As a donor, it's essential to ensure that your contributions are being used effectively. Understanding a nonprofit's financial health and governance structure gives you the tools to make informed decisions. Big Sky Rides encourages you to take a proactive approach in verifying the charities you support.
This page walks you through the process of reading Form 990, the annual tax return for nonprofits. You will learn how to access this document, which key sections to focus on, and what red and green flags to look for, empowering you to assess any charity's performance and integrity.
Step-by-step walkthrough
Retrieve Form 990
Access the Form 990 for Big Sky Rides through platforms like Candid GuideStar, ProPublica Nonprofit Explorer, or our charity website. These documents are publicly available and essential for understanding our financial health.
Check Part I Summary
Start by reviewing Part I, which provides a snapshot of our overall financial situation. Look for total revenue, expenses, and net assets to gauge our financial stability and operations.
Analyze Part IX Functional Expenses
In Part IX, examine the breakdown of expenses among program services, administrative costs, and fundraising activities. A healthy charity should ideally spend 75% or more on its programs.
Review Schedule J for Executive Compensation
Check Schedule J to see the compensation for our executive team. Compare these figures against our total revenue and size to assess whether salaries are appropriate relative to our mission.
Investigate Schedule L for Related-Party Transactions
Look for any related-party transactions in Schedule L. If we engage with vendors or partners who have ties to our board, be cautious, as this may indicate self-dealing.
Positive signals (green flags)
✓ Low Program Expense Ratios
A program expense ratio of 75% or higher indicates that the charity is efficiently using funds to support its programs, reflecting good management.
✓ Transparent Governance
A clearly structured board governance with diverse members shows accountability and commitment to ethical practices, enhancing trust.
✓ Consistent Growth Trajectory
A steady increase in revenue and program expenses over time implies a well-managed organization that is successfully fulfilling its mission.
✓ Positive Reviews from Charity Watchdogs
High ratings from organizations like Charity Navigator or the Better Business Bureau affirm the charity's reliability and commitment to transparency.
Warning signals (red flags)
⚠ High Admin Costs
If the administrative and fundraising expenses exceed 25% of total expenses, it might indicate inefficient use of donor funds, prompting further investigation.
⚠ Unexplained Executive Salaries
Excessive executive compensation compared to revenue and mission accomplishments can be a red flag, suggesting misallocation of financial resources.
⚠ Frequent Related-Party Transactions
A high number of related-party transactions may signal conflicts of interest or self-dealing, jeopardizing the charity's integrity.
⚠ Declining Program Expenses
If program expenses are decreasing year-over-year, it could mean that the charity is moving away from its mission, which warrants further scrutiny.
Tools + resources
- https://projects.propublica.org/nonprofits
- https://www.guidestar.org
- https://www.irs.gov/app/eos
- https://www.charitynavigator.org
- https://www.bbb.org/charity-reviews
Montana state-level oversight
In Montana, you can verify a charity's legitimacy through the state Attorney General's Charitable Registry, ensuring compliance with state regulations. The Better Business Bureau (BBB) provides additional resources for assessing charitable organizations. For a deeper understanding of nonprofit standards, the Montana Nonprofit Association offers valuable guidance and resources tailored to local charities like Big Sky Rides.