Financial forms offer helpful information about charities
BY CASEY SMITH World Staff Writer
Sunday, December 09, 2012
12/09/12 at 7:09 AM
Create a free account and get an organization’s three most recent forms 990.
Charity Navigator evaluates charities
Charity Watch rates and evaluates nonprofits
Check out or donate to Tulsa Habitat for Humanity
In the past year approximately 300 individual donors gave money to Tulsa Habitat for Humanity, and more than 2,500 volunteers gave their time.
Executive Director Paul Kent said the nonprofit organization makes its past five years of financial forms available to the public via a computer in its East 13th Street headquarters. But no one has ever come in and asked to look at the scanned forms.
The forms, which the Internal Revenue Service calls "Form 990," contain information on the charity's mission, program and finances back to 2007.
"Most folks don't know you can go in and request that," Kent said.
Potential donors who looked at the most recent form would learn that Habitat reports spending less than 3 percent of all spending on fundraising, a relatively low amount.
With its plethora of holiday cheer and proximity to the end of the tax year, December is the most popular month for charitable giving.
The annual information returns many tax-exempt organizations must file with the IRS are one of the tools prospective donors can use to research how organizations may spend their money. But that's only if they know how to read Form 990, industry experts say.
Kent said some people view Habitat's Form 990 from their homes through the website Guidestar.org. Guidestar posts forms it receives from the IRS and directly from organizations. Forms become available on the website about two months after the documents are filed with the IRS.
Nonprofits required to file the forms must make the last three years of documents available to the public. Some types of organizations, such as churches, are not required to file Form 990.
Organizations must provide copies to those who ask without charge other than reasonable reproduction fees and actual postage costs.
Reading Form 990
Certified Public Accountant Howard Levine suggests potential donors use Form 990 to help answer the question: "Is this an organization that is on the same wavelength as I am?"
Nonprofit finance has been one of the Los Angeles-area accountant's specialties since he opened his firm in 1979. Levine has taught seminars for the Center for Nonprofit Management, an organization that supports Southern California's nonprofit community.
Form 990 can be used to check factors including an organization's existing wealth, whether it receives government funding and the amount spent on fundraising, Levine said.
"Some people feel they want to give to small organizations, and if it's an organization that's taken in $22 million, is that an organization you want to give to?" Levine asked.
Prospective donors can go to the form's Statement of Revenue, page 9, to check the amount the organization received in the past.
When examining the Statement of Revenue, people can see the value of gifts in kind, which are items other than money donated to organizations, Levine said. The value of gifts in kind are found on line 1g.
Some nonprofit organizations receive many gifts in kind, but in some cases what they really need is cash, Levine said.
Whether an organization receives government money may matter to some people, Levine said. A nonprofit's government funding can be checked on the Statement of Revenue's line 1e.
Potential donors may also want to check the amount the organization spends on fundraising, he said. Totals can be found on the Statement of Functional Expenses, page 10, in column D, line 25.
"Some people don't like giving to organizations that spend a lot on fundraising," Levine said. "Everybody has their own level of comfort."
Kent said that when he looks at a Form 990 he likes to see the percent of expenses spent on fundraising kept relatively low, 5 percent or less. Others may have a different benchmark, he said.
"You want to see some money for fundraising because you need that money for sustainability," Kent said. "But likewise you don't want to see a majority, or high percent. If 30 percent of spending is going to fundraising, that concerns me. That's out of whack in my mind."
Sandra Miniutti, vice president of marketing for Charity Navigator, agrees that nonprofits should be reporting some fundraising costs. Miniutti said she is suspicious of any group that reports spending nothing on fundraising.
The charity watchdog organization does not rate groups that report no fundraising costs, Miniutti said. Charity Navigator issues a "donor advisory" if staff discovers a nonprofit that lists no fundraising costs after reporting such costs for many years.
The ratio of the amount spent to the amount raised on special fundraising events is another detail available on the form, Kent said. A good benchmark is that for every dollar an organization spends on an event it should make two.
"If you're making less than that, it may not be worth the staff's time," Kent said.
Habitat's most recent Form 990 shows for every dollar the organization spent on its two special events - a gala and a golf tournament - it took in just over $6. Figures are found on the Statement of Revenue in Section 8.
Kent suggests using the form to check if an organization shows diversification in governance and funding.
The number of voting members on a nonprofit's board of directors can be found on page 1, line 4. Between 10 and 25 members are on most nonprofits' boards, he said.
Habitat has 23 independent voting members on its board, the organization's form shows.
Kent also suggests checking the list of board members on pages 7 and 8 to determine by first names if the governing body has a good male-to-female ratio.
Kent recommends checking Schedule B to see if organizations are getting broad support or if a significant portion of funding is coming from one source, such as a foundation.
