As a donor, understanding how to evaluate a charity's financial health is crucial to ensuring your contributions are used effectively. One of the best resources available for this purpose is the IRS Form 990, which provides an annual overview of a nonprofit's financial activities, including revenues, expenses, and governance. By learning how to read this form, you can verify if organizations like Rev Up Hope are responsibly managing their funds.
This guide will walk you through the key components of Form 990, empowering you to assess a charity's performance and transparency. With just a few steps, you can uncover vital information about how donations are spent, the charity's financial efficiency, and much more.
Step-by-step walkthrough
Access Form 990
Visit ProPublica Nonprofit Explorer (projects.propublica.org/nonprofits) or Candid GuideStar (guidestar.org) to retrieve Form 990 for Rev Up Hope. You can also check the charity’s official website for this information.
Review Part I Summary
Start with Part I, which provides a summary of the charity’s mission, revenue, expenses, and net assets. This overview gives you a quick snapshot of Rev Up Hope’s financial health and focus areas.
Analyze Part IX Functional Expenses
Navigate to Part IX to break down the functional expenses into program services, management, and fundraising. A well-run charity should ideally allocate 75% or more of its expenses towards program services.
Check Executive Compensation (Schedule J)
Look at Schedule J to see how much executives are compensated. Compare these salaries against the charity's size and revenue. High compensation can raise concerns if it doesn't align with mission accomplishment.
Flag Related-Party Transactions (Schedule L)
Finally, examine Schedule L for any related-party transactions. These can indicate potential conflicts of interest or self-dealing, which should be flagged for further scrutiny.
Positive signals (green flags)
✓ High Program-Expense Ratio
A program-expense ratio of 75% or more indicates that a significant portion of donations is being allocated directly to mission-related activities.
✓ Reasonable Executive Salaries
Executive compensation that aligns with industry standards and the charity's size shows financial responsibility and a focus on mission over profit.
✓ Positive Revenue Growth
Consistent growth in revenue year-over-year is a good sign that the charity is effectively attracting support for its mission.
✓ Clear Governance Structure
Strong governance practices, including a diverse board and transparent decision-making, enhance accountability and trust.
Warning signals (red flags)
⚠ Low Program-Expense Ratio
If the program-expense ratio is below 75%, it may indicate that the charity is spending too much on administrative and fundraising expenses rather than programs.
⚠ High Executive Compensation
Excessive salaries for executives compared to the charity's overall revenue might suggest mismanagement of funds or misaligned priorities.
⚠ Frequent Related-Party Transactions
A high number of related-party transactions could indicate potential self-dealing, which can be a red flag regarding transparency and ethical practices.
⚠ Declining Revenue or Program Growth
If revenue or program growth is declining over multiple years, it could signal that the charity is struggling to meet its mission or attract funding.
Tools + resources
- https://projects.propublica.org/nonprofits
- https://guidestar.org
- https://www.charitynavigator.org
- https://bbb.org/charity-reviews
- https://apps.irs.gov/app/eos
California state-level oversight
In California, charities are regulated by the state Attorney General's office, which maintains a registry of nonprofits. Donors can also refer to the Better Business Bureau for charity reviews and the California Association of Nonprofits for additional resources. These local tools can help you verify information about Rev Up Hope and similar organizations, ensuring your contributions are well-directed.