"What keeps me awake at night?"
That was the question we asked ourselves in developing topics for a lunchtime seminar we held in February. While I am a pretty decent sleeper, I was able to identify a few issues that come across my desk on a fairly regular basis that make me sit up and take notice particularly in regard to compliance issues with the annual Form 990. The Form 990 received a major overhaul by the IRS in 2008 for the first time in 30 years increasing the breath of reporting into organizational policy, governance, disclosure, and compliance. The lists of questions are mind numbing and a simple answer of yes or no will often lead to completing an additional schedule or providing descriptive detail. Gone are the days when the Board Treasurer or Executive Director just signed and filed the 990. There are two issues I often get vague responses on our questionnaire and for which I would like Boards to consider developing strong(er) procedures:
1. Part VI Section B Line 11 “Has the organization provided a copy of this Form 990 to all members of its governing body before filing the form? Describe in Schedule O the process, if any, used by the organization to review this Form 990.”
This is a great time for the Board to discuss the process. Who should review the Form 990? Is it enough for the Board to be emailed a copy once it is approved by the Treasurer or Finance Committee? Does there need to be a formal presentation of the 990 at a Board meeting with documentation in the minutes?
2. Part VI Section B Line 15 “Did the process for determining compensation of the following persons include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision? a. The organization’s CEO, Executive Director, or top management official; b. Other officers or key employees of the organization. If ‘Yes’ to line 15a or 15b, describe the process in Schedule O.” I have seen very few strong compensation policies and processes. Take this question to the Board or Executive Committee and say, this is what the Form 990 is asking. Is our process sufficient or do we need to do more?
These are two issues that a Board can address within their review of Policies and Procedures. Other concerns I have regard the public support percentage on Schedule A and Unrelated Business Income (UBI) of over $1,000. The later was a topic of discussion at a breakout session at the AICPA Not-for-Profit Industry Conference I had the privilege to attend several years ago. There is a tendency to regard UBI as evil and undesirable when there are situations where the cost of filing a Form 990-T and paying the tax is minimal compared to the revenue stream generated. A historic home generates income by renting out the gardens for wedding and receptions. It is not a part of their mission, but the net income generated (after paying the requisite taxes) provides funding for programming and operations in a tough economic times. Are you wondering about public support percentage mentioned earlier? Your Form 990 preparer will complete additional schedules to determine income or revenue that are excluded from the calculation made on Schedule A. If you notice a downward trend in your percentage over time, you need to ask why. If it drops below 33 1/3 % your organization is at risk of losing its nonprofit status. And that should be keeping you awake at night!
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