As a donor, it’s essential to understand where your contributions go and how they contribute to the mission of a nonprofit. Wheel of Hope is dedicated to transparency and empowering you with the knowledge you need to make informed decisions. Understanding the details behind a charity’s financials can shed light on its effectiveness and integrity.
This page will guide you through the intricacies of Form 990, the annual tax return that nonprofits are required to file. By using resources like ProPublica Nonprofit Explorer or Candid GuideStar, you’ll learn how to read and interpret the key components of Form 990, so you can confidently assess the charities you wish to support.
Step-by-step walkthrough
Retrieve Form 990
Start by visiting websites like ProPublica Nonprofit Explorer or Candid GuideStar. Search for 'Wheel of Hope' to find the nonprofit’s Form 990. This form is publicly available and provides crucial financial information.
Analyze Part I Summary
Part I summarizes the organization’s mission, key programs, and financial data. Review this section to understand how the charity aligns its resources with its stated goals and objectives.
Review Part IX: Functional Expenses
Examine Part IX, which breaks down the charity's expenses. Look for the program expenses ratio, which should ideally be 75% or higher. This indicates a well-run charity focusing on its mission.
Check Executive Compensation in Schedule J
Look at Schedule J to see the compensation of top executives. Compare these salaries to the charity’s size and revenue to evaluate whether executive compensation aligns with the organization’s mission and achievements.
Flag Related-Party Transactions in Schedule L
Schedule L reveals any transactions with related parties. Pay attention to these details, as they can indicate potential self-dealing or conflicts of interest that could affect the charity’s integrity.
Positive signals (green flags)
✓ High Program Expense Ratio
A program expense ratio over 75% is a strong indicator that the charity is effectively using donations to support its mission rather than spending excessively on administration.
✓ Transparent Governance
Clear and open governance structures in a charity’s Form 990 indicate a commitment to accountability and ethical management of resources.
✓ Diverse Funding Sources
A variety of major donors and grantmakers can suggest a stable financial foundation, improving the charity's ability to sustain its programs and initiatives.
✓ Year-Over-Year Growth
Positive year-over-year revenue growth is a sign that the organization is gaining trust and support, which can enhance its operational capacity and effectiveness.
Warning signals (red flags)
⚠ Low Program Expense Ratio
A program expense ratio below 75% may indicate that the charity spends too much on administrative and fundraising costs instead of direct program services.
⚠ High Executive Compensation
If executive salaries are disproportionately high compared to the organization’s revenue or mission impact, this could suggest misaligned priorities within the organization.
⚠ Self-Dealing Transactions
Related-party transactions in Schedule L can indicate potential self-dealing. Be cautious if these transactions seem excessive or lack transparency.
⚠ Declining Revenue or Growth
A consistent decline in revenue can signify potential financial instability. Look for trends over several years to assess the charity's sustainability and growth.
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
Providence state-level oversight
In Rhode Island, donors can further verify charity integrity through the state Attorney General's Charitable Registry, which oversees charitable organizations. The local Better Business Bureau (BBB) also provides charity reviews to help donors make informed choices. Additionally, organizations like the Rhode Island Nonprofit Association offer resources and support for local nonprofits, promoting transparency and accountability across the sector.