As a donor, you rightfully want to ensure that your contributions are making a difference. One of the best ways to assess a charity’s financial health and operational efficiency is by reviewing their Form 990, an annual tax return that provides detailed insight into their finances. This page will walk you through how to read this crucial document, helping you make informed decisions about where to invest your charitable contributions.
Understanding Form 990 can seem daunting, but with the right approach, it becomes a powerful tool in your donor toolkit. We’ll guide you step-by-step through the key sections of the form, highlight what to look for, and explain why these details matter for your giving strategy. Empower yourself with knowledge so that your donations truly support the causes you care about.
Step-by-step walkthrough
Retrieve Form 990
Visit ProPublica Nonprofit Explorer (or another source) to find the Form 990 for the charity you’re interested in. Simply search for CarLift Utah to access their financial data easily.
Read Part I Summary
Start with Part I of the Form 990, which provides a summary of the organization’s mission, key programs, and financial summaries. This gives you an overview of their operations and goals.
Analyze Functional Expenses in Part IX
Navigate to Part IX to examine the breakdown of functional expenses. Look for the program-expense ratio; ideally, it should be 75% or higher, indicating funds are used for mission-related activities.
Check Executive Compensation in Schedule J
In Schedule J, review the compensation of key executives. Compare their salaries against the size and revenue of the charity to assess if compensation aligns with the organization’s mission.
Flag Related-Party Transactions in Schedule L
Examine Schedule L for any related-party transactions. These can be red flags if they indicate self-dealing. Ensure that all transactions are transparent and justifiable to maintain trust.
Compare Year-Over-Year Trends
Look at financial data across multiple years to identify trends. An increasing program-expense ratio or stable executive compensation over time is a positive indicator of financial health.
Positive signals (green flags)
✓ High Program-Expense Ratio
A program-expense ratio above 75% is a positive indicator. It suggests that the majority of funds are effectively supporting the charity’s mission-driven activities.
✓ Reasonable Executive Compensation
If executive salaries are in line with industry standards and charity size, it can indicate fair compensation practices that align with mission accountability.
✓ Transparent Financial Reporting
Clear and comprehensive financial reporting practices signal a commitment to transparency, which is crucial for building donor confidence and trust.
✓ Growth in Program Funding
Consistent growth in funding for programs over the years suggests a healthy trajectory and the charity's ability to expand its impact in the community.
Warning signals (red flags)
⚠ Low Program-Expense Ratio
If the program-expense ratio is below 75%, it may indicate that the charity is spending too much on administration or fundraising rather than on its mission.
⚠ Excessive Executive Compensation
High salaries for executives, especially in relation to the charity's size and revenue, could be a warning sign that funds may not be directed effectively toward the mission.
⚠ Unclear or Frequent Related-Party Transactions
Watch for numerous related-party transactions in Schedule L. These can signal potential conflicts of interest or self-dealing, undermining donor trust.
⚠ Declining or Stagnant Program Funding
If year-over-year funding for programs is declining or stagnant, it may indicate financial instability or inefficiencies within the charity.
Tools + resources
- https://apps.irs.gov/app/eos
- https://projects.propublica.org/nonprofits
- https://charitynavigator.org
- https://bbb.org/charity-reviews
- https://www.aaa.org
Salt Lake City state-level oversight
In Utah, the Office of the Attorney General maintains a charitable registry that provides oversight for nonprofit organizations. You can find information on CarLift Utah’s registration status and compliance. Furthermore, the Better Business Bureau (BBB) offers charity reviews that assess accountability and transparency, which are essential for donor confidence. Local nonprofit associations also provide resources for education and best practices in philanthropic giving.