Have you ever been asked to review a draft of your Form 990 only to wonder what it is you should be looking for? You’re not alone. Think of this review like an annual physical.
Let’s imagine that you’re the doctor, your organization is the patient and your 990 is the medical chart. It’s your job to ask a series of questions to, in essence, assess the overall financial health and wellness of the organization. This is what your chart looks like:
Pages 1-2: Basic Information –Verify that you have the most current information for the organization, including contact details, mission statement, exempt purpose and major accomplishments.
Pages 3-4: Patient History – This portion is similar to the list of generic questions a nurse asks you before the doctor enters the room. You’re looking for a simple yes or no answer, which will help you, the doctor, determine where to look a little deeper.
Pages 5-8: Preventative Care – These pages tell you if the organization needs any preventative care. For example, did your organization receive a donated car, was compensation reasonable compared to the position and number of hours worked, does the organization have well-written policies in place to monitor these transactions and are they enforced? If any questions are raised during this portion of the exam, it’s likely that your organization will benefit from taking some preventative measures to avoid a larger crisis later on.
Pages 9-12: The Assessment – Now, after addressing these routine questions, it’s time to move on to the exam. Just like a doctor would use a stethoscope to ensure that air is moving effortlessly though the patient’s lungs, you want to make sure that money is moving in and out of your organization easily – which points to optimal health.
Your Prognosis Is In
After you complete the review, focus on the following areas:
- Revenue sources. Most of your revenue should be program-related or generated by donations and grants. Typically, less than 15 percent of an organization’s revenue should come from unrelated sources.
- Expense types. More than half of your expenses on page 10 should be program-related.
- The little details. Sometimes, just paying attention to your patient is enough to diagnose the problem. For example, if you remembering postponing your family’s annual vacation in June to help with a golf outing, but page 9 doesn’t show any fundraising revenue and expenses, something is amiss.
- The yesses. Remember those yes or no questions you asked on pages 3 and 4? Follow-up with the “yes” responses to learn more about the organization’s unique needs, challenges and initiatives. Schedules A-R of Form 990 are designed to promote transparency and draw out these details.
The exam is over now it’s up to you to either make sense of your findings and make an assessment, or ask further questions. and you are ready to deliver your assessment.
If you’re ever asked to review a 990, look at it in smaller parts instead of one big document, and it will be easier to understand the importance of each section and get a clear picture of your organization’s wellness.
If you want to learn more ways to simplify your organization’s filing requirements, email Rea & Associates.
By Katie Brown, CPA (Zanesville office)