As a responsible donor, it’s essential to understand where your contributions go and how they impact the community. By analyzing a charity's Form 990, you can gain insight into its financial health, mission effectiveness, and overall transparency. This page will guide you through the key sections of Form 990, helping you evaluate the organizations you wish to support.
From examining program expenses to understanding executive compensation, this guide will equip you with the knowledge you need to ensure your donations are making a meaningful difference. Let’s dive into the essential components of Form 990 and learn how to use it as a tool for informed giving.
Step-by-step walkthrough
Retrieve Form 990
Access Form 990 for Cream City Keys through platforms like ProPublica Nonprofit Explorer or the charity's own website. These forms are publicly available and provide a comprehensive view of the charity's financials.
Read Part I Summary
Start with Part I of Form 990, which gives a high-level overview of the charity’s mission, revenue, and expenses. This helps you understand the organization’s purpose and financial scale at a glance.
Analyze Part IX: Functional Expenses
Dive into Part IX to examine the breakdown of functional expenses. Look for a program expense ratio of 75% or higher, indicating that most funds are going toward direct program services rather than administrative or fundraising costs.
Review Schedule J: Executive Compensation
Check Schedule J for details on executive compensation. Compare salaries against the charity’s total revenue and size to assess whether compensation is reasonable relative to the charity’s mission and accomplishments.
Flag Schedule L: Related-Party Transactions
Look at Schedule L to identify any related-party transactions. Significant transactions with board members or executives can be a red flag for potential conflicts of interest or self-dealing.
Compare Year-Over-Year Data
Finally, review year-over-year financial trends. Look for growth or decline in revenue, expenses, and program funding to gauge the charity's trajectory and sustainability.
Positive signals (green flags)
✓ High Program Expense Ratio
A program expense ratio above 75% shows that the charity is efficiently using its funds to support its mission and deliver services to the community.
✓ Transparent Executive Compensation
Reasonable executive salaries relative to the organization’s size and scope suggest a commitment to transparency and responsible financial management.
✓ Low Related-Party Transactions
Few or no related-party transactions can indicate a strong governance structure and a commitment to ethical practices within the organization.
✓ Consistent Growth
Steady year-over-year growth in revenue and program funding is a positive indicator of the charity's sustainability and community impact.
Warning signals (red flags)
⚠ Low Program Expense Ratio
If the program expense ratio is below 75%, this could indicate that a significant portion of funds is being used for administrative costs rather than direct services.
⚠ High Executive Compensation
Executive salaries that are disproportionately high compared to the charity's revenue may signal mismanagement of funds, diverting resources away from the mission.
⚠ Frequent Related-Party Transactions
Regular transactions with board members or executives can raise concerns about self-dealing and conflicts of interest, which may affect the charity's integrity.
⚠ Inconsistent Year-Over-Year Trends
Significant fluctuations in revenue or program funding over consecutive years could indicate instability or issues in the charity's operational effectiveness.
Tools + resources
- https://www.propublica.org/nonprofits
- https://www.charitynavigator.org
- https://apps.irs.gov/app/eos
- https://bbb.org/charity-reviews
- https://www.candid.org
- https://www.uwm.edu/sarup/
Milwaukee state-level oversight
In Milwaukee and throughout Wisconsin, donors can utilize the state Attorney General’s charitable registry to verify the legitimacy of charities. The Better Business Bureau (BBB) also offers charity reviews that can guide donors in making informed decisions. Additionally, local nonprofit associations provide educational resources to help donors understand effective giving and impact evaluation, ensuring that contributions make a positive difference in the community.