Board Review of Form 990
Posted on Wednesday, April 23, 2014
Form 990 is much more than just numbers. Form 990, unlike the tax return of other entities, has no tax calculation. The 990 is an informational return that must be made available to the public.
So as a board member, how do you know what to look for when reviewing your organization’s 990?
Form 990 is divided into four areas: financial, mission, tax compliance, and governance.
Parts VIII, IX and X include the financial data of the organization, the numbers, with Part I summarizing this information. This information shows where the organization’s support is coming from, how it is using its resources, and its “net worth.” The board should pay particular attention to the following:
- Concentrations from a specific source of revenue
- The amount of program expenses compared to management and general and fund raising
- The amount of cash the organization has available
- Whether there was an increase in accounts payable and notes payable
Board members should also be sure to note the reasonableness of the amount of compensation and benefits reported in Part VII for board members and key employees.
Another area to pay attention to is whether the organization hires independent auditors to audit its financial statements and whether it has a committee that assumes responsibility for oversight of the independent auditor. This is disclosed in Part XII of Form 990.
Part III of the 990 gives the organization a chance to “tell its story” by describing its mission and programs. The board should pay attention to the following:
- Whether the mission clearly explains why the organization exists, who it serves and the activities it will undertake to accomplish its mission
- Changes to programs
- Whether the program service accomplishments provide enough detail
Part V asks questions related to the organization’s compliance with tax laws and regulations. Key areas to look out for are the following:
- Proper classification of employees and independent contractors
- Properly filed payroll tax returns and withholdings
- Whether the organization provided proper contribution substantiation for charitable gifts
Part VI includes a list of governance and policy questions and, although these policies and practicies are not required by the IRS, they are seen as best practices for nonprofit organizations. The board should pay close attention to the following:
- Whether any changes were made to governing documents
- The process for reviewing the 990 prior to filing
- Conflict of interest policy
- Whistleblower policy
- Document retention and destruction policy
- The process for determining compensation of the Executive Director and key employees
If the organization does not have these policies and procedures in place, the board should consider adopting them.
The board’s review of Form 990 should be part of its oversight responsibility and is considered best practice for sound management.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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