Establishing a Form 990 Review and Approval Process
Many nonprofit organizations treat the annual Form 990 filing like a sprint at the end of a long 5K race. After the year is completed and the audited financial statements finally appear, the rush to get the Form 990 assembled and filed too often becomes a hectic “mad dash.” Formalizing the process for review and final approval of the Form 990 before filing will help to avoid mistakes, better reflect current conditions, and show the organization in the best possible light.
The Form 990 can be the perfect ambassador for making a good first impression by telling the unique powerful story of your organization, showing off your key programs and activities, and displaying how your organization delivered on its mission. The Form 990 is also excellent for demonstrating your organization’s commitment to sustainability, financial health, continuity, and transparency.
Unfortunately, many Form 990s are filed with poorly written disclosures that are outdated, missing a compelling message, and are not aligned with the organization’s culture and commitment to transparency. This results in a negative first impression that senior management and the Board are not paying attention to the Form 990 and, worse, don’t care about the well-being and reputation of the organization.
These problems are exacerbated by the rushed manner in which many organizations approach the final review and approval process before filing of the Form 990. This hectic “mad dash” approach leaves too little time to optimize the descriptions related to mission and programs and the many other important governance and operational details that speak volumes about the organization’s culture and commitment to transparency.
A robust Form 990 approval process that is well documented with clearly defined action steps will ensure that the good story of your organization is on full display each year. Following these six simple steps will make adopting an approval process for your Form 990 easy with no heavy lifting. It's all about awareness, the calendar, and getting a few key players involved in the process.
Step one is to recognize that your organization may not have a formal approval process for the Form 990, or that the approval process in place may be incomplete and not consistently applied.
Take a moment to assess the Form 990 approval process from the last two years, asking yourself the following questions:
Are there set procedures and are they documented in the accounting policies and procedures manual and have they been consistently applied?
Are the approval process steps adequate to ensure a compelling Form 990 is completed each year and are key leadership positions included such as the CEO, Board Chair, CFO, and Treasurer?
Are other key positions such as marketing directors, key program directors, and/or community relations directors involved in the approval process to ensure a consistent, complete, and compelling story is being told?
Step two is to establish a starting point for the Form 990 approval process.
I recommend starting the approval process after the first draft of Form 990 is received from the auditor or tax preparer. At this point, the financial results will have been entered from the audited or other year-end financial statements alongside the non-numerical information (names, addresses, answers to questions, and Schedule O disclosures) from the prior year Form 990. This allows you to concentrate your attention on updating and aligning these non-numerical answers with the numbers from the current financial statements.
Step three is to assign responsibility.
The choice here is between assigning responsibility to a small group of individuals vs. a formal body like the finance committee or the Board. I favor assigning a small group of individuals that includes representation from senior management, staff, and the Board. Be thoughtful with the selection. I usually recommend selecting the CEO/Executive Director (representing the overall organization), the CFO/Director of Finance/Controller (representing financial and compliance), and the Chair of the Board or Treasurer (representing the Board and Board officers). Larger organizations should consider pulling in select other staff positions covering marketing, communications, community relations, major programs, and such to help make sure the programs and operations of the organization are displayed in the most meaningful and compelling way.
Step four is to set a timeline.
A well-defined timeline helps to set expectations and avoid misunderstandings. The timeline starts with step two above: the date the first draft of Form 990 is expected to be received. Include in the timeline regular status notifications and reminders along with the due date for questions and proposed edits. Also, include in the timeline any special tasks that may be assigned such as communicating with the tax preparer. Conclude the timeline with the expected date all proposed changes must be provided to the tax preparer.
Step five is to consider how to answer the questions on page 6, Part VI, Section B (Policies), lines 11a and 11b of the Form 990.
It is important to carefully review these questions and the related IRS instructions to make sure the answers are accurate and updated to reflect the organization’s actual current policies and procedures.
Line 11a asks: “Has the organization provided a complete copy of this Form 990 to all members of its governing body before filing the form?”
The IRS instructions for line 11a provide clarifying guidance:
“Answer ‘Yes’ only if a complete copy of the organization's final Form 990 (including all required schedules), as ultimately filed with the IRS, was provided to each person who was a voting member of the governing body at the time the Form 990 was provided, whether in paper or electronic form, before its filing with the IRS. The organization can answer ‘Yes’ if it emailed all of its governing body members a link to a password-protected website on which the entire Form 990 can be viewed, and noted in the email that the Form 990 is available for review on that site. However, answer ‘No’ if the organization merely informed its governing body members that a copy of the Form 990 is available upon request. Answer ’No’ if the organization redacted or removed any information from the copy of its final Form 990 that it provided to its governing body members before filing the form. For example, answer ‘No’ if the organization, at the request of a donor, redacted the name and address of that donor from the copy of its Schedule B (Form 990), that it provided to its governing body members. Under those circumstances, the organization may explain on Schedule O (Form 990) why it answered ‘No’ to line 11a.”
This question can best be viewed from a transparency perspective, providing an opportunity to show that the governing body is being fully informed. It is important to note that a complete and unredacted Form 990 must be provided to all voting members of the governing body before filing to answer “Yes.” Note also that an organization must answer “No” if it declined to provide any part of Form 990 to the Board or other governing body, including, for example, any donor names and addresses or other information in the Schedule B. However, the IRS instructions provide an insightful suggestion, explaining that in this instance, a Schedule O disclosure could be included that explains that all parts of the Form 990 were provided to the governing body except for certain donor information.
Line 11b goes in a more general direction: “Describe on Schedule O the process, if any, used by the organization to review this Form 990.”
The IRS instructions for line 11b explain this question as follows:
“Describe on Schedule O (Form 990) the process, if any, by which any of the organization's officers, directors, trustees, board committee members, or management reviewed the prepared Form 990, whether before or after it was filed with the IRS, including specifics about who conducted the review, when they conducted it, and the extent of any such review. If no review was or will be conducted, enter ‘No review was or will be conducted.’
Like line 11a, treat this question as having a transparency perspective. Note the words “if any” in the IRS instructions. An organization is not strictly required to have a Form 990 review and approval process, but having one and providing a well-crafted description in Schedule O of each step in the review process will reflect positively, showing that the organization has strong operational and governance practices.
Step six is to document and codify the procedures discussed in steps two to five.
This can be done through a formal governance policy, by including details in the organization’s accounting policies and procedures manual, or both.
Planning Tip – Consider adding Form 990 annual training for management, staff, and the Board. Reviewing how to read and better understand the key components of the Form 990 will enhance the prospects for future Form 990s to be complete, confident, and compelling. Annual Form 990 training will also help mitigate past Form 990 challenges that may have caused late filings or last-minute filings to occur.
There are many benefits to establishing a formal review and approval process for the Form 990. Chief among these is raising awareness of the Form 990’s important role as a highly visible ambassador for the organization, telling a story that truly reflects the accomplishments of the organization and how, through the hard work of the staff, senior management, board, and volunteers, the mission is advanced and vital services are provided.
