Looking at Financials
Financial reports provide important information about a charity's financial health — and how it chooses to spend its money.
For larger charities, much of this information is available in annual reports and newsletters or online via websites.
For smaller charities, especially those that are close to home, your best bet may be to contact them directly. Not only will you receive the information you're requesting, but you'll also get firsthand experience in how the organization responds to its donors.
Where to find information
The purpose of your financial review is to determine whether a charity is worthy of your support, either as a donor or a volunteer. A fairly simple review of specific financial documents should tell you what you need to know.
- IRS Form 990. This is perhaps the most consistent and accessible source of information on virtually any nonprofit with annual gross receipts of $25,000 or more.1 Form 990 includes the organization's balance sheet detailing assets and liabilities, its annual revenue and expenses, the composition of its board, the salaries of its executives, and descriptions of its mission and programs.
- Audited financial statements. These reflect an organization's financial standing at a specific point in time. Look at the charity's sources of income (where its money comes from), expenditures (where its money goes), assets (real property), liabilities (debt), and whether it has endowment income.
- Current operating budget. Unlike financial statements, which are prepared by an outside auditor, an operating budget is an internal working document used to help a charity predict its current financial needs. By comparing the current budget to the audited financial statements, you will see how the charity is progressing and may notice trends from one year to the next.
- Letter of Determination. This document confirms an institution's charitable status and classifies its activities according to IRS-mandated categories. Like a Form 990, the Letter of Determination must be made available upon request.
1 All organizations must now file a 990. However, organizations with less than $25K in gross receipts file a smaller form called the 990-N or "e-postcard".