Financial Oversight: A Learner’s Approach to reading Form 990

by Mar 17, 2021

As a Social Impact Professional with years of experience in Social Research and Development, a field that was completely new to me was Board and Governance. I came across this area of study during my Masters in Nonprofit Management at Columbia University. I have been working with Boards for a year now as a Consultant. Being an inquisitive learner with an analytical mind, I have this tendency to ask questions and dig deeper into subjects. And this investigative brain led me to prepare a set of questions that I would ask as a new nonprofit board member who has absolutely no experience in reading or understanding form 990, one of the most important resources which provide a snapshot of the nonprofit’s activities for that year.

As a board member, it is critical to understand and fulfill the board’s obligations by objectively evaluating the information provided to us, overseeing financial matters of the organization, and making decisions in the best interest of the organization. As a new board member who has no prior experience on board, I have tried to make the process of financial oversight efficient by addressing major points and right questions in an uncomplicated and layman approach. The first step of this process is “reviewing financial documents” and form 990 is the foremost one.

High-level overview

  1. Are all the parts fully completed? Are all the questions answered correctly?
  2. Parts IV, V, VI: Are all the questions answered?
  3. Part I, Line 1: Is the mission statement correct and matches?

The Financial information

Part I, contains an overview of revenue, expense, assets, and liabilities as well as some other details.

  1. Lines 3–6: Are the number of individuals reported correct?
  2. Lines 7a and 7b: Does the gross and net amount of unrelated business income reported here match your understanding of the taxable income generated during the tax year?
  3. Lines 8–22: Compare the amounts reported here with the previous year’s tax return.

Programs

Part III: Here an organization can advertise its charitable accomplishments to the general public, donors, and potential donors.

  1. Do the program descriptions give a good summary of your nonprofit’s programs? Check Schedule O for the description of new programs, if any.
  2. Does it reflect the measurable outcomes and impact of the program accomplishments?
  3. Are you being able to align the statement of activities (revenue and expenses) with your nonprofit’s operations?
  4. Part IX, Line 25, column (B): Do the total program service expenses equal the amount reported here?
  5. Part IX: Check and see if the ratio of Program Service to Management and General and to Fundraising reasonable based on your understanding of how your nonprofit uses its resources?

Required Schedules

Part IV: Provides a detailed checklist of supporting documents that may be required depending on the answers given to a list of questions.

  1. Has the appropriate schedule been included with the return for the questions answered yes?
  2. Is Schedule B attached? If not, why?
  3. Does it have a Schedule R? If yes, does it accurately reflect any related or unrelated partnerships through which your nonprofit conducted more than 5 percent of its activities?
  4. Does it have a Schedule L? If yes, does it reflect your understanding of any transactions with the concerned person?
  5. Are you being able to relate to the information that is provided in the various statements with your nonprofit’s activity for the tax year?

Tax Compliance and Governance

Parts V and VI: Part V asks for statements regarding other IRS filings and Tax Compliance. Part VI focuses on who is responsible for governing the organization. This section is financially loaded. I would recommend consulting a finance expert in your nonprofit to guide you through this if required.

  1. Are all the questions answered correctly?
  2. Schedule O: Check for an additional explanation?
  3. Section B: Check if the information about enforcement of conflict-of-interest policy and whistleblower policy is correct.

Organization Compensations

Part VII: This section has information on Compensation of Officers, Directors, Trustees, Key Employees, and Independent Contractors

  1. Part VII: Are all the officers, directors, trustees, and key employees listed?
  2. Column C [Position (do not check more than one box, unless the person is both an officer and a   director/trustee)]: Have appropriate boxes been checked
  3. Does compensation match your understanding of what it should be?
  4. Column F: Are reasonable estimates of other compensation from the nonprofit or related nonprofit organizations reported?
  5. Line 2: Does it reflect an accurate number of individuals receiving more than $100,000 of compensation?
  6. Lines 3–5: Check and see if the answers are correct?
  7. Schedule J: Is it required? If yes, has it been completed?
  8. Section B: Has it been completed for independent contractors?
  9. Part IX: Is total compensation from Lines 6–9 look reasonable?