Why Your Board Should Review Your 990, Including Schedule B

As a nonprofit organization, transparency is crucial.  One key aspect of this is Form 990, the informational form required by the IRS that provides a detailed overview of a nonprofit’s finances, governance, and activities. It’s not only a necessary document for compliance, but it also serves as a public record, giving your donors, funders, and other stakeholders insight into your organization’s financial health.

Form 990 specifically asks whether a completed copy of this Form 990 is provided to all members of the governing body before filing the form.  To answer this question yes, a complete copy, including all schedules, must be provided.  This includes donors’ names, addresses, and contributions reported on Schedule B.  Some nonprofits avoid showing donors’ names to the board, fearing it could lead to uncomfortable situations. However, this approach can have serious negative consequences.

Board Oversight is Essential for Good Governance

The nonprofit board of directors is responsible for the overall governance of the organization, and that includes financial oversight. By withholding Form 990 from the board or restricting access to parts of the form, you prevent them from carrying out their fiduciary duties effectively. Board members need to review all aspects of the form, including the list of major donors, to ensure that the organization is operating transparently and in the best interests of its stakeholders.

Form 990 provides a comprehensive picture of an organization’s financial health, including revenue sources, expenses, and salaries. It’s essential for your board to have a complete view of the organization’s finances to make informed decisions about budgeting, fundraising, and strategic planning. Withholding information from your board can lead to missed opportunities for growth and potential compliance issues down the line.

Avoiding Transparency Can Raise Red Flags

Nonprofit organizations are often subject to scrutiny from the public, media, and government agencies. By not allowing the board to see Schedule B, you risk creating an environment where the nonprofit may appear to be hiding information. When donors’ names are withheld from the board, it could raise questions about why this data is being kept secret. Public confidence in the nonprofit could be undermined, which can affect donor trust and fundraising efforts.

Nonprofits should aim to be fully transparent in their dealings to maintain a strong reputation. Donors expect organizations to operate with integrity, and the board must lead by example. Full disclosure of Form 990 ensures that the nonprofit’s operations are open to scrutiny, which can actually strengthen trust in the organization.

Ensures Accurate Reporting and Compliance

Form 990 is a legally required document. It’s the IRS’s way of ensuring that nonprofits are following the rules for tax-exempt status. By having the full board review the form before filing, you ensure that everyone is aware of the information being submitted and that the form is complete and accurate. Board members can spot errors, inconsistencies, or areas that might need clarification, which can prevent costly mistakes or potential penalties.

Furthermore, board members should be aware of any potential conflicts of interest, such as large donations from board members or close family members, to ensure that these are properly disclosed in Form 990. Not reviewing this data can put your organization at risk of noncompliance with IRS requirements.

Strengthens Relationships with Donors

One of the most important aspects of nonprofit fundraising is maintaining strong, trusting relationships with donors. Keeping donor names off the radar of your board could be seen as a lack of trust in your board members and could lead to concerns about how donor information is handled. If donors learn that their contributions are being kept confidential even from the organization’s leadership, it could erode trust.

Reviewing Schedule B as a board allows the board to acknowledge and thank contributors, further fostering positive relationships.

Promotes a Culture of Integrity and Accountability

Transparency is not just about meeting legal requirements; it’s about fostering a culture of accountability within your organization. If board members feel they are not trusted with critical financial information, it could impact morale and weaken governance. On the other hand, if the board is fully involved in reviewing and understanding Form 990, it builds trust both internally and externally. This transparency reflects a commitment to honesty, integrity, and good governance practices, qualities that are essential for long-term success.

While it may seem tempting to restrict access to donor information in Schedule B of Form 990, doing so undermines the important role that your board plays in the governance of your nonprofit organization. Board members need to review the entire form to fulfill their fiduciary responsibilities, ensure compliance, and maintain transparency. Avoiding this step can ultimately damage the organization’s reputation, weaken donor trust, and leave the nonprofit vulnerable to regulatory scrutiny.

For the sake of good governance, accountability, and public trust, it’s best practice to ensure that your board reviews Form 990 in its entirety before filing it. By doing so, you protect the long-term integrity of your nonprofit and strengthen its position for future growth and success.