We may not think about it on a daily basis, but the Form 990 is an important part of the nonprofit sector! Jim Quaid, CPA, Director at Ostrow Reisin Berk & Abrams, Ltd. (ORBA) Certified Public Accountants, has some thoughts on common mistakes in completing the Form 990, and red flags that can be the tip of the iceberg for greater organizational issues.
Jim will share more insights at a free half-day workshop, "Understanding Your Form 990", Wednesday, April 22, 2015 from 9-11a.m. at North Park University. The workshop is free, but RSVPs are required! Get more information and register for this workshop.
Q. What is one common mistake nonprofits make in completing their Form 990?
A. Since Form 990 is open for public inspection and is often used by donors and funders, prospective donors and funders, members, other organizations, watchdog agencies, media, etc., one of the most common oversights we see is that organizations often do not consider Form 990 as a tool or resource to help “tell its story”. Often times a draft of Form 990 is only reviewed by an organization’s CFO, CEO, and the Audit/Finance Committee and they may focus their review to make sure the numbers are correct. We recommend that organizations request their development and program departments to review at least some of the sections of Form 990, to make sure the return is accurate in its disclosures and also that it summarizes the year’s accomplishments and shows how the organization differentiates itself from others. Areas of Form 990 to review include: Part I Line 1 (organization’s mission or most significant activities), Part I Line 6 (total number of volunteers), Part III Line 1 (organization’s mission), and Part III Lines 4a-4c (a description of the organization’s program service accomplishments for each of its three largest program services).
Q. What are some red flags that catch your attention on the Form 990?
A. Some common “red flags” we see when reviewing Form 990 include one or more of the following:
- Part I Line 6 – none or low number of volunteers listed
- Part III Lines 4a-4c – a generic description of the organization’s program service accomplishments that does not “tell a story”
- Part V Line 1a and Line 2a – no indication of the number of 1099s and W-2s issued during the year
- Part VI Line 1a and Line 1b – a low number of board members and/or a low number of independent board members
- Part VI Line 8 – no documentation of board meeting minutes
- Part VI Line 11 – a copy of Form 990 is not provided to the board before it is filed with the IRS
- Part VI Line 12 – no written conflict of interest policy and/or no required annual disclosure and/or no consistent monitoring and enforcement of the conflict of interest policy
- Part VI Line 13 and Line 14 – no written whistleblower policy or no written document retention and destruction policy
- Part VI Line 15 – failure to document a rebuttable presumption of reasonableness of compensation by establishing a review by independent persons, using comparable data, and documenting the decision
- Part VII – failure to include all board members, even if a member served just one day during the year, as well as all officers including the top management official and the top finance official
- Schedule O – missing an opportunity to elaborate on an answer and/or to provide a more thorough description of something that could be misinterpreted without added disclosure
Q. What is an accountant’s role with an organization as it pertains to the Form 990?
A. The organization’s outside CPA can assist in the preparation of an organization’s Form 990. However, just as with the audited financial statements, Form 990 is the responsibility of the organization. Ultimately, it is the organization (through a signing officer) that is responsible to make sure the return has been examined and that it is true, correct, and complete. As a best practice, we recommend that a draft of Form 990 should always be reviewed and approved by management and the Audit/Finance Committee prior to finalizing the return.
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