Key Considerations for Audit/Finance Committee Review of Form 990

With the public availability of the Form 990, most nonprofit organizations and their audit/finance committees (or in some cases the governing board), have adopted the best practice of reviewing the 990 in detail.  Considering that the Form 990 also requires a description of the review process in Schedule O, this best practice is all but mandatory and is important to ensure that the governing body is financially responsible with the donors’ money and that the organization’s expenses are in line with their mission.

When reviewing Form 990, the governing body or committee should be asking questions such as:

• Is the mission statement on the 990 accurate?
• Do the program descriptions accurately reflect the activity of the organization?
• Can significant decreases or increases on page 1 of the 990 be explained?
• Does the checklist of required schedules contain answers that are a surprise?
• Do the questions on governance, management and disclosure contain answers which indicate the organization is well governed and has adopted the proper policies?  Does Schedule O accurately reflect the required descriptions for this process?
• Does the list of officers, directors and key or highly compensated employees who served at any time during the year seem complete and accurate?
• Does the overall compensation for the highest paid individuals appear reasonable and within expectations?
• Is the amount of gross unrelated business income disclosed on page 1 and in the statement of revenue a significant portion of total revenue?  If so, this can be a possible exemption issue and should be discussed with your legal or financial advisor. 

Additionally, the governing body or committee should also be asking the following questions to ensure their nonprofit is tax compliant:

• If the nonprofit is a 501(c)(3) or 501(c)(4) organization, does the total of program expenses in relation to total expenses indicate an organization which efficiently utilizes its funding on its mission?
• If the nonprofit is a 501(c)(3) publicly supported organization, is the public support percentage on Schedule A       comfortably above the 33 1/3 percent level required to maintain public charity status? If required to complete Part III, is the investment income percentage well below the required 33 1/3 percent level?
• If your organization receives audited financial statements, is the note from the financials about uncertain tax positions included in Schedule D, Part XIV? Does the note contain any disclosure of uncertain tax positions?
• If your organization is involved with foreign activities or grant-making, has Schedule F been prepared? Is there a note that describes a well-maintained monitoring process for foreign grants?
• Have there been any transactions with interested persons?  Has Schedule L been prepared to disclose these transactions?
• In addition to various required notes on Schedule O, are there additional disclosures that should be made to explain any other items on the return?
• Is there any disclosure anywhere on the return, including attachments, that contains personal information about individuals, including Social Security numbers?

We encourage the governing body or committee to thoroughly review the Form 990 and ask any other questions that may come up.