charity that provides detailed financial reports and makes its Form 990 easily accessible demonstrates a commitment to transparency and accountability.
✓ Growing Revenue Trend
An upward trend in revenue over successive years indicates positive growth and may suggest that the charity is effectively engaging its community and stakeholders.
Warning signals (red flags)
⚠ Low Program Expense Ratio
A program expense ratio below 75% might suggest that the charity is spending too much on administrative and fundraising costs, which could raise questions about its financial efficiency.
⚠ High Executive Compensation
If the salaries of executives are disproportionately high compared to the charity’s revenue, it can indicate mismanagement of funds and a lack of focus on the organization’s mission.
⚠ Self-Dealing Transactions
Any related-party transactions flagged on Schedule L should be closely scrutinized. These may suggest potential conflicts of interest or unethical practices within the charity.
⚠ Consistent Revenue Decline
A consistent decline in revenue year-over-year, as seen in the financial statements, can indicate problems with fundraising or community support, which may affect the charity's sustainability.
Tools + resources
- https://projects.propublica.org/nonprofits
- https://www.guidestar.org
- https://www.charitynavigator.org
- https://www.bbb.org/charity-reviews
- https://apps.irs.gov/app/eos
San Diego state-level oversight
In California, the Department of Justice oversees charitable organizations, ensuring compliance with state regulations. The California Attorney General’s office maintains a charitable registry that can provide additional transparency into local nonprofits. Additionally, the Better Business Bureau (BBB) offers charity reviews, which can aid donors in assessing organizations operating in San Diego. Connecting with local associations, like the California Association of Nonprofits, can also provide insights into ethical practices and community impact.