The ethics of foundations has been in the news a lot this political season. I recently saw a post from a friend on Facebook that a particular family foundation was behaving not only unethically but perhaps even illegally. Serving on a family foundation myself, such accusations cut to the core of the problems of some such foundations.
In some cases, perhaps a wealthy benefactor set up a foundation to pay family members a generous salary for their “work.” Youi don’t your donation padding someone else’s lavish vacation, so how do you check such behaviors.
For starters, how do you find an organization’s 990, and what in the heck is it? All nonprofits have to file a tax return just like you. But rather than a tax return, the 990 is the tax document that shows income/expenses of a nonprofit. It shows far more than that. You can register for free on Guidestar.org for an account, which will provide access to the 990. Simply click on the “financial information” green-colored tab on the right and click on the year you wish to explore.
In Part I of the 990, you’ll get a quick snapshot of the financial health of an organization. You will see the net assets of the organization for the most recent filing. You can compare that to the previous year’s numbers. Is the organization gaining or losing money? How large are their fund balances? All of that information is available on the first two pages.
Part II reveals the organization’s mission statement. While most nonprofits reveal such information on their website, so too does the form 990. It might not be viewable on a website, but it will always be viewable on the 990.
Scroll down to part VII and you can explore the compensation of top employees of the organization. Perhaps you’ve just been offered a job, but you want to receive a certain percentage of what the CEO is compensated before you accept their offer? Maybe you want to make a donation, but you balk when a CEO is paid over $500,000. Part VII reveals that information to you.
In the case of a family foundation, if you are looking at the Griswold Family Foundation (fictional) and you see their net assets are $8,000,000, then under the compensation section, you note that Clarke Griswold was paid $100,000, Ellen Griswold was paid $100,000 and each of Russell and Debbie Griswold were paid $75,000, you probably are right to have some strong suspicions. Travel will show up in expenses too, so high travel costs may lead you to believe you truly are paying for their vacation with your contribution.
Know that the Griswold’s will have to show the IRS that their compensation is fair. You hear about ratings of nonprofits frequently. The Griswold’s, like all family foundations, must spend 5% of their total assets on giving, minus expenses. With an $8,000,000 foundation, they would be required to give (or spend) $400,000 on average every year over a five-year period. In this case, the Griswold’s are spending a whopping $350,000 on salaries for their family, leaving them a paltry $50,000 to give to other causes. Is that legal? Yes, if they are working a full schedule and they can show other such executive are receiving a similar salary, it would likely fall into the “just compensation” arena.
But it really isn’t that simple. Clark and the family may be spending their entire lives doing nothing but relief efforts with impoverished children. They may all be working 40+ hours for the cause in which they so strongly believe. And if they can show that most their expenses to cover their salaries are going to the programs they run, then they will be highly rated. You can find that information on the 990 as well. Scroll to section IX and you can see where the expenses of the organization are allocated.
IF the Griswold Family Foundation shows that they are spending $50K on fundraising and do not claim any programmatic expenses, then they are going to receive very low ratings. Such behavior by nonprofits does happen, and from time-to-time, nonprofits come under such heavy scrutiny that they decide to close their doors.
Scroll toward the bottom of the 990 and take a glance at Schedule I, Grants and Other Assistance to Organizations, Governments and Individuals in the United States. This might be single most important section for you to explore if you’re looking for more information about the organization.
You want to submit a grant proposal (the details of how to do that are also spelled out on the form 990). Check to see what other organizations/causes they have funded in the past couple of years. Does your organization mesh with what they clearly are doing with their funds? Check the amount of the assistance they are making to other causes. If you see most grants are in the $10K-$15 range, it probably doesn’t make much sense to ask for $50K. On the other hand, if every grant award is $100K and up, it probably doesn’t make much sense to submit a proposal for $25K.
The form 990 is where I turn every time before I start a grant proposal. Writing grants takes time. Who wants to spend fundraising efforts in a fruitless search for money?