As a donor, your desire to ensure that your contributions are making a meaningful impact is commendable. Understanding how to read Form 990, the annual tax return filed by nonprofits, can provide critical insights into a charity's operations and financial health.
This page will guide you through the key sections of Form 990 that reveal vital information about charities, including their program expenses, executive compensation, and governance structure. By learning how to analyze this form, you can verify a charity's legitimacy and effectiveness before making a donation.
Step-by-step walkthrough
Access Form 990
Retrieve Form 990 for WheelWise from Candid GuideStar, ProPublica Nonprofit Explorer, or the charity's website. These forms are publicly available and provide detailed insights into the charity's finances and operations.
Review Part I Summary
Begin with Part I of Form 990, which summarizes the charity's mission, programs, and key financial metrics. This section gives a quick overview of the charity's purpose and financial health.
Analyze Part IX Functional Expenses
Move to Part IX, where you can see the breakdown of functional expenses. Look for the program expenses ratio and aim for 75% or higher, indicating that most funds support the charity's programs rather than administration or fundraising.
Examine Schedule J for Executive Compensation
Check Schedule J to understand executive compensation. Compare salaries against the size of the charity and its revenue. Ensure that compensation aligns with mission accomplishment and does not appear excessive.
Flag Related-Party Transactions on Schedule L
Look at Schedule L to identify any related-party transactions, which may raise red flags. If there are significant transactions with insiders or board members, consider the implications for transparency and governance.
Positive signals (green flags)
✓ High Program Expense Ratio
A program expense ratio of 75% or higher indicates that the charity is effectively allocating funds to its mission and programs, demonstrating good financial stewardship.
✓ Reasonable Executive Compensation
Executives compensated in line with industry standards and the charity's revenue reflects responsible governance and a commitment to the mission.
✓ Transparent Related-Party Transactions
If related-party transactions are disclosed with clear explanations, it shows the charity values transparency and ethical governance.
✓ Positive Year-over-Year Growth
Consistent revenue growth and an increasing program expenditure trend indicate that the charity is thriving, expanding its impact in the community.
Warning signals (red flags)
⚠ Low Program Expense Ratio
If the program expense ratio is below 75%, this may indicate the charity is spending too much on administration or fundraising rather than direct program services.
⚠ Excessive Executive Compensation
High salaries for executives compared to the charity’s revenue can signal mismanagement or misalignment with the organization's mission.
⚠ Self-Dealing Transactions
Related-party transactions without proper justification can suggest conflicts of interest and a lack of transparency in how the charity operates.
⚠ Declining Revenue Trends
Consistent declines in revenue or program expenses over multiple years can indicate financial instability or a lack of community support.
Tools + resources
- https://projects.propublica.org/nonprofits
- https://apps.irs.gov/app/eos
- https://www.charitynavigator.org
- https://www.bbb.org/charity-reviews
- https://www.guidestar.org
- https://www.afpnet.org
- https://www.aafrc.org
New Hampshire state-level oversight
In New Hampshire, you can verify charitable organizations through the New Hampshire Attorney General's charitable registry, which maintains a list of registered nonprofits. The local Better Business Bureau (BBB) also provides ratings and reviews for charities operating in the state. Additionally, the New Hampshire Nonprofit Association offers resources and support for local nonprofits to enhance transparency and accountability.