IRS Form 990 provides a very public view of your nonprofit organization — everything from program accomplishments to executive salaries and fundraising costs. These are the in-depth details that the media, charity watchdog groups and the public at large want to see when evaluating a nonprofit’s effectiveness.
Therefore, it only makes sense that your board knows what’s in your Form 990 before it “goes live.” In fact, you’ll be asked very specifically whether your organization has provided a complete copy of the form to all members of its governing body before filing it. Schedule O of the form asks you to describe in detail the process by which the board reviewed the form.
To be clear, there is no legal requirement that a nonprofit’s governing board be provided a copy of Form 990 before it is filed. But ask yourself this: Do you really want to go on record as saying that your board was kept in the dark — or did not care enough to review this critical document?
The bottom line is that your entire board — not just board chairs and executive directors — should be confident of what is in your organization’s Form 990.
Start by educating board members about their fiduciary responsibilities, including specific training in how to interpret financial statements and audit results, as well as education about Form 990 and its role as a public document. Have the board identify areas that deserve extra scrutiny, such as executive compensation, expense allocation and lobbying activities. Likewise, have critical narratives such as program service accomplishments and changes in activities reviewed by those individuals who are most familiar with them.
Next, create a manageable-sized board committee responsible for a thorough review of the form. Often, these duties are delegated to the audit committee, which then relays pertinent information back to the full board. Finally, have the entire board review the Form 990 before it is submitted. If necessary, designate a special session for this, such as an executive session or a board/staff retreat.
In reality, your board, staff and executive leadership should all be involved in preparing and reviewing this important document. In particular, they can play a strong role in the reporting of such critical areas as:
Program accomplishments — Form 990 asks you to describe your mission and most significant activities. These should include your three largest programs, how much you spent on each of them in the prior year, and whether you discontinued any core programs since your last filing.
Involve: Your executive director and program heads can help in crafting how to best describe and measure program accomplishments. Don’t leave this prime opportunity to tell your organization’s story in the hands of your bookkeeper or auditor.
Compensation — Full compensation for all key employees and board members must be disclosed, including a listing of the five highest paid employees and independent contractors making more than $100,000.
Involve: Your board’s compensation committee (or equivalent) can review compensation for the executive director and other key employees each year. This will ensure that compensation is supportable under the intermediate sanctions rules.
Governance — The “Governance, Management, and Disclosure” sections of Form 990 ask probing questions about your organization’s board structure, policies and practices (for example, whether you have adopted conflict-of-interest, whistleblower and record retention policies).
Involve: Your board and executive director can review the governance questions in Part VI of Form 990 to determine whether governance practices and policies should be implemented or changed.
Expenses — Form 990 requires you to report expenses by their natural classification
(such as wages, payroll taxes, occupancy) and then allocate the classifications to functional categories (such as Program Services, Fundraising or Management and General). You can be sure that this section will be scrutinized by readers to see how much your organization spent on fundraising and management versus actual program services.
Involve: Your executive director and accounting/bookkeeping staff can develop processes for classifying which expenses are legitimately program expenses and which are support expenses. Once you have established these criteria, make sure your accounting system is capturing the financial information necessary to properly complete this section of the form.
The information being provided about your nonprofit’s finances and governance practices on Form 990 underscores the importance of making sure your board members and executives review — and understand — the information that’s being submitted.
For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.