As a donor, your desire to ensure that your contributions make a meaningful impact is commendable. Understanding a charity’s financial reporting can illuminate how funds are utilized, and it can help you determine if an organization aligns with your values and goals.
This page will guide you through the key components of Form 990, the annual tax return that nonprofit organizations like Wheels of Hope file. By learning how to review and interpret these forms, you'll be empowered to make informed decisions about your charitable contributions.
Step-by-step walkthrough
Retrieve Form 990
Access the Form 990 of Wheels of Hope through platforms like ProPublica Nonprofit Explorer or Candid GuideStar. These resources provide free access to the tax filings of nonprofits, making it easy for you to start your review.
Review Part I Summary
The Part I Summary gives a snapshot of the organization’s mission, programs, and revenue over the year. This section helps you understand the primary activities of Wheels of Hope and how they contribute to their mission.
Analyze Part IX Functional Expenses
Look closely at Part IX, where expenses are broken down into program, administrative, and fundraising categories. A program-expense ratio of 75% or higher indicates that the majority of funds are dedicated to achieving their mission, which is a positive sign.
Check Schedule J for Executive Compensation
Schedule J details the compensation of the organization’s top executives. Compare their salaries against the charity’s revenue and the scope of its operations to assess whether salaries are justified in relation to the charity’s mission and impact.
Flag Related-Party Transactions in Schedule L
Review Schedule L to identify any related-party transactions. These can raise concerns about potential conflicts of interest. If self-dealing is evident, consider it a red flag when evaluating the charity’s governance.
Positive signals (green flags)
✓ High Program Expense Ratio
A program expense ratio of 75% or higher is a positive indicator that the charity efficiently utilizes donations to support its mission-focused activities.
✓ Transparent Executive Pay
If executive compensation appears reasonable compared to industry standards and aligns with the organization's size, this can indicate sound governance practices.
✓ No Related-Party Transactions
Absence of related-party transactions suggests that the charity maintains a clear boundary between its operations and the personal interests of its board members and executives.
✓ Stable or Growing Revenue
Consistent or increasing revenue over time reflects strong community support and can enhance the charity's ability to deliver on its commitments.
Warning signals (red flags)
⚠ Low Program Expense Ratio
If the program expense ratio is below 75%, it may indicate that a larger portion of funds is allocated to administrative or fundraising costs rather than direct mission work.
⚠ Excessive Executive Compensation
Look for executive salaries that seem disproportionately high compared to the charity's size and impact. This can be a warning sign regarding the charity's financial management practices.
⚠ Frequent Related-Party Transactions
Multiple related-party transactions can indicate potential conflicts of interest or self-dealing, which can undermine the transparency and trustworthiness of the organization.
⚠ Declining Revenue Trends
A consistent decline in revenue over the years may suggest financial instability, which can impact the organization's ability to fulfill its mission effectively.
Tools + resources
- https://projects.propublica.org/nonprofits
- https://www.candid.org
- https://www.charitynavigator.org
- https://apps.irs.gov/app/eos
- https://bbb.org/charity-reviews
- https://www.afpglobal.org
Charleston state-level oversight
In Charleston and across South Carolina, donors can access the state Attorney General’s charitable registry, which provides important information about registered nonprofits. The Better Business Bureau also offers charity reviews that help assess the trustworthiness of local organizations. Finally, the South Carolina Association of Nonprofits offers resources to promote accountability and effectiveness in the nonprofit sector, enhancing transparency for all stakeholders.