- NOVEMBER 28, 2011 WSJ
- Putting Charities to The Financial Test
Is an organization about to go bust? Before you give them money, you need to do some due diligence
Look at the Financials
Start with the Form 990. Most charities have one, unless they're a small organization. It's the annual filing that tax-exempt organizations make to the Internal Revenue Service. The forms are posted on many charities' websites, but can also be found through nonprofit information sites like GuideStar.org and FoundationCenter.org.
A Form 990 can tell you right away if a charity is in the red. Look at the net assets, shown on Line 22 on the first page. A negative number indicates the organization has more debt than assets and could be struggling financially.
Caveats to the Financials
If a charity stops making audits available, it could be the result of budget cuts and a sign that the group is struggling. Some states don't require disclosure of those documents. To find out the law in your state, go to www.nasconet.org , a website for the National Association of State Charity Officials, where you'll find links to each state's responsible office.
Another caveat: Information found in 990s and audit reports is at least a few months old, if not much older. For more recent information, try asking the charity for a copy of its latest budget.
Also remember that there can be nuances to nearly every figure in the financial reports, so tread carefully.
"Charities' financials are just as complicated as those of a corporation, if not more," says Laurie Styron, an analyst with the nonprofit watchdog service CharityWatch, based in Chicago. "Be careful as a layman of reading too much into these." It's important to do financial checks, Ms. Styron says, but when in doubt, she advises donating to a charity that has a good reputation.