How to Read a Charity's Form 990 (Without Being an Accountant)

Which form will you see?

Churches and certain church-affiliated organizations aren't required to file at all.

Part I: The one-page summary

Part I gives you the mission in a sentence, the number of voting board members (and how many are independent), employees and volunteers, and two years of revenue, expenses and net assets side by side. If you read only one page, read this one.

• Is revenue steady or growing?
• Are expenses much larger than revenue? One bad year happens; several in a row is a concern.
• Are net assets (reserves) positive? Negative net assets can signal financial trouble.

Part III: What it actually did

Part III describes the three largest program services, with expenses for each. Good organizations describe results: "Provided 412,000 meals to 3,100 households." Weak ones describe activity: "Worked to address hunger." Compare these descriptions with what the charity says in its fundraising appeals.

Part VI: Governance

Part VI is a series of yes/no questions. Look for:

• A majority of independent voting board members.
• Written conflict-of-interest, whistleblower and document-retention policies.
• Whether the board reviewed the 990 before it was filed.
• Whether there were family or business relationships among officers and directors.

Part VII: Who gets paid

Part VII lists officers, directors, key employees and the highest-paid staff, with their compensation. Ask whether pay seems reasonable for the size and type of organization. A $2 million charity paying its founder half its budget is a problem; a large hospital system paying its CEO well is not surprising. Also note any outside fundraising firms listed with large fees.

Part IX: Where the money went

Part IX breaks total expenses into three columns: program services, management and general, and fundraising. This is where "overhead" percentages come from. Use them as a warning light at the extremes, not a score. (See Charity Ratings and the Overhead Myth.)

Schedules worth a glance

• Schedule A: confirms public charity status.
• Schedule G: fundraising events and paid fundraisers.
• Schedule L: transactions with insiders, such as loans to officers or business deals with board members' companies.
• Schedule O: the charity's explanations. Sometimes the most honest part of the return.

Mind the date

Form 990s are filed months after a fiscal year ends, and extensions are common, so the newest one available may be a year or two old. For a large gift, ask the charity for its most recent annual report or audited financial statements as well.