Every donor wants to ensure their contributions are making a meaningful difference. One way to verify a charity's integrity is by examining its Form 990, the nonprofit's annual tax return.
This page will guide you through the key sections of Form 990 that reveal a charity's financial health, program efficiency, and overall governance. By understanding these reports, you empower yourself to make informed decisions that align with your philanthropic values.
Step-by-step walkthrough
Retrieve Form 990
Visit ProPublica Nonprofit Explorer or Candid GuideStar to find Legacy Wheels' Form 990. Search by the charity's name or EIN to access the document, which is public and free.
Examine Part I Summary
Review the Part I Summary on the first page of Form 990. It provides a snapshot of the charity's mission, revenue, and expenses, giving you a quick overview of its financial health.
Analyze Part IX Expenses
Look at Part IX to understand the breakdown of functional expenses. Focus on program expenses versus administrative and fundraising costs. A well-run charity should spend at least 75% on its programs.
Check Executive Compensation (Schedule J)
Navigate to Schedule J to review executive compensation. Compare these salaries to the charity’s revenue and size to assess whether they align with the mission and operational scale.
Identify Related-Party Transactions (Schedule L)
Review Schedule L for any related-party transactions. These can indicate self-dealing or conflicts of interest, which might raise concerns about the charity’s governance and transparency.
Compare Year-Over-Year Trends
Lastly, compare the current Form 990 against previous years for trends in revenue, program expenses, and compensation. Look for consistent growth and responsible spending.
Positive signals (green flags)
✓ High Program Expense Ratio
A program expense ratio above 75% is a strong indicator that the charity is effectively using its funds to deliver impactful services.
✓ Transparent Executive Compensation
If executive salaries appear reasonable and align with industry standards, it reflects a commitment to transparency and fiscal responsibility.
✓ Consistent Growth
Year-over-year growth in revenue and program services indicates that the charity has a solid fundraising strategy and a thriving mission.
✓ Strong Board Governance
A diverse and engaged board of directors is essential for effective governance, ensuring that the charity operates with integrity and accountability.
Warning signals (red flags)
⚠ Low Program Expense Ratio
If the program expense ratio is below 75%, it may indicate that the charity is spending excessively on administrative costs instead of fulfilling its mission.
⚠ High Executive Salaries
Salaries that are disproportionate to the charity's revenue can suggest mismanagement of funds, potentially diverting money away from essential services.
⚠ Self-Dealing in Transactions
If you spot related-party transactions that benefit insiders without clear justification, this could signal a lack of transparency and potential conflicts of interest.
⚠ Declining Revenue or Programs
A downturn in revenue or a reduction in program services year over year can imply financial instability, raising questions about the charity’s sustainability.
Tools + resources
- https://projects.propublica.org/nonprofits
- https://www.guidestar.org
- https://www.charitynavigator.org
- https://apps.irs.gov/app/eos
- https://bbb.org/charity-reviews
North Carolina state-level oversight
In North Carolina, donors can check the state Attorney General's Charitable Solicitation Division for registered charities and their compliance status. The local Better Business Bureau also offers charity reviews, providing insights into accountability and transparency for North Carolina nonprofits.