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Nonprofit Organizations - research sources for reporters

What to scrutinize for red flags on a form 990

What might indicate possible red flags in a nonprofit's form 990?

  • At least 65 percent of the nonprofit’s total expenses should be for program expenses, including salaries.
  • The nonprofit’s total expenses should not include more than 35 percent for fundraising. 
  • sets a goal of “less than 10 percent” of the nonprofit’s budget for fundraising spending
  • considers an organization that spends less than one-third of its budget on program expense to be failing in its mission.

(Source: Houston Chronicle)

Look at this key info:

  • Nonprofit’s mission: Part III, line 1   
  • How much did it spend on its programs: Part IX, line 25, column b (check how much of its total expenses—column a—represents money spent on its program.)
  • Does it use professional fundraisers? Part I, line 16a, column b (find a more detailed breakdown in Schedule G, line 2b)
  • How much does a CEO make? Part VII
  • Nonprofit’s grants and assistance: Schedule F (Outside the U.S.) and Schedule I (inside the U.S.) Both schedules can be found toward the end of the 990. 
  • Fundraising costs counted as programs: Part IX, line 26

More 990 tips:

"Page 8, Section B - Outside Contractors: Nonprofits are required to report their five most highly compensated outside contractors receiving more than $100,000. This information is often useful not only because it contains names and addresses that can advance your reporting, but it includes a (brief) description of the services provided (such as "media placement"). Though only the top five contractors are listed, section B.2 requires the organization list the total number of contractors paid more than $100,000." 

"Nonprofits don't disclose who gives to them, but they do disclose who they give to. CitizenAudit…should find almost all nonprofit-to-nonprofit grants. This technique won't tell you what companies and individuals are funding nonprofits, unless they're routing it through trusts, etc."

"Use 990s for Routine Backgrounding: 990s are thorough disclosures. It's a chance to get paper on someone, more than you'll see in limited forms like incorporation documents. If you're backgrounding anyone who's been active in the community, there's a decent chance they'll show up. Get in the habit of doing it even when your story has nothing to do with tax-exempt organizations. Nonprofits can be shadow/sister organizations to companies and other groups. They can sometimes have almost no real-world presence, but search an address or a person's name and they may have one there."

"Pages 3 and 4: The kitchen sink Look for “Yes” answers on these pages; in virtually every case, a “Yes” means the nonprofit must file an extra schedule. If the topic is even marginally interesting, make sure you read that schedule. My personal favorite is Line 25, which asks about any “excess benefit transaction with a disqualified individual” – translation: large payments to insiders."

"Pages 7 and 8: Who gets the big bucks  (See Lines 5 and 6 on Page 1.)... two good questions to ask: How well does a particular organization pay compared with similar organizations? And how well does a particular executive’s compensation match his or her performance or (if new on the job) the challenges he or she must overcome?" 

"Part IV Question 26: did the organization provide a loan to a key employee, trustee, etc.?; Question 27: did the organization provide a grant to a key employee, trustee, etc.?; Question 28:  'related business transactions' (has the organization been paying a brother, mother, sister, etc.?); (Checklist starts on page 3 of the Form 990, Part IV)"

"Part VII Question 2: do any of the board members have a family or business relationship?; Question 6: 'significant diversion of assets' - losses attributed to theft, investment fraud, embezzlement and other unauthorized uses of funds in excess of $250,000 or 5 percent of gross receipts; (Starts on page 6 of the Form 990, Part VII)”

"Pages 7-8: Lists compensation of officers, directors, trustees, key and highest paid employees and independent contractors"

"Observe the contributions made or grants and similar amounts paid. This amount is the total amount that the foundation gave in the past year to nonprofits. This is key to any profile—foundations are required to give 5 percent of their assets. Some foundations give a lot more than that while others stick to the minimum."

More Guides on using 990s for reporting: