As a donor, it's essential to verify the integrity and effectiveness of charities before contributing. Understanding a nonprofit's financial health is crucial for making informed decisions. Ride Again encourages you to educate yourself about how to interpret Form 990, the annual tax return filed by nonprofits, which is available to the public.
This guide will walk you through the key sections of Form 990, including where to find important information about a charity's program expenses, executive compensation, and potential conflicts of interest. By understanding these elements, you can ensure your donations are being used effectively to support our mission of helping others in San Antonio.
Step-by-step walkthrough
Access Form 990
Retrieve the charity's Form 990 from resources like ProPublica Nonprofit Explorer or Candid GuideStar. Both platforms provide free access to these essential documents, which detail a nonprofit's financial activities over the past year.
Review Part I Summary
Start with Part I of Form 990, which summarizes the charity's mission, program services, and key financial information. This section gives you a quick overview of how well the charity aligns with its stated goals and objectives.
Analyze Part IX: Functional Expenses
Examine Part IX for a breakdown of functional expenses. It shows how much of the charity's budget is allocated to program services versus administrative and fundraising costs. A well-run charity typically has a program expense ratio of 75% or more.
Inspect Schedule J: Executive Compensation
Look at Schedule J to review executive compensation. Compare the salaries of key personnel with the charity's total revenue. High salaries can raise concerns about whether funds are being appropriately directed towards the mission.
Flag Related-Party Transactions in Schedule L
Check Schedule L for related-party transactions, which may indicate possible conflicts of interest or self-dealing. Highlight any transactions that seem excessive or unusual, as they could undermine the charity's integrity.
Positive signals (green flags)
✓ High Program Expense Ratio
A program expense ratio of over 75% is a positive indicator that the charity prioritizes its mission and effectively uses donations to support its programs.
✓ Stable or Growing Revenue
Consistent growth in contributions and revenue year-over-year signifies community trust and may indicate effective fundraising strategies and positive organizational health.
✓ Transparent Governance Practices
Clear descriptions of the board's governance structure and regular board meeting minutes reflect strong oversight and accountability, instilling confidence in the charity's operations.
✓ Diverse Funding Sources
A diverse range of funding sources, including major donors and grantmakers, reduces reliance on any single source and demonstrates a stable financial foundation for the charity.
Warning signals (red flags)
⚠ Low Program Expense Ratio
If a charity's program expense ratio is below 75%, it may indicate that too much funding is spent on administrative or fundraising costs rather than actual programs benefiting the community.
⚠ High Executive Salaries
Excessive compensation for executives, especially in smaller nonprofits, may signal misallocation of donations, leading to questions about the charity's commitment to its mission.
⚠ Frequent Related-Party Transactions
An unusual number of related-party transactions can suggest potential conflicts of interest, which can compromise transparency and accountability within the organization.
⚠ Declining Revenue or Contributions
A downward trend in revenue or contributions over multiple years could suggest operational difficulties, potentially impacting the charity's ability to fulfill its mission effectively.
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 Antonio state-level oversight
In San Antonio, the Texas Secretary of State maintains a charitable registry where you can verify the status of nonprofits. Additionally, the Better Business Bureau (BBB) offers charity reviews to help assess local organizations. The Texas Nonprofit Alliance provides resources for nonprofits, promoting best practices and encouraging transparency in operations across the state.
FAQ
What is Form 990?
How can I find a charity's Form 990?
Why is the program expense ratio important?
What should I look for in executive compensation?
What are related-party transactions?
How can I compare a charity's performance over time?
Why should I verify a charity before donating?
Other donor-verification guides
Before donating to Ride Again or any charity, take the time to conduct your due diligence. By reviewing Form 990 and understanding the financial landscape of the organization, you can make informed decisions that maximize the impact of your generosity in our community. Together, we can create meaningful change in San Antonio.