This is a guest post by Amanda Duff, Campus Recruiter for Lindsay & Brownell, LPP
Nonprofit organizations are stewards of public funds. This behooves officers and board members to be informed and educated regarding the rules for utilizing those funds, to maintain appropriate records, and to report to government agencies to demonstrate compliance.
Not everyone is an accountant, nor is it efficient for everyone to review the transactions that make up the numbers reported on the returns in detail. If the financials were subjected to an audit, you can reasonably rely on the auditing accounting firm and the audit committee regarding the actual numbers reported; however, there are several areas that require attention so that the tax return can fulfill two of its primary purposes – compliance and marketing.
The Form 990 is a tool for the IRS and Attorney General to facilitate compliance for tax exempt organizations. The form is set up to help non-profit organizations stay compliant or helps organizations identify areas where they may have compliance issues.
Checklist of Schedules
The third page of Form 990 (Part IV) is a checklist of required schedules. This list is a helpful tool to alert you to areas where issues could arise or where further disclosure may be required. If you read anything on the tax return pertaining to compliance, you will want to read through the questions in Parts IV, V and VI.
This could provide some insight regarding the most common oversights or pitfalls, which include reporting transactions with related parties or failing to file a required form or schedule.
Tell your Story – Form 990 as a Donor Marketing Tool
When a sophisticated donor is considering a contribution to your organization, the Form 990 is one document that they will likely be evaluating when making their decision. If you were a potential donor and looked at the tax return alone, would you be motivated to donate to the organization? When deciding this, what are you looking at? Hint: It’s not all in the numbers.
Page 1 - Summary
This page is a quick snapshot of the organization. It provides a concise mission statement and a summary of financial activities and overall financial health. Are the financial activities and net assets positive? Are the net assets declining?
Part III - Program Service Accomplishments
This section should be read word for word. You should question if this section highlights all of the great work that was done during the year.
This section lists several best practice policies that are not IRS required policies, but may alert a donor to red flag areas.
If you want to drill in on what makes up the summary information reported on page 1, you can get a good idea about the bottom line.
Public charities are required to be publicly funded. The Public Support Test is shown on Schedule A and is an indicator of an organization’s viability as an organization supported by a broad base of funding sources. To qualify as a public charity, an organization must be at least 33% publicly funded.
Officer and director compensation is a hot topic for donors. The amounts reported are important, but equally important is a description of the compensation policy to give these numbers context.