1. Provide Oversight and Accountability
While nonprofit staff or accountants typically prepare Form 990, the board’s oversight role is of utmost importance. The board is responsible for ensuring the accuracy, completeness, and consistency of the form before submission, aligning it with the organization’s financial reports. This crucial task underscores the board’s integral role in the organization’s operations.
How to Get It Right:
- Regular Reviews:Schedule time for the board to review key financial statements and governance practices throughout the year, not just during tax season. Frequent reviews help ensure that everyone is familiar with the organization’s finances before it’s time to file.
- Audit Committees: Many nonprofits establish an audit or finance committee that works closely with the accounting team to review financial reports and ensure that the 990 aligns with these records.
2. Ensure Transparency and Compliance
The IRS requires specific information on governance, such as details about board members, conflict of interest policies, and executive compensation. The board must ensure these governance disclosures are accurate and transparent to avoid red flags during IRS reviews.
How to Get It Right:
- Update Policies: Ensure that your organization’s governance policies, such as conflict of interest or executive compensation policies, are regularly reviewed and updated. Keeping policies up-to-date makes filing more manageable and ensures that Form 990 reflects current practices.
- Document Board Actions: Keep clear records of board meetings, decisions, and policies throughout the year. These records can be crucial when preparing Form 990 and demonstrating that the board provides active governance.
3. Participate in Financial Planning and Review
The board’s role in financial oversight is not just about review, but also active participation in the organization’s financial planning and review. Since Form 990 includes detailed financial information, the board provides financial oversight and reviews the organization’s budget, expenses, and revenues, making them feel involved and engaged in the organization’s financial health.
How to Get It Right:
- Regular Financial Reporting: Boards should receive regular financial updates from the executive team or finance director. Financial reporting helps ensure that the numbers on Form 990 match the financial performance throughout the year.
- Ask Questions: Board members should ask questions about any financial figures that seem unclear or inconsistent. Active engagement and scrutiny during the review process can prevent errors that raise red flags with the IRS or funders.
4. Stay Informed About Changes to IRS Requirements
Given the IRS’s regular updates to its requirements and the filing process for Form 990, it’s crucial for nonprofit boards to stay informed about these changes. This vigilance is key to ensuring the organization’s full compliance.
How to Get It Right:
- Ongoing Education: Invest in regular training and updates for the board on IRS requirements and changes to Form 990. Partner with nonprofit tax professionals who can advise on best practices.
- Consult Professionals: If your nonprofit’s financial activities are complex, consider hiring a nonprofit accounting firm or tax consultant specializing in Form 990 to ensure compliance with all IRS requirements.
3 Major Tips for Ensuring a Flawless Form 990
- Plan Ahead: Start the 990-preparation process early by keeping accurate, up-to-date yearly records. Planning ahead ensures that the filing process is smooth and prevents last-minute stress.
- Use the Expertise of a Finance Committee: If possible, form a finance or audit committeewithin the board that can provide specialized oversight of the organization’s financial management and compliance efforts.
- Invest in Professional Guidance: Don’t hesitate to seek professional assistance if your organization’s finances are complex or the board lacks IRS reporting experience. Working with a nonprofit consultant or tax advisor can help ensure accuracy and compliance.
Conclusion
The board of directors ensures that a nonprofit’s Form 990 is accurate, timely, and transparent. By providing oversight, reviewing governance and financial details, and staying informed about IRS requirements, board members can protect the organization from compliance issues and reinforce its commitment to transparency. A well-managed 990 filing keeps your organization in good standing with the IRS. It strengthens your credibility with donors, funders, and the public.