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As a trustee, you are a steward of public funds.  This behooves you to be informed and educated regarding the rules for utilizing those funds, to maintain appropriate records to demonstrate compliance with those rules, and to report to government agencies to show that you are in compliance.

Usually Form 990 reports a process by which the board reviews the filing.  This generally implies that every board member is representing that the information reported on the return is accurate.

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 a board member’s attention so that the tax return can fulfill two of its primary purposes – compliance and transparency on the organization activities.


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 accomplish what is arguably their primary goal: to help non-profit organizations stay compliant or help 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

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 to donate.  This is an area where board members can really add value.  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 assetspositive?  Are the net assets declining?

Part III – Program Service Accomplishments

This section should be read word for word by every board member.  You should question if this section highlights all of the great work that was done during the year.

  • Are there measurable outcomes that can be showcased?
  • Does the return “tell your story” and really demonstrate what the organization is doing?
  • Is everything described consistent with what you know about the organization and consistent with what’s on the website?
  • Are all of the programs described consistent with the organization’s charitable purpose (this was reported with the original application for exempt status)?
  • Are there any typos?
  • Is it too wordy and preventing a potential donor from getting to all of the “good stuff”?

Part VI, Section B – Policies

This section lists several best practice policies that are not IRS required policies, but may alert a donor (and an auditor) to red flag areas.  For example, a donor may not want to contribute to an organization that does not have a conflict of interest policy.

  • Can the organization say yes to all of the questions asking if certain policies are in place?
  • Are these policies communicated and enforced, or is this the first you have heard about them?

What’s in the numbers?

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 by looking at the following:

  • Part VIII – How much revenue was brought in?  Is there unrelated business revenue?
  • Part IX – How much of total expenses went to programs versus management or fundraising?

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.

A side by side comparison to similar organizations may also shed some light on potential issues, such as expense allocations or compensation amounts.

If you have any questions about this please call your L&B professional at 858-558-9200.

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