“Who am I?” by Richard Schatzberger

February 19, 2017; Denver Post

Every year, nonprofit organizations must submit their informational returns to the IRS in the form of a 990 or 990-EZ. Although these forms are sent to the IRS, they are also available to the public on a number of websites, including GuideStar. Additionally, nonprofits are required to provide them upon request. Given the competitive funding environment, philanthropic organizations should see the 990 as an opportunity to promote their work to potential donors.

Recently, the Nonprofit Quarterly offered a webinar identifying pitfalls and red flags nonprofit organizations can avoid when filling out their returns. In that webinar, Chuck McLean of GuideStar discussed the areas within the form where the IRS, reporters, and donors tend to look to determine whether or not a nonprofit is on the up-and-up. McLean also explained that the facility all interested parties have in interpreting these reports and red-flagging them in terms of potential problems should be a wakeup call to nonprofits. Quite simply, he said, these are arguably your most public-facing documents and they grow ever more accessible—so why aren’t you paying much attention to them?

The webinar was meant to serve as a guide to improving both the reporting and the actual behavior of the nonprofit. In some cases, problems lie in the substantive issues you are accurately reporting, in which case the form can act as a reminder to the board to make changes. In others, it’s the sloppiness and the disregard of the form itself that are at issue.

Bruce DeBoskey, a philanthropic strategist with the DeBoskey Group, recently described the Form 990 in the Denver Post as a “treasure trove” of information for potential donors. This is particularly true when donors examine it over multiple years. In his excellent article, DeBoskey identified 16 areas of interest:

  • Current tax status
  • Mission statement
  • Revenue received and from what sources
  • Internal expenses, including program, accounting, management and fundraising expenses
  • External fundraising expenses
  • Legal and accounting expenses
  • Net assets and cash reserves
  • Investments
  • Use of program-related investments
  • Identity (and salaries) of board members
  • Salaries of key employees
  • Key programs as well as expenses associated with each program
  • Significant changes in financial condition
  • Conflicts of interest among professional and staff leadership
  • Important governance policies and practices that demonstrate use of best practices in nonprofit management
  • Lobbying activities

Many of these areas are financial in nature, but others, as you will note, describe the management processes and the heart of the organization and its work. Yet, these sections in particular are rarely utilized to their full potential.

One of the first sections of the 990 has a place for the nonprofit to provide its mission. Although the form offers adequate space, many nonprofits provide only a cursory mission statement. Taking the time to provide a more accurate and complete mission educates potential donors on how the organization’s overall services remedy a critical need. Additionally, a strong mission statement sets the tone and encourages donors to continue their examination instead of flipping to the next return.

The 990 also has a section where nonprofits can describe their major programs. The webinar outlined the IRS’s expectations for this section, including numerical outcomes and short- and long-term goals. Using this space to its full potential is particularly important for nonprofits with more complicated programs and services, but few make the effort to provide this type of information.

Another area that rarely receives attention from nonprofit leaders is the board and key staff listing. It is not uncommon for nonprofit leaders to forget to give their tax preparer an updated list of board members. Without an updated list, donors comparing multiple years may be apprehensive over the lack of transition or overly concerned if the board list on the website differs substantially from the one in the last available 990.

In many instances, the picture shown by the financial sections of the 990s is incomplete. For example, consider organizations receiving multiyear grant disbursements, transactions with related or “interested persons,” or the case of embezzlement. The 990 provides specific sections to comprehensively explain these situations to the IRS and potential donors.

Finally, the 990 asks if the nonprofit has policies related to whistleblowers, conflicts of interest, and document retention and destruction. Although they are not required, these are best practices. Not taking the time to develop and execute these policies can be a signal of a looming catastrophe, or at minimum a lack of attention to good governance.

By the way, foundations, too, are required to fill out a Form 990, one which includes a complete list of grants—critical information for nonprofits seeking funding.—Gayle Nelson