September 23, 2016 - IMPACT-edu

Unpacking Form 990 to Help Your Philanthropic Journey

September 23, 2016 – Philanthropy Education Event Recap

Unpacking Form 990 to Help Your Philanthropic Journey
By Susan Grant Palombo

The Philanthropy Education committee of Impact Austin (IA) asked members white board questions at the Annual Meeting to glean insights about tools you needed on your philanthropic journey. Our committee is developing content in response to your comments and this session, featuring University of Texas professor and IA member Pam Paxton on the Form 990, is our first since you provided that input. 

Dr. Paxton outlined the purpose of the Form 990:

  • to help enforce nonprofit laws, and
  • to provide financial information

She reminded us that some organizations are exempt from filing:

  • smaller organizations (annual income < $50k),
  • faith-based organizations,
  • subsidiaries, and
  • nonprofit organizations not applying for a tax exemption.

She used example Form 990s to help us spot information and emphasized evaluating those data against our own filters. The 990 for Helping Hand Home for Children (HHHC) tells the story of an organization that appears to be a well-run as a nonprofit for their stated mission. She focused our attention on page one of the form where we can quickly determine:

  • Is this a new organization (“initial return”)?
  • Is this organization a 501(c) (3) or a 501 (c) (4)?
  • What is the organization’s mission?  (personal alignment check)
  • What is their organizational capacity?  (# of employees, # of volunteers, size of the org, amount spent on “professional fundraising.”)

To get a more in-depth description of the organization’s mission and program accomplishments, Dr. Paxton directed us to Part III, page 2. She encouraged us to use these data to align with our own giving priorities. Q17 addresses fundraising expenses. The comparative organization, Wishing Well Foundation (WWF), used a substantial amount of external “professional” fundraising services and the detail of that—amount of money raised, the cost of that fundraising, and the net income to the organization—is in Schedule G.

Part IV beginning on page 6 covers governance issues. Check Q1b for independent board members, section B for transparency and Q15 for an independent review, use of comparability data for executive compensation. 

Part VII lists board members/officers compensation.  Comp must be listed for current officers, directors, trustees, & key employees earning >$150k or the five highest compensated employees (> $100k).  Typically directors are not compensated in non-profits. 

Section IX Statement of Functional Expenses is a place to check G&A expenses or “overhead” typically column C&D vs. expenses to deliver the organization’s mission or “program service expenses” in column B. Are you comfortable with the expense allocation for the organization type? 

In addition to Part II of Schedule A with a summary history, Dr. Paxton encouraged review of multiple years of 990s—you might find a change. Many of the organizations that IA reviews do participate in events; some information on events is in Part II, Schedule G. 

In Dr. Paxton’s comparison of HHHC to the WWF, she used several techniques to focus our attention on where to find information on independent directors and management, how funds are raised for organizations and the cost of those funds raised, is executive compensation reviewed and benchmarked, and what percentage of revenue is going to deliver the mission. The Form 990 can help shed light on each of these items and other areas that are important to you on your philanthropic journey.

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