What to consider when reviewing Form 990

Susan Lebbon, The Daily Record Newswire

Given the transparency and public availability of the Form 990, review of the Form 990 by audit or finance committees (and sometimes the entire governing body) has become a best practice adopted by most nonprofit organizations.

The Form 990 requires a description of the review process and the IRS, in a preliminary study of audited charitable organizations, has concluded that nonprofits with a review process are more likely to have better tax compliance.

The following is a non-inclusive list of questions that a governing body or committee should be asking in its review process:

• Is the mission statement on the Form 990 accurate?

• Do the program descriptions really reflect what the organization has done in the past year? Do they contain enough information so that the reader can see the extent of the organization’s programs?

• If there are significant increases or decreases in year-to-year comparative line items on the page one summary, what is the reason for the changes?

• Does the checklist of required schedules contain answers that are a surprise?

• Do the questions on governance, management and disclosure contain answers which indicate that the organization is well governed and has the proper policies in place? Are all required descriptions for this page included on Schedule O and are they accurate and complete?

• Is the listing of officers, directors, key and highly compensated employees complete and accurate reflecting anyone who served on the governing body or as an officer at any time during the year?

• Does the overall compensation for the highest-paid individuals appear reasonable and in line with your understanding of what those individuals are paid?

• Is the amount of gross unrelated business income disclosed on page one and in the statement of revenue a significant percentage of total revenue? If so, this can be a possible exemption issue and should be discussed with your financial or legal advisor.

• If the nonprofit is a 501(c)(3) or 501(c)(4) organization, does the total of program expenses in relation to total expenses create the appearance of a well-run organization which efficiently utilizes its funding on its mission? Are fundraising expenses too high in relation to program expenses? Or do fundraising expenses appear too high or too low in relation to the amount of contributions reported?

• If the nonprofit is a 501(c)(3) publicly supported organization, is the public support percentage on Schedule A comfortably above the 33 1/3 percent level required to maintain public charity status? Has it shown a dramatic decline from the prior year? If required to complete Part III, is the investment income percentage well below the required 33 1/3 percent level?

• If your organization receives audited financial statements, is the note from the financials about uncertain tax positions included in Schedule D, Part IV? Does the note contain any disclosure of uncertain tax positions?

• If your organization is involved with foreign activities or grant-making, has Schedule F been prepared and does it look reasonable? Is there a note that describes a good monitoring process for foreign grants, if applicable?

• If you know of any transactions between the organization and various insiders or their companies, has Schedule L been prepared to disclose these transactions?

• In addition to various required notes on Schedule O, do you feel that there are any additional disclosures that should be made on this schedule to further explain any items on the return? Schedule O may be used for any note you may wish to include.

• Is there any disclosure anywhere on the return, including attachments, that contains personal information about individuals, including Social Security numbers which should not be included for public review? The IRS has reported that a fairly high percentage of Forms 990 have been found to include such information.

There may be many other questions that a board or committee member may wish to ask about the Form 990, depending upon the organization’s circumstances and the information presented on the form. Many organization boards, committees and management may benefit from having their outside accountants present a draft of the Form 990 either in a live meeting or conference call to answer any questions about the Form that the board/committees might have.

The review of the Form 990 is an important responsibility of a nonprofit board to ensure that it accurately and completely reflects the organization and the information presented to the public.


Susan Lebbon, CPA, is a senior manager at Mengel, Metzger, Barr & Co. LLP. She may be reached at slebbon@mmb-co.com


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