Red flags in a nonprofit's financials

Most nonprofits are run honestly. But the public filings make certain warning signs easy to spot — and a five-minute check beats regretting a gift later.

Six signs worth pausing on

• Chronic deficits. One bad year happens; three straight years of spending more than revenue erodes reserves and often ends in program cuts. Check the revenue-vs-expenses chart on the profile.
• Thin or negative reserves. Net assets below one month of expenses leaves no cushion. Negative net assets means the organization owes more than it owns.
• Fundraising that eats the mission. If raising $100 costs $50, half of your gift funds the next solicitation, not the cause.
• Pay out of proportion. Executive compensation is public in Part VII. Compare it to organization size and to similar organizations — our profiles show the highest-paid person as a share of total spending.
• Stale filings. No return e-filed for several years can signal a dormant organization — or one that lost its exemption.
• Name-alike organizations. Scammers imitate well-known charities. Always confirm the EIN, not just the name.

Red flag ≠ verdict

Context matters: startups run deficits while they build, research organizations carry expensive overhead, and a capital campaign can spike fundraising costs for a year or two. Use these signs as questions to ask, not verdicts to pass.