Form 990 · Related
The errors small nonprofits make on their own returns, and how to avoid them.
A Form 990 is self-reported, prepared by the organization or its accountant, and the IRS doesn’t check most of them for accuracy. That means errors are common — and some quietly distort the exact numbers people rely on. Whether you’re reading another organization’s 990 or checking your own, knowing the usual mistakes keeps you from drawing a confident conclusion off a figure that’s simply wrong. Most of these are honest errors, not fraud; the point isn’t suspicion, it’s reading with a clear eye.
This is the consequential one. The full 990 splits every expense into program, management, and fundraising, and that split drives every efficiency ratio a reader cares about. It’s also where organizations get sloppy — sweeping costs into “program” that belong in overhead, or guessing at allocations they never really calculated. An inflated program ratio is often just an aggressive allocation, not genuine efficiency. When a number looks too good, the functional split is the first place to be skeptical, which is why Financial Health Signals treats that ratio with such care.
Watch for organizations that clearly raise money — events, appeals, a development office — reporting zero fundraising cost. It happens constantly, and it’s almost never true. Sometimes it’s an allocation choice, with fundraising staff time booked entirely to program; sometimes it’s a genuine error. Either way, a $0 or near-zero fundraising line on an organization that obviously fundraises should make you trust its efficiency ratios less, not more. Real fundraising costs something, and a form that says otherwise is telling on itself.
Officer and key-employee compensation is a frequent source of confusion. Pay gets left off, reported in the wrong column, or split inconsistently between the organization and related entities from one year to the next. If you’re tracking an executive’s compensation across filings and it lurches around, the change may be in the reporting, not the paycheck. Read comp across several years, and against the notes, before you conclude anything from a single figure.
Fundraising events are a classic tangle. The contribution portion, the ticket-price portion, and the direct expenses each have their own place on the form, and organizations routinely mix them up — reporting gross event revenue as contributions, or netting things in a way that overstates or understates real giving. If an organization’s contribution figure jumps in a year it ran a gala, check whether the event was reported cleanly before you read the spike as donor growth.
Organizations sometimes file the wrong return — a 990-EZ when their numbers cross into full-990 territory, or a 990-N when receipts grew past the limit. This matters to a reader because the form determines what data exists. An organization that should be giving you a full functional expense breakdown but filed an EZ has left you without the numbers you came for — worth noticing, rather than working around with figures that aren’t really there.
When you trace an organization across filings, the end-of-year net assets on one return should match the beginning-of-year figure on the next. Often they don’t — a restatement, a correction, or a plain error breaks the chain. A mismatch isn’t necessarily alarming, but it’s a signal to slow down: the trend you’re building may be sitting on a number the organization itself later revised. Tie the years together before you trust the trajectory.
Two softer tells. Schedule O is where unusual numbers get explained; when it’s blank or boilerplate, the “why” behind a swing simply isn’t there, and you’re left guessing. And Part III program descriptions that haven’t changed a word in five years suggest a filing prepared on autopilot — not an error, but a sign the organization treats the 990 as a chore rather than a disclosure. Neither is damning; both tell you how much weight the rest of the form can bear.
A 990 is a self-reported document, and reading it well means reading it critically — cross-checking across years, distrusting numbers that look too clean, and treating the functional split with particular care. None of this assumes bad faith; most filing mistakes are ordinary human error. But a reader who knows where forms go wrong draws better conclusions than one who takes every figure at face value. For the schedules that carry the most signal — and the most room for confusion — 990 Schedules Explained is the next stop.
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