IRS Form 990: What should your Board Members be looking for?
For most of us, April 15 marks the cut-off date by which we are scrambling to prepare our tax returns and meet our individual obligations. For Non-profits with a December 31 year end, May 15 is the critical milestone and one that Board members of these organizations either dread from experience or are soon to learn what it means. May 15 is when Federal Form 990 is due to be filed
An overhaul of the 990 several years ago led not only to a longer form but a more convoluted one to prepare. It includes a requirement that the NPO provide a copy of the document to each board member for review prior to filing.
The Role of the Board in Reviewing Form 990
Form 990 requires that the procedures themselves for review be described in the filing. Most NPOs subscribe to the process of having either the entire Board or a Committee of the Board review the draft 990 in detail. That can be daunting, particularly for new or inexperienced Board members, unaccustomed to reviewing such an extensive document.
As Board Members, one of the main roles that they play is in governance and ensuring the accuracy of the information (see our NPO Practice webpage for broader coverage). Form 990 is an important tool in fulfilling that role. Given the complexity of the refurbished form, it is easier to overlook errors and miss common mistakes. The IRS provides a website with the most common mistakes that can serve as a starting point.
Critical Parts and Where to Focus for Review
Clients often ask us to outline for them the key components of the 990 and to describe what each member of the Board should focus on in their review.
We advise that Board members should be looking closely at the basic financial information included in:
- Part I Summary,
- Part VIII Statement of Revenue,
- Part IX Functional Expenses,
- Part X Balance Sheet.
They should be looking to assure themselves that the information disclosed is consistent withtheir understanding– especially of the programmatic activities– of the NPO and its mission.
Is it Compelling and Accurate?
Equally important is the information included in Part III Statement of Program Accomplishment, and the questions included in Part IV through Part VI of the 990. Each Board member should ask as they review the information “Does the information accurately and clearly reflect the programmatic activities of the NPO?”
The Board member should expect to see relevant and compellingly accurate information on the programmatic activities of the organization. If the draft 990 does not contain accurate and descriptively robust enough information to make clear to readers what the program activities of the NPO are then the board member should challenge management to improve the draft such that it delivers the message in a more accurate and complete fashion. Remember that the material included on program activities is closely scrutinized by grant makers in deciding which non-profits they are going to fund.
Don’t forget the Parts that deal with Compliance
Finally, Parts IV-VI include a series of questions related to key supplemental information to be disclosed in the remainder of the 990. This section speaks to compliance with other tax rules as well as the general governance and management policies in place at the NPO.
Clients often ask about filing an extension for the 990. That can easily be done but we don’t recommend it. The reason is that grant writers often ask to see the latest 990 and are sometimes perplexed if told that the filing was extended to a later date.
It is important that each Board member carefully review the responses by management for consistency with their understanding of activities, and policies and procedures employed by the NPO. The Board Member should recognize that these sections are often the focus of the other state governmental agencies charged with supervision of the NPO though how this impacts the NPO will vary from state to state.
Jess leads the Non-Profit practice group and his work over the past twenty five years includes supporting foundations, research institutions, land trusts, and children’s support agencies. He works with management teams and Boards on the development of financial reporting systems, policies and procedures, strategic planning, forecasts and budgets, and recruiting and training accounting personnel.
If you would like to speak with Jess, please use the Comments section to make a request.