"It's an issue of sustainability," Kent said. "If that organization decided it no longer wanted to fund that group, the nonprofit could be out of business, and I think it lends credibility when you see a number of sources are donating to that organization."
Schedule B, listing the names and amounts given by donors who gave $5,000 or more, is not available on Guidestar.org for many organizations. The schedule is available to the public at Habitat's headquarters, Kent said.
Forms aren't everything
Form 990 is just one tool available to prospective donors evaluating a charity.
CharityWatch prides itself on digging deep into individual charities' finances to come up with ratings and evaluations. The organization requests the more reliable audited financial statements from the charities it evaluates instead of relying solely on nonprofits' self-reported tax forms.
Daniel Borochoff, president of CharityWatch, said a frequent benchmark in evaluating a charity - using the Statement of Functional Expenses to calculate the percent of total expenses spent on services - can be accurate but too simplistic.
"People want to oversimplify it, and sometimes that can work, but not always," he said.
One example would be a nonprofit's construction of a new hospital, Borochoff said.
The building is important to the program, and construction costs are likely to meet donors' approval. But building expenses aren't included in the amount spent on programs, making the organization look less efficient than it likely is.
Alternatively, an organization could disguise fundraising costs, Borochoff said.
Accounting rules allow organizations to include the cost of telemarketing or mailing in program services instead of fundraising costs when the solicitations have an educational element. Costs of these types of solicitations are included at the bottom of statement in the "joint costs" section.
Borochoff advises potential donors to request audited financial statements for the organizations they may give to and to read the documents' notes, he said.
"They don't have to give it to you, but if they don't, that raises a big red flag," he said.
State law determines if nonprofits must be audited. Oklahoma is one of many states that does not require audits. Smaller organizations may not need an audit, but Borochoff said organizations of a certain size should have a certified public accountant conduct one annually.
"Otherwise it's ripe for abuse," he said.
Habitat undergoes a yearly audit, Kent said.
"It's very important that people know someone is looking at your books to make sure everything is aboveboard," Kent said.
Kent said an audit is an important supplement to Form 990.
"Unfortunately you might have to be accounting savvy - if you're not used to reading numbers. That might be one reason a lot of people don't go to a 990 because it has a lot of numbers on it," Kent said.
Levine said audits aren't what people think they are.
"It absolutely doesn't say if the organization is well run or not, but it may give a certain level of comfort," he said.
Checking out the organization in person is another way prospective donors can research an organization, Levine said.
"If you have a chance, visit the organization and see what they do," Levine said. "Who knows? You might become a volunteer."
Checking Form 990 for the financial e?ciency of a charity
Most highly efficient charities are able to spend 75
percent or more on programs, but 60 percent or greater is
reasonable for most charities, according to the Charity
Watch website.
Sandra Miniutti with Charity Navigator says she is
suspicious of any groups that report $0 in total fundraising
costs. Charity Navigator does not rate groups that report
no fundraising costs and issues a Donor Advisory if their
sta discovers a group that suddenly lists no fundraising
costs after reporting such costs for many years, she said.
On page 10 of Form 990, check the percentage of total
spending the organization spends on program services,
operating and fundraising expenses by dividing the
information in line 25 by total expenses in column A. For
example, Tulsa Habitat for Humanity spent:
What organizations must file Form 990?
Not all nonprofits are
required to file a Form 990,
so not finding the information
return shouldn’t
be potential donors’ sole
reason for not giving to an
organization, CPA Howard
Levine said.
Internal Revenue Service-
recognized nonprofit
organizations that receive
either $200,000 or more a
year or have $500,000 or
more in assets must file a
Form 990.
Tax-exempt organizations
with receipts of less
than $200,000 and assets
of less than $500,000 file
the shorter 990-EZ.
Organizations with
receipts of $50,000 or
under file an e-Postcard
that contains sparse information,
such as whether
the organization is still in
business.
Private foundations —
nonprofits that manage
a principal fund to give
grants to other nonprofits
and charities — file the
990-PF.
Religious institutions —
such as churches, synagogues
and mosques — do not have to file Form 990.
Original Print Headline: Charity choices
Casey Smith 918-732-8106
casey.smith@tulsaworld.com
Associated Images:
Paul Kent (right), Tulsa Habitat for Humanity executive director, hugs new owner Angela Wooten as her children Steven, 15, and Jennifer, 17, watch during a ceremony to hand over the home to the family. Kent said Habitat makes its Form 990 and financial audit available to the public. MICHAEL WYKE / Tulsa World
Stock photo illustration
Volunteer Jeff Yost installs siding on a partially built house for Habitat for Humanity's Youth Build program in Tulsa. MATT BARNARD / Tulsa World File
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