As a conscientious donor in Greenville, South Carolina, you want to ensure your contributions make a meaningful impact. Understanding a charity’s financial health is essential, and Form 990 is a key tool for that. This publicly available tax return reveals critical insights about how charities operate, allocate resources, and achieve their missions.
This page will guide you through how to read Form 990, highlighting key sections and what to look for, helping you make informed decisions about your philanthropy. You'll discover how to assess program costs, executive compensation, and potential conflicts of interest, empowering you to verify the integrity of the charities you wish to support.
Step-by-step walkthrough
Access Form 990
Retrieve the Form 990 of your chosen charity from trusted platforms like ProPublica Nonprofit Explorer, Candid GuideStar, or the charity's own website. This document is crucial for transparency, as it provides a wealth of financial information.
Read Part I Summary
Begin with Part I of the Form 990, which summarizes the charity's mission, activities, and financial performance. This provides a quick overview of the charity's operations and its alignment with your values.
Analyze Functional Expenses in Part IX
Focus on Part IX, which breaks down expenses into program, administrative, and fundraising costs. A well-managed charity should ideally spend over 75% of its budget on program activities, indicating effective use of donations.
Examine Executive Compensation in Schedule J
Review Schedule J for details about executive salaries. Compare these figures against the charity's size and revenue to assess whether the compensation is reasonable in relation to its mission and financial health.
Check Related-Party Transactions in Schedule L
Lastly, look at Schedule L for any related-party transactions. Be cautious of any self-dealing that could indicate conflicts of interest or mismanagement of funds.
Positive signals (green flags)
✓ High Program Expense Ratio
A program expense ratio above 75% reflects a charity's dedication to its mission and responsible financial management, suggesting your donations are effectively utilized.
✓ Reasonable Executive Compensation
Executive salaries that align with industry standards for similar organizations indicate financial prudence and a focus on the charitable mission over excessive pay.
✓ Limited Related-Party Transactions
A lack of related-party transactions shows a commitment to transparency and accountability, minimizing the risk of conflicts of interest.
✓ Consistent Revenue Growth
Positive year-over-year revenue growth, alongside expanding programs, signifies an effective organization capable of adapting and engaging its community successfully.
Warning signals (red flags)
⚠ Low Program Expense Ratio
If the charity spends less than 75% of its budget on program activities, it may indicate inefficiencies or a lack of commitment to its mission.
⚠ Excessive Executive Compensation
High executive salaries compared to the charity's financials can raise questions about priorities. Ensure that compensation aligns with the size and impact of the organization.
⚠ Frequent Related-Party Transactions
Multiple transactions with related parties can signal potential self-dealing or conflicts of interest, which may jeopardize the charity's integrity.
⚠ Declining Revenue or Program Growth
A consistent decline in revenue or stagnation in program growth can indicate problems within the organization, pointing to potential issues in management or mission engagement.
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
Greenville state-level oversight
In Greenville, SC, you have access to state resources like the South Carolina Attorney General's Office, which oversees charitable organizations and protects donor interests. You can also visit the local Better Business Bureau for charity reviews, or engage with the South Carolina Association of Nonprofits to learn more about the nonprofit sector in your area. These resources help you make informed decisions as a donor committed to supporting credible organizations.