The form 990 is a tax form, filed with the IRS on behalf of organizations who are exempt from income tax.
That’s right; this post is about a tax document. But before you click through to the next post, because as far as you can remember, you are decidedly not an accountant, I urge you to read on!
There’s a lot of valuable information in these free, public documents that can inform your job application, salary negotiations, and job interview.
The 990 is also useful if you’re a grant writer—you can read about how to become one of those here. However, in this article we’re going to focus on how to utilize it to analyze a potential employer.
Where to find the form 990
Here are two tips to help you dig in:
- Download two or three forms for one organization at a time in order to get a complete picture of specific financial indicators.
- Keep in mind that these documents only give part of the picture and are best used in conjunction with other information, such as an organization’s annual report.
How to decipher useful info from confusing financial data
While the 990 can be a useful research tool, is was designed for readers at the IRS. So to get to the good stuff, let’s cut through the red tape together.
Here are the seven main elements to review, where in the document they can be found, what they mean, and why they’re significant.
1. Organization overview:
Where you’ll find the info: Part I Summary
In the summary section, you can determine two things: The organization’s size based on the number of employees and directors, and, you can compare the prior year’s revenue and expenses—a useful way to determine financial stability. You’ll see if there are significant changes in how they managed their finances.
Why it matters: The size of the organization will impact the culture of the workplace, as well as your compensation, and benefits. For example, if they have 50 or more full-time employees, they must offer family medical leave. And you can see if they’ve been able to balance their budget when you compare their total expenses and revenue. Note, revenue is the total amount of money received by the organization from donations, business activities, and investments. Income is the amount of money retained by the organization upon paying expenses.
2. Who they are, and how much they spend on programs
Where you’ll find the info: Part III Statement of Program Service Accomplishments
This section provides space for an organization to make their case, as well as room to list their four most expensive programs, and how much they’re spending on them.
Why it matters: Take note of how much they spend on services provided, and compare it to general expenses.
Where you’ll find the info: Part VII Section A
An organization must list current board of directors, officers, trustees, and key employees regardless of salaries. They must also list:
- Anyone who currently makes more than $100,000,
- Former officers, key employees, or employees who ever made over $100,000,
- Former directors or trustees that received at least $10,000,
- Independent contractors who are paid over $100,000,
- And, if they have folks who are being compensated greater than $150,000, they have to file an Attachment J with further detail, which is also worth a look.
Why it matters? While it’s not a complete salary list, this gives you a chance to see what director-level compensation looks like and can help to give you a sense of fiscal priorities as well.
For a closer look at compensation rates at an organization, read this article on how to prepare for a salary request or negotiation.
4. Where their money comes from
Where you’ll find the info: Part VIII Statement of Revenue
Line 1a-1g has information about contributing corporations and foundations, federal charitable campaigns (like United Way, which is a coalition of charitable organizations that pool fundraising efforts), as well as government grants and contracts.
For more of this kind of information, look up Schedule B at the end of the document for a line list of contributors.
Line 2 indicates program service revenue, which is the income they received as a result of services rendered. Museum admission, tuition, or membership fees are common examples.
Why it matters: Who contributes (and how much) to any organization can say a lot about who their friends are.
5. How they spend their money
Where you’ll find the info: Part IX Statement of Functional Expenses
This section breaks down an organization’s functional expenses into three categories: program and service, management and general, and fundraising expenses.
Why it matters: These lines detail how they spend their money, and how much they spend, which can speak to internal organization, organizational priorities, or if they have any oddities such as high legal fees, or patterns of uneven spending.
Where you’ll find the info: Part X Balance Sheet
Assets are important for a nonprofit. They’re the economic resources the organization has at its disposal, kind of like a savings account. Liabilities are the outstanding claim to those assets.
Why it matters: An organization could have a strong showing of assets, but if they’re all permanently restricted to a small part of their organizational needs, they might be in a financial bind for day-to-day expenses. And, keep an eye on those liabilities, that’s the debt the nonprofit is holding.
Where you’ll find the info: Part XI Reconciliation of Total Net Assets
This section calculates the net assets at the end of the year by subtracting revenue less expenses. Meaning if the income was less than what the organization spent in a year, they may have had to dip into their savings to cover their costs.
Why it matters: If they’re dipping into net assets repeatedly, it shows the organization income isn’t meeting needs.
Additional suggested schedules (attachments) to note
You may also want to spend some time reviewing the following additional schedules in an organization’s form 990 in order to gain other, useful insight:
- Schedule B: List of contributors
- Schedule J: Additional compensation information for officers and key employees
- Schedule O: Supplemental information
Let’s review. It’s all good if:
- The organization size works for you
- Contributors align with organization’s charitable priorities, and there are enough of them to support the work
- The revenue and expenses balance
- Directors seems to have reasonable salaries (of course, this may be a matter of opinion)
- There is evidence of unrestricted net assets, and few liabilities on the assets
- There is proof that expenses are regularly higher than revenue, and there are viable explanations for ongoing use of net assets to supplement income
- The form 990 was completed on-time, and made readily available
Are you still scratching your head, or rubbing your eyes, trying to figure these forms out, or have you discovered useful information in your 990 research? Has it impacted a job decision? Let us know!