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Board Review of Form 990

Although board review of Form 990 is not statutorily required, it is widely considered best practice.

A nonprofit organization’s process for reviewing IRS Form 990 – Return of Organization Exempt from Income Tax -- is disclosed within Form 990, which is open to public inspection.  In addition, all filers must answer either “yes” or “no” as to whether a complete copy of Form 990 was provided to all members of its governing body before filing the form. 

Why is Form 990 so important?
  • Compliance
    • It’s the Law
    • Required by State to be registered as a Charitable Organization
  • Public Accountability
    • Public trust and confidence
  • Primary Source of Data
    • Grantmakers and donors
  • Policy Makers
    • Accurate data helps policy-makers develop the most effective ways to benefit the nonprofit sector
  • Public Relations
    • Opportunity to tell you organization’s story     

Form 990 was redesigned by the IRS in 2008. In the decade since then, the Form 990 has evolved from simply a tax compliance matter to a marketing tool used to tell your organization’s story.

- Katrina Olson, Assurance Manager
While more than a cursory review of Form 990 may seem a bit intimidating, a focused board review is important.  Here are a few key areas where board members should focus their attention:
Statement of Program Service Accomplishments – Part III

Part III includes a description of the organization’s mission statement and three largest program services, as measured by expenses.  This section provides the ideal location to tell your organization’s story via narrative and program statistics, such as the number of individuals served for each program.    If there is only one brief sentence in the description of program service accomplishments, you are not taking full advantage of this potential marketing tool.  Remember: many grantors and other potential funders or contributors look to Part III to find out more about your organization, its services, and its impact on the community.

Governance, Management, and Disclosure – Part VI

This section emphasizes the importance of governance, and includes questions such as the following:

  • Does the organization have a written conflict of interest policy? And does the organization regularly and consistently monitor and enforce compliance with the policy?
  • Does the organization have a written whistleblower policy?
  • Did the process for determining the executive director’s compensation include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision?

Although a “yes” answer to these questions is not required under IRS code, the absence of policies and procedures may leave open the door for excess benefit transactions, private inurement, operation for non-exempt purposes or other activities inconsistent with tax exempt status and is a potential red flag to readers of the 990.  Answering “yes” provides an indication of a robust internal control environment.

Statement of Functional Expenses – Part IX

Part IX requires a detailed breakdown of the organization’s expenditures.  The IRS provides specific reportable categories such as compensation of current officers, directors and key employees, fees for service (management, legal, accounting, lobbying), travel, and conferences to name a few.  Grantors, contributors and other resource providers can get an insight into where and how their funds are being spent.

In addition, for 501(c)(3) and 501(c)(4) organizations, all expenses must be categorized into three functional categories:  Program service expenses, management and general expenses, and fundraising.  Although there is a movement to change the traditional narrative involving the amount of funds allocated to administrative costs or overhead, the percentage of expenses spent on program services continues to be an important metric in the eyes of most donors.

Bottom line: Don’t underestimate the importance of your organization’s Form 990 and the importance of board review prior to filing.

Contact your Whittlesey Advisor for further tips on ways to get the most out of your Form 990.

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