As a donor, it's only natural to want to ensure that your contributions are making a real difference. Understanding how to read a charity's Form 990 can give you invaluable insights into its operations, program efficacy, and financial health. This guide will walk you through the essential elements of Form 990, the annual tax return for nonprofits, which is publicly available to help you make informed decisions.
You’ll learn how to access Form 990 through various platforms, identify key sections that illustrate the charity's effectiveness, and recognize both red flags and green lights in its financial practices. By following this guide, you'll empower yourself to ensure your donations to CarLift Baltimore are well placed and impactful.
Step-by-step walkthrough
Retrieve Form 990
Begin by visiting ProPublica Nonprofit Explorer or similar platforms to access CarLift Baltimore's Form 990. Simply search for the organization using its name to find recent filings.
Read Part I Summary
Part I provides a snapshot of the charity’s mission, revenue, and expenses. Focus on the total revenue and the percentage allocated to programs versus administration and fundraising.
Analyze Part IX Functional Expenses
In Part IX, break down expenses into program, administrative, and fundraising categories. A well-run charity should allocate at least 75% of its expenses to program services.
Check Schedule J for Executive Compensation
Review Schedule J to see the salaries of top executives. Compare these figures against the charity's size and revenue. High salaries can be concerning if they outweigh the organization’s impact.
Examine Schedule L for Related-Party Transactions
Look for Schedule L to identify any transactions with board members or major donors. Self-dealing situations here can indicate potential conflicts of interest.
Compare Year-over-Year Data
Finally, if available, compare the latest Form 990 with previous years to analyze trends in financial health, program spending, and executive compensation.
Positive signals (green flags)
✓ Strong Program Expense Ratio
A program expense ratio above 75% is a positive indicator that the charity is dedicating most of its resources to its mission and services.
✓ Transparent Executive Compensation
If executive salaries are reasonable and aligned with industry standards, this indicates a responsible approach to compensation within the organization.
✓ Healthy Year-over-Year Growth
Consistent growth in revenue and program services over the years suggests effective management and a strong community impact.
✓ Diverse Funding Sources
A well-rounded funding portfolio, including major donors and grants, shows resilience and reduces reliance on a single funding source.
Warning signals (red flags)
⚠ High Administrative Costs
If more than 25% of total expenses are allocated to administrative costs, it may indicate inefficiency or potential mismanagement of funds.
⚠ Excessive Executive Salaries
Salaries that are disproportionately high compared to the charity's revenue might signal that funds are not being allocated toward mission fulfillment.
⚠ Related-Party Transactions
Any transactions listed in Schedule L involving board members or major donors should be scrutinized, as they may pose a conflict of interest.
⚠ Declining Program Spending
If program spending is decreasing year-over-year, this could indicate a shift away from the charity's mission or financial challenges.
Tools + resources
- https://www.propublica.org/nonprofits
- https://www.charitynavigator.org
- https://apps.irs.gov/app/eos
- https://www.bbb.org/charity-reviews
- https://www.guidestar.org
- https://www.afpglobal.org
Baltimore state-level oversight
In Baltimore, potential donors can also refer to the Maryland Secretary of State's Charitable Organization Division for registration and compliance information. Additionally, the Better Business Bureau (BBB) offers charity reviews that can be invaluable for validating a charity's accountability. The Maryland Nonprofits association provides resources and support for local nonprofits, ensuring they adhere to the highest standards of transparency and stewardship